How Much Do States Really Spend On Medicaid?

Residents listen during a public hearing on Florida's new Medicaid overhaul, in Miami Gardens, Fla., on June 16.  The overhaul, championed by Gov. Rick Scott as an attempt to save the state money, still needs federal approval. i i

Residents listen during a public hearing on Florida's new Medicaid overhaul, in Miami Gardens, Fla., on June 16. The overhaul, championed by Gov. Rick Scott as an attempt to save the state money, still needs federal approval. Joe Raedle/Getty Images hide caption

itoggle caption Joe Raedle/Getty Images
Residents listen during a public hearing on Florida's new Medicaid overhaul, in Miami Gardens, Fla., on June 16.  The overhaul, championed by Gov. Rick Scott as an attempt to save the state money, still needs federal approval.

Residents listen during a public hearing on Florida's new Medicaid overhaul, in Miami Gardens, Fla., on June 16. The overhaul, championed by Gov. Rick Scott as an attempt to save the state money, still needs federal approval.

Joe Raedle/Getty Images

July 1 is traditionally the day many new state laws take effect. This year it's also the day the spigot officially turns off for $90 billion that Washington has been funneling to the states since 2009 to help them cope with the ballooning costs of the Medicaid program for the poor.

You don't have to look very far to find a governor complaining about the high cost of Medicaid or what it's doing to his or her state's budget.

"Medicaid is poised to wreak havoc on the state's budget for years to come," Gov. Gary Herbert (R-UT) told a House subcommittee in March, "threatening our ability to fund critical services, such as transportation and education."

"Medicaid costs are getting out of control," said Gov. Rick Scott (R-FL), a former hospital executive who has proposed a dramatic privatization of the program in his state.

Just last week, former congressman and governor Ernie Fletcher (R-KY) told the Senate Finance Committee that "Medicaid has grown to consume about 22 percent of state budgets and will consume about $4.6 trillion of Washington's budget over the next 10 years."

That 22 percent figure is one that gets used a lot. It comes from the National Association of State Budget Officers, which is affiliated with the National Governors Association. The way NASBO arrays the numbers, Medicaid costs states more than education, more than prisons and more than transportation, which tend to be the next most expensive items in states' budgets.

Crunching The Numbers

But is that really the case?

Some Medicaid advocates say no.

"What they're presenting is the total spending that the state does on all of its programs," says Benjamin Sommers, an assistant professor of health policy and economics at the Harvard School of Public Health. "And then it also includes the fact that revenues are coming from a variety of different sources: state funding, bonds and federal spending as well."

And when it comes to Medicaid, he says, those federal revenues account for more than half of the program's funding — even more in poorer states. So what happens to the picture of how much states spend on Medicaid if you subtract out the federal dollars?

"That number drops to about 12 percent," he says. "And the implication here is that states are spending a lot of their money on Medicaid; but they're spending a lot less than they would be, because the federal government is taking up more than half of the tab."

In other words, Medicaid stops being the biggest spending item in state budgets and falls to No. 2 or 3, behind K-12 and higher education.

Sommers and other advocates for the program say there's a reason some people want to make Medicaid look as expensive as possible. It has to do with politics.

"Medicaid is a lightning rod for a lot of the hot button issues, in particular for the ideological right," he says. "So it becomes a potential punching bag for conservatives who are trying to argue that the federal government is overreaching, [that] the Obama administration's health reform is unsustainable, and that the budget numbers just don't add up."

Funding Shifts

But NASBO official Stacey Mazer says the organization has perfectly reasonable, nonpolitical reasons for organizing its numbers the way it does.

For one thing, regardless of where the money comes from, "states are responsible for the prudent spending of all funds in a program."

But even more than that, Mazer says, the amount of money states get from Washington for Medicaid tends to shift over time; the loss of additional money from the expiring stimulus bill is a prime example of how funding fluctuates.

Using total spending helps paint a more accurate picture of the Medicaid program over time.

"And certainly regardless of fund source," she says, "the program is growing similar to health care overall, at an annual rate of growth that exceeds state revenues or national economic growth, which really leads to budget pressures at all levels of government."

All of which means that however you measure it, Medicaid is going to remain a budget issue going forward.

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