States Still Recuperating, Outlook is Positive

By Tara Mancini

The National Association of State Budget Officers just released their Fall 2011 Fiscal Survey of States.  We have become accustomed to reading about Medicaid as one of the big-ticket items in state spending.  While some detractors have reasoned that increased spending is emblematic of a broken program, NASBO gets it correct by attributing increased enrollment during a weak economy as the largest driving factor.  Other contributing factors include a loss of enhanced federal matching funds due to the expiry of recovery (ARRA) funds, and the overall increase in health care expenditures.

The good news is that growth in Medicaid enrollment is decelerating, as state budgets continued to rebound in FY 2011 compared to the previous two budget years.  Revenues and state balances were up again and mid-year budget cuts were reduced significantly.  So far, things are also looking up for enacted FY 2012 budgets.

In 2012, state general fund revenues are projected to grow for the third consecutive year, resulting in an increase of $10 billion (1.5%) over FY 2011.  Although, due to the large loss of revenues in FY 2009 and 2010, states are still only expected to collect $21 billion, or 3.1% less than they did in FY 2008.  General fund spending on Medicaid is expected to grow a little more than $19 billion, an increase that accounts for just 2.8% of the enacted FY 2012 budgets.

Despite reduced federal matching funds for Medicaid, states appear to be in decent shape.  Enrollment is estimated to increase by only 4.1% in FY 2012, a decrease of 3.1 percentage points from its growth in FY 2010.  In addition, the number of states having to make mid-year budget cuts dropped from 39 states in FY 2010 to 19 states in FY 2011 (so far this fiscal year, just two states have done so).  Yet, we know that a number of states have recently tried to control Medicaid costs by cutting benefits, enrolling beneficiaries in managed care, and reducing provider rates, all of which have the ability to reduce patients’ access to vital health services. 

Not surprisingly, states still have an uphill battle in addressing fiscal issues, as the economic recovery remains weak.  But to keep things in perspective, the share of state general funds allocated to Medicaid is estimated to have increased just 1.4 percentage points from FY 2008 to FY 2011, despite the enrollment growth.