By Martha Heberlein

There are some pretty persistent rumors floating around out there regarding state budgets and the growth in Medicaid spending. The optimist in me wants to view these rumors as mere “misunderstandings,” an ill-informed look at the data, and not political posturing meant to frame a highly successful program in a negative light. So in the hopes of quelling those rumors with a little bit of education, let’s take a look at some of the facts:

Myth: The recent growth in Medicaid spending is unprecedented.

Fact: In FY2010, Medicaid spending increased 8.8% on average. While this increase represented the highest rate of growth in eight years, it was far less than the double-digit growth rates during the previous recession of 2001 and 2002. In fact, while total (federal + state) spending increased, state spending declined by 7.1%. (This is the second year in the history of the program in which state spending for Medicaid declined – the other year – FY2009.) This decline in state spending, a result of the temporary increase in federal assistance provided through the American Recovery and Reinvestment Act (ARRA), means that states spent less of their own funds in 2009 on Medicaid than in 2007 despite covering an additional 6 million people since the start of the recession. State spending will increase after fiscal relief ends, but for now, Medicaid and fiscal relief are working exactly as intended.

Myth: Spending in Medicaid will continue to experience rapid growth.

Fact: As long as health care costs continue to rise, costs in Medicaid will as well. But, the main driver of spending growth right now is enrollment. Medicaid is designed to be counter-cyclical, meaning that as the economy worsens, enrollment and spending should increase more rapidly, as more Americans lose their jobs and the employer-based coverage that comes with them. But as the economy turns the corner, and families regain their economic footing, enrollment and spending growth will likely ease. In the last recession, spending increased rapidly, but then as the economy improved spending growth declined to record low of 1.3% in FY2006.

Myth: State spending in Medicaid is preventing the state from funding other areas.

Fact: As mentioned above, state spending in Medicaid has actually declined in the last two years thanks to ARRA. Not only was the additional federal support used to address budget shortfalls in the Medicaid program, averting benefit and provider rate cuts that otherwise would have been much deeper, but states also reported using the enhanced Medicaid match to address overall budget shortfalls. As opposed to “crowding out” other spending, the additional Medicaid funds actually helped states avoid cuts in other state services.

Myth: The only way to address budget shortfalls is through cuts and the maintenance of effort requirement (MOE) leaves states with very few options.

Fact: The MOE requirements in ARRA and the Affordable Care Act do prohibit states from making cuts to eligibility and imposing red tape that makes it harder for eligible people to sign up for coverage. As a result of this restriction, a number of states have taken actions to slow the growth in spending by decreasing provider payment rates or reducing optional benefits. States are also turning increasingly to simplifying enrollment processes, changing delivery systems changes, and instituting quality initiatives in the hopes of saving money and improving outcomes. But it is also important to remember that there are two sides to a balanced budget equation – spending and revenues. Thirty-three states have taken a balanced approach by cutting spending and raising revenue in response to the current downturn and in at least one state, Oregon, the increase was passed by the voters themselves.

Now it is true that states continue to expect growth (although much slower) in enrollment and spending in Medicaid in the next year. At the same time, revenues are not expected to fully rebound for a while. Although states can count on increased federal support through July 2011, they will face some difficult budget decisions ahead. Let’s hope they take a balanced approach and make decisions that protect Medicaid’s successful track record of providing coverage to those in need, exactly as intended.