Medicaid and State Budgets: Checking the Facts (Yet Again)

It’s that time of year again.  Estimators publish their projections of Medicaid spending, journalists report on the projections, and policymakers decide whether and how they want to act.  Medicaid covers up to 35 million low-income children, so getting these projections right, and explaining them correctly, is hugely important for public understanding of the program.  Unfortunately, some misleading numbers are still in use. This blog is about one of them: what share of state spending does Medicaid represent?

Let’s start with the projections.  At the federal level, the Congressional Budget Office (CBO) in January projected that federal Medicaid spending will be $406 billion in FY 2019, an increase of 4 percent over the previous year’s $389 billion.  CBO is projecting that federal Medicaid spending will grow by 4 percent through 2021, then by 6 percent per year through 2029. These projected spending increases, like those in Medicare and Social Security, are mostly attributable to the increase in the number of elderly in the U.S. and increases in the costs of the health and long-term care services that Medicaid buys for all of its populations.  

Of course, the federal and state governments share the costs of Medicaid, with the federal government paying, on average, 61 percent to 62 percent of the costs, according to CBO.  

There aren’t any national projections of state Medicaid spending increases (individual states do their own), but the National Association of State Budget Officers (NASBO) conducts a detailed analysis of actual state Medicaid spending, the most recent of which is for the period FY 2016-2018.  That analysis finds that, for FY 2018, state general fund spending on Medicaid accounts, on average, for 20.2 percent of state general fund spending, second to spending on elementary and secondary education (35.8%).

Which brings us to the journalists.  Some have presented a different figure:  “the Medicaid program overall consumes the single largest portion of state budgets, accounting for 29 percent of their total spending on average.”  

This is also a NASBO figure, and it is from the same analysis.  But as a way of explaining state spending on Medicaid, it has been repeatedly debunked, and not just by us.

Eight years ago, the Washington Post Fact Checker has called it “misleading” and rated it “True but False”.

Here’s why.  If you want to know how much of their own money states are spending on Medicaid, you ask how much of a state’s general fund gets spent on Medicaid.  The answer for FY 2018 is 20.2 percent, which is state dollars spent on Medicaid divided by all state general fund dollars. (In FY 2010, which Kessler examined, the answer was 15.4 percent).  NASBO defines state general fund as “the predominant fund for financing a state’s operations. Revenues are received from broad-based state taxes.”

Medicaid spending isn’t just state-only dollars, however.  Medicaid is a federal-state matching program; the federal government matches what the state spends on covered services for eligible individuals at a rate that varies from 50 to 76 percent, depending on the state. Those federal Medicaid matching funds, along with other funds received by states directly from the federal government, are included in the measure of total state spending.  Total state spending includes spending from state general funds, federal funds, other state funds, and bonds.  According to NASBO, federal and state Medicaid spending in FY 2018 accounted for 29.7 percent of total state spending, followed by federal and state spending on elementary and secondary education at 19.6 percent.

There are a number of reasons why Medicaid accounts for such a large share of total state spending.  The basic one, however, has to do with the $389 billion that the federal government spent on Medicaid last year which CBO expects will increase by 4 percent to $406 billion this year.  All that federal money matches state spending and goes directly into state treasuries. There is no other federal program that makes payments directly to states that comes anywhere close in size (according to NASBO, federal Medicaid funds accounted for 58 percent of all federal funds received by the states in FY 2018).   

And just what do all those federal Medicaid funds do?  They help states pay for health and long-term services and supports for over 70 million low-income Americans, including children, parents, pregnant women, individuals with disabilities, and the elderly.  They help states respond to public health crises like the opioid epidemic or lead poisoning in Flint as well as natural disasters like Hurricane Katrina.

And that’s not the half of it.

Without those federal Medicaid matching funds paying, on average, 61-62 percent of the freight, states that want to help their low-income residents with the costs of health and long-term services would have to do so with their own funds—truly a daunting task, given the aging of the population and the relentless increase in health care costs.   It therefore seems bizarre at best, and misleading at worst, to say that Medicaid “consumes” state budgets.

The fact of the matter is that states, on average, spend 20.2 percent of their own funds on Medicaid, and that those funds are a smart investment, especially for children.

 Rating:  True and True.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.