Spending on Medicaid is expected to substantially outpace the rate of growth in the U.S. economy over the next decade, according to a report released by the Centers for Medicare and Medicaid Services.
For both federal and state governments, Medicaid is the largest source of general revenue spending on health services. In addition to that spent by federal and state governments on the State Children's Health Insurance Program (SCHIP), Medicaid benefits spending over the next 10 years is projected to be $4.9 trillion.
"This report should serve as an urgent reminder that the current path of Medicaid spending is unsustainable for both federal and state governments. We must act quickly to keep state Medicaid programs fiscally sound," said Department of Health and Human Services Secretary Mike Leavitt. "If nothing is done to rein in these costs, access to healthcare for the nation's most vulnerable citizens could be threatened."
Projections indicate Medicaid benefits spending will increase 7.3 percent from 2007 to 2008, reaching $339 billion, and will grow at an annual average rate of 7.9 percent over the next 10 years, reaching $674 billion by 2017. That compares to a projected rate of growth of 4.8 percent in the general economy.
Leavitt presented the Medicare Trustees Report at Friday's fall meeting of the National Association of State Budget Officers. The report provides information on the past and estimated future financial operations of the Hospital Insurance and Supplementary Medical Insurance Trust Funds. It contains analysis of past program trends and projections of Medicaid expenditures and enrollment for the next 10 years.
CMS actuaries and economists project Medicaid spending to increase by 6.7 percent per year over the next 10 years, or more than twice the rate of general inflation. Additionally, Medicaid's share of the Gross Domestic Product (GDP) could reach about 3 percent in 2017. The combined share of GDP spending for Medicare and Medicaid is projected to be 6.9 percent by 2017.
As a partnership program, both states and the federal government pay for services to Medicaid beneficiaries. The federal government matches state expenditures based on a formula that yields subsidies ranging from 50 percent to as high as 83 percent. The average federal medical assistance percentage is 57 percent.
Even with federal support, states report they are struggling to meet their share of expanding Medicaid costs. State spending on Medicaid has remained relatively stable as a share of states' budgets, averaging about 20 percent from 1995-2007. However, some states are spending as much as 31 percent of their budgets on Medicaid, according to NASBO.
NASBO is projecting that state spending on Medicaid will increase by 4.4 percent from 2008 to 2009, which would be more than four times the rate of growth in the average state general fund.
"High and increasing Medicaid spending clearly leaves states less able to fund other state priorities," said Acting CMS Administrator Kerry Weems. "This new financial report confirms that America 's healthcare system faces significant fiscal challenges.