How state budget crises are putting the squeeze on Medicaid (and you)

Ms. DiVenere reports no financial relationships relevant to this article.

Tough economic times have pushed 2.8 million more people onto Medicaid rolls, now crowded with more than 60 million low-income individuals and families—nearly 20% of the US population.

Because Medicaid is a means-tested entitlement program, states and the federal government must fund as much health care as beneficiaries use, an expense that increases substantially each year.

Through the Medicaid program, more than 30 million adult women have access to an annual gynecologic exam, family planning services, and prenatal care. Without such coverage, many of them would go without care, potentially driving our nation’s health-care costs even higher. Two thirds of ObGyns treat Medicaid patients, and Medicaid accounts for 18%, on average, of an ObGyn practice’s revenue.¹

In this article, I describe how the burgeoning ranks of Medicaid beneficiaries are straining state budgets and prompting legislators to cut provider payments to make up the shortfall. The federal government also plays a role in shrinking reimbursements for physicians and other providers.

Medicaid costs are outpacing economic growth

In fiscal 2011, Medicaid enrollment grew an average of 5.5%, and states are anticipating a growth rate of 4.1% in 2012.² Total Medicaid spending is also increasing rapidly. In fiscal 2010, it was $361.8 billion (excluding administrative costs)—a 6% increase over fiscal 2009. By the end of fiscal 2011, it was expected to hit $398.6 billion—a 10.1% increase over 2010.³

Medicaid costs are also absorbing a greater share of state budgets. In fiscal 2009, they accounted for 21.9% of total state expenditures, 22.3% in fiscal 2010, and 23.6% in fiscal 2011.³ Many states have had to reduce spending in other important areas as a result (TABLE 1).

Medicaid costs are shared by federal and state governments. The federal government pays, on average, 57% of state program costs. In fiscal 2010, the federal government covered 64.6% of all Medicaid costs.

State general funds at the end of 2011 were well below their pre-recession levels, due to lower revenues and increased expenditures, including continued obligations for state workers’ pensions and retiree health care. At the same time, 49 state governments are required to balance their budgets. As a result, states are likely to face austere budgets for at least the next several years, and will continue to make difficult spending decisions.

As state and federal budgets face pressure to reduce overall spending, Medicaid lies in nearly all budget crosshairs.

TABLE 1

Medicaid absorbs an ever-greater percentage of state expenditures

The fiscal health of Medicaid matters—here’s why

Twelve percent of women 18 to 64 years old rely on Medicaid for health-care coverage, and three quarters of all adult Medicaid beneficiaries are women. Sixty-nine percent of women in the 18- to 64-year-old age group are in their reproductive years. Medicaid pays for 42% of all births in the United States—as many as 64% of all births in Arkansas and Oklahoma.⁴

Medicaid covers essential well-woman care, including maternity care, breast and cervical cancer screening and treatment, care for disabled women, and family planning.

Medicaid is the largest source of public funding for contraception and sterilization services, covering 71% of these costs. States clearly find it in their best interest and the best interest of public health to encourage use of family planning, which can improve women’s health and reduce the number of unintended pregnancies and abortions. In 2010, 27 states extended family planning coverage to women whose incomes, while still low, were higher than the standard Medicaid eligibility requirements.

Many states cover nutrition and substance abuse counseling, health education, psychosocial counseling, breastfeeding, and case management. TABLE 2 on page 16a lists mandatory and optional Medicaid services.

TABLE 2

Benefits of the Medicaid program