A Review of the Medicaid Program
Its Impact in Washington State and Efforts at Reform in Other States
May 2009
Introduction
The Medicaid program began in 1965 with the passage of title XIX of the
Social Security Act. It has always been an entitlement, with no defined limit on
the number of beneficiaries or the cost of the program. As long as a person meets
the legal criteria for participation in the program, that person receives Medicaid
benefits, regardless of total cost. From the beginning, a link was established
between Medicaid eligibility and the welfare program, Aid to Families with
Dependant Children (AFDC). Medicaid is now the largest health insurance
system in the United States and is the largest means-tested health care program in
the world.
The cost of Medicaid is shared between federal and state governments. Each state receives federal money on a sliding scale based on average personal income, with poorer states getting a higher percentage of federal funds. At present, the average match for Medicaid spending is 57% in federal money and 43% in state funds. Medicaid spending is now the fastest growing line item in virtually every state in the country. In 2006, Medicaid spending accounted for 23% of the average state budget.
Total spending on Medicaid in Washington State was $4.13 billion for fiscal 2008. Not counting the federal stimulus package, this number is projected to increase 4.7% to $4.32 billion for fiscal 2009. The contribution from Washington State taxpayers for both years is 48% of the total which is higher than the average of 43%.
According to the National Association of State Budget Officers, Medicaid costs will grow much faster than state revenue growth for the foreseeable future, meaning the program will take up an ever-growing share of state budgets. For 2007, Medicaid expenses for federal and state governments combined were $336 billion. This number is projected to reach $523 billion by 2013, a 56% increase in just six years.
Unless rates of spending slow down, Medicaid spending will double by 2017. At an average growth rate of eight percent a year, Medicaid is the fastest growing federal entitlement program. Without changes made to current policies, the non-partisan Congressional Budget Office estimates that the Medicaid program alone will account for almost six percent of the nation’s Gross Domestic Product by 2017.
This paper briefly discusses the history leading up to the passage of the Medicaid program, outlines the original features of the program, and broadly describes the changes made to the program over the last 43 years. The paper then reviews the Washington State Medicaid program, the various plans in other states, and changes being made at the federal level. The study concludes with a discussion of potential reform measures that would control Medicaid costs and help make the program financially sustainable into the future.
Key Findings
• Medicaid is an open-ended entitlement with no defined limit on the number of beneficiaries or cost
• Medicaid is a state/federal partnership which encourages states to spend more on the program to receive the federal match
• Unless rates of spending slow down, Medicaid spending will double by 2017. At an average growth rate of eight percent a year, Medicaid is the fastest growing federal entitlement program
• The total spent on Medicaid in Washington in fiscal year 2008 was $4.13 billion, with a projected 4.7% increase to $4.32 billion in 2009
• Medicaid has expanded from covering children and their families who earn up to 133% of the Federal Poverty Level to, in some states, families who earn up to 300% of the FPL
• Medicaid has never been subjected to meaningful national reform, although several states have new plans with potentially successful reforms
• Medicaid has encouraged overutilization of health care resources without real evidence of improving health of the poor
Recommendations
• Health savings accounts for Medicaid recipients
• Pursue fraud aggressively
• Tighten eligibility requirements (at least back to the original 133% of the FPL)
• Block grants to the states
• Freeze funding at 2005 or even 2007 levels
