Medicaid Spending Up, Growth of Economy Down

According to a new report released by CMS, Medicaid spending will significantly outpace the growth of the U.S. economy during the next 10 years. Medicaid benefit expenditures are projected to reach $339 billion in 2008 and more than $673 billion by 2017.

The report, "2008 Actuarial Report on the Financial Outlook for Medicaid," (40-page PDF; About PDFs) predicts that Medicaid costs will grow by about 7.9 percent each year, compared with an annual average gross domestic product growth of 4.8 percent.

Actuary Christopher Truffer, F.S.A., led the team that produced the report. He told AAFP News Now that CMS' Office of the Actuary would produce the report annually in the future.

The report raises the issue of sustainability for both Medicaid and the entire U.S. health care system, said Truffer. "How much can we as a society afford to spend on health care? How much should we spend on health care? How much should public programs, such as Medicare and Medicaid, spend?" are among questions that should be explored, he said.

The answers, he said, will come from policymakers and the American public. He called the Medicaid report significant because it lays the facts out on the table for discussion. "Our goal is to inform that sort of discussion by increasing the understanding and awareness of the history and projected trends of health care spending."

Actuaries calculated average Medicaid enrollment in 2007 at 49.1 million people. However, they noted that at some point during that year, 61.9 million people -- or about one out of five individuals in the United States -- were enrolled in Medicaid.

The report estimates that Medicaid enrollment will increase at an average annual rate of about 1.2 percent per year for the next decade and will reach 55.1 million enrollees by 2017.

There are numerous reasons for the surge in Medicaid costs -- as well as the cost for all health insurance, public and private -- according to the report. Reasons include the number of people insured; an increase in wages and price inflation in the medical sector; the provision of a wider array of health care services; and the development of more complex and expensive medical services.

The actuarial report also calculates that Medicaid

In a statement attached to the report, CMS Chief Actuary Richard Foster pointed out that since its inception in 1965, the Medicaid program has "generally increased at a significantly faster pace than the U.S. economy."

He added, "Determining how to optimally balance our collective demand for the best health care possible with our not-unlimited ability to fund such care through private and public efforts represents one of the most challenging policy dilemmas facing the nation."

According to a CMS press release, the report, which was the first fiscal report on Medicaid, was released by HHS Secretary Michael Leavitt at a meeting of the National Association of State Budget Officers, or NASBO, on Oct. 17 in Washington.

In the same release, NASBO projected that state spending on Medicaid will increase by 4.4 percent from 2008 to 2009, or four times the growth rate of the average state general fund.

Unlike Medicare -- which has a trust fund and is funded primarily through payroll taxes -- Medicaid is funded through a federal/state partnership. Federal payments cover about 57 percent of Medicaid costs, and individual states pick up the rest.

Stacey Mazer, senior staff associate at NASBO, told AAFP News Now that state budget officers attending the recent NASBO meeting were "extremely happy to see these issues brought to the table and highlighted in this document." State budget officers will deal with the current downturn in the economy as they have in the past -- by enacting cost-containment measures, she added.

"They're going to have to go through this period again of examining all state programs (including Medicaid) and then come up with strategies to maintain their balanced budgets," said Mazer. In 2003, virtually every state reported looking at extreme measures to lower Medicaid costs, including provider reimbursements and drug costs, recalled Mazer.

Historically, spikes in Medicaid enrollment have been cyclical and tied to events such as national upticks in employee layoffs and the subsequent loss of employer-provided health insurance, said Mazer. Based on recent informal surveys conducted by NASBO, "we're anticipating that we'll start seeing that enrollment spiking up again," she said.