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Report: Medicaid costs outpace growth in state revenues

November 30, 2011

States' revenues are expected to increase over the next few years, but a steady increase in Medicaid costs will offset the additional income, according to a report released Tuesday by the National Governors Association and the National Association of State Budget Officers.

The report found that state budgets will increase by 2.9% to $666.6 billion in fiscal year 2012. However, because of increasing Medicaid enrollment and health care costs, state spending on the program is increasing faster than the increase in revenues. In addition, extra federal Medicaid funding through the stimulus package ended this year, resulting in states spending an additional 29% on the program this year.

As a result, rising state revenues likely will be diverted to cover Medicaid spending. According to the report, state Medicaid spending will increase to $19.4 billion in FY 2012, accounting for one-fifth of total state spending.

Officials say the pressure on states from Medicaid is expected to increase in 2014, when the federal health reform law expands program eligibility. According to the Washington Post, although the federal government will cover the cost of individuals who are newly eligible for the program, many state officials expect residents who now are eligible but not enrolled to begin signing up. States will be required to cover a portion of the cost of such beneficiaries (Lahart, Wall Street Journal, 11/29; Fletcher, Post, 11/29).

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