Thursday, July 29, 2010

Answer to question # 8: How are state budgets affected by having to assume about 50% of the cost of Medicaid?

Medicaid, founded in 1965 along with Medicare, provides health care for U.S. citizens and legal immigrants who are under financial duress, with funding shared between the federal government and the states. As of 2008 the federal government funded, on average, about 56% of Medicaid costs with the remainder paid for by the individual states. On average, the states component amounted to 17% of their general fund spending. Eligibility for Medicaid unlike Medicare is relatively complex. Besides poverty other criteria include childhood, blindness, pregnancy, disability, residents of nursing homes and those with HIV/AIDS. In 2007 Medicaid provided insurance for 60.5 million people, including 29.5 million children and 5.6 million adults over age 65 (dual eligible with both Medicare & Medicaid), mostly for nursing home and long term chronic disease care. Medicaid payments subsidize about 60% of nursing home residents and about 37% of all child births. Without significant changes in the program, projections for future Medicaid costs as a percentage of state budgets is expected to reach 35% by the year 2030 (Deloitte Center for Health Solutions – 2010). This projection is based on our aging population (those with dual eligibility) which will require increasing amounts for the care of chronic conditions in both nursing homes and in the community.

This projected large drain on state budgets is due to the unfortunate circumstance we have with our entitlement programs (Social Security, Medicare and Medicaid). They are in effect government sponsored ponzi schemes where one generation, instead of paying for its future care (i.e. with health savings accounts), is dependent on its funding by the succeeding generation. With our aging population and less workers per retiree this method of funding becomes impossible. Another factor is the addition of about 14 million people to the Medicaid roles by the newly passed Patient Protection and Affordability Care Act with the federal government paying 100% of the additional care costs from 2014 through 2016, decreasing thereafter from 95% in 2017 to 90% in 2020. However, the states will have to absorb all the additional administrative costs estimated to be $32 billion from 2013 -2019 (Heritage Foundation Jan 14, 2010 Edmund Haislmaier). With the additional 14 million added to Medicaid, we as a nation are documenting that about 75-80 million Americans not of retirement age (about one-fourth of our total population) live near or below the poverty line. In essence, many, if not most, of this segment of our population lack the skills to be productive in an advanced worldwide economy.

As of 2006 Medicaid costs to state budgets were $100.6 billion, while that of Kindergarten to grade 12, $208.3 billion. The recent recession has significantly increased state expenditures for Medicaid putting a further strain on the ability of the states to properly fund public education. Although both state and federal funding for Medicaid consumes many hundreds of billions of dollars annually, it does not cover provider costs which necessitate cross-subsidization by private health insurance (see question #7).

As state funding is the major source for public education, the need to fund ever increasing Medicaid expenses by the states compromises our ability to adequately educate our young, thereby putting our nation’s future economic well being at risk. An Op-Ed in the Washington Post (Matt Miller, July 24, 2010) documents the recent decrease in the standard of living of many millions of our middle class. This is because post World War II we were the only advanced economy left intact so that the world had to buy from the U.S. There are now many advanced economies in the world and the U.S. is not developing the capital or the properly educated work force to re-industrialize our nation, increase our productivity and thus improve the standard of living for many Americans. We need a massive investment in public education, such as, much greater teacher to pupil ratios, longer school days and a 48 week school year, so that all Americans can participate in an advanced worldwide economy. For the states to afford this expenditure Medicaid would have to become a totally federal program necessitating a much more rational health care system (see question # 2).


Anonymous said...

Which states are going to pay how much?


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