Medicaid Empire: Why New York Spends so much on Health Care for the Poor and Near Poor and How the System Can Be Reformed

Policy Reports | Health

No. 284
Monday, March 20, 2006
by John C. Goodman, Michael Bond, Devon M. Herrick, Joe Barnett, and Pamela Villarreal


Medicaid is the largest single expenditure by state governments today. Costs rose rapidly over the past decade, and the country as a whole now spends more on Medicaid than it spends on primary and secondary education. 1 We also spend more on Medicaid (mainly for the poor) than we spend on Medicare (mainly for the elderly). 2 Medicaid and other health expenses already account for one in every five dollars of state spending, in addition to the burden on federal taxpayers.3 At the rate the program is growing, it is on a course to consume the entire budgets of state governments in just a few decades.4

It is sobering to realize that Medicaid alone costs more than $1,000 per year for every man, woman and child in the country — or $4,000 for a family of four. Since Medicare costs a comparable amount, the average family is spending about $8,000 on other people's health care — an amount that for many is well in excess of what they spend on health care and health insurance for their own family.

“Medicaid is the largest single expenditure by state governments.”

There is a desperate need to restrain the growth of Medicaid spending. However, squeezing payments to providers or limiting coverage is not the best approach. The best alternative is fundamental reform that introduces choice and competition, and encourages private-sector coverage. Incremental steps toward these objectives would benefit Medicaid patients as well as taxpayers.

This study addresses problems in New York's Medicaid program, surveys promising reforms currently underway in other states, and recommends a number of changes. Because Medicaid is a joint federal-state program, some fundamental reforms will require Congress to address the program's future in a comprehensive way. But New York policymakers can make dramatic changes in program design and cost without new federal legislation.

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