Opportunities for State Medicaid Reform

Policy Reports | Health

No. 288
Thursday, September 28, 2006
by John C. Goodman, Michael Bond, Devon M. Herrick, and Pamela Villarreal


Medicaid is the largest single expenditure by state governments today.  Health care costs have risen rapidly over the past decade, and the states as a whole now spend more on Medicaid than they spend on primary and secondary education.1   Medicaid and other health expenses account for one in every five dollars of state spending.2  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.3

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

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 of four is spending more than $11,000 on other people's health care - more than many spend on health care and health insurance for their own family.4 

Restraining the growth of Medicaid spending is a fiscal imperative for the states.  However, squeezing payments to providers or limiting coverage is not the best approach.  The best alternative is fundamental reform that introduces competition, encourages private-sector coverage, and allows beneficiaries to make their own choices between health care and other uses of their money.  Incremental steps toward these objectives would benefit Medicaid patients as well as taxpayers.

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

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