NCPA - National Center for Policy Analysis


March 1, 2010

The Medicaid program to provide health coverage for low-income people began in 1965 with the passage of title XIX of the Social Security Act.  It has always been an entitlement, with no defined limit on the number of beneficiaries or the cost of the program.  As long as a person meets the eligibility requirements for participation in the program, that person receives Medicaid benefits, regardless of total cost to taxpayers, say Dr. Roger Stark, a policy analyst, and Colin Swanson, a research assistant, both with the Washington Policy Center. 

From the beginning, a link was established between Medicaid eligibility and the welfare program, Aid to Families with Dependent Children (AFDC).  Medicaid is now the largest health insurance system in the United States and is the largest means-tested health care program in the world, say Stark and Swanson. 

The cost of Medicaid is shared between federal and state governments.  Each state receives federal money on a sliding scale based on average personal income, with poorer states getting a higher percentage of federal funds, say Stark and Swanson.  For example: 

  • Alabama and Arkansas receive 69 percent and 73 percent federal funding respectively, whereas a number of wealthier states receive the minimum of 50 percent of federal money for their Medicaid match.
  • At present, the average match for Medicaid spending is 57 percent in federal money and 43 percent in state funds. 

Other findings: 

  • Medicaid spending is now the fastest growing line item in almost every state budget; in 2006, Medicaid spending accounted for fully 23 percent of the average state budget.
  • When enacted in the mid-1960s, Congress estimated Medicaid would cost around $500 million the first year; the actual cost was double that, $1 billion.
  • By 1970 the cost of the program had grown to $5 billion; in the years following the cost of Medicaid ballooned, reaching a total of $336 billion a year by 2007. 

Since the 1980s, Washington state officials have manipulated the federal program to receive extra matching money.  Washington state's proposed provider tax and the proposed "bed tax" on nursing homes are examples of how state officials adopt policies in an effort to leverage more federal funding from the Medicaid program.  Since Medicaid is an entitlement with no statutory limit on spending, there is no limit to how much state officials can try to gain from the program, say Stark and Swanson. 

Source: Dr. Roger Stark and Colin Swanson, "State Abuse of the Medicaid Program; How state officials manipulate Medicaid and increase costs to taxpayers," Washington Policy Center, February 2010. 


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