NCPA - National Center for Policy Analysis


July 11, 2005

Even though the economy is expanding, companies are hiring and poverty is declining, Medicaid is still growing fast. According to the latest federal estimates, its total cost will rise nine percent this year to $316 billion, says Investor's Business Daily (IBD).

The concept of Medicaid is to fill a need for people who can't afford to pay for medical care and originally it only applied to the cash-poor; now it has widened its reach to include middle-income families, specifically those with parents in nursing homes. With the rising cost of long-term care, the economics of Medicaid and the nursing-home industry have changed.

  • In the 1960s, Medicaid's share of nursing-home costs was close to the level of poverty among the elderly; in 1968, it paid 23.7 percent of nursing-home bills while 25 percent of Americans over 65 were classified as poor.
  • Some 30 years later, poverty among the elderly was sharply lower, at 10.5 percent, but Medicaid still paid nearly half the cost, 46.3 percent, of nursing-home care.
  • Today, its pays the same proportion and two-thirds of the nation's 1.4 million nursing-home residents are Medicaid-funded.

Moreover, it has become a popular and politically hard program to cut. According to a survey by the Kaiser Family Foundation (KFF), nearly 74 percent said Medicaid is "very important" and more than half - 56 percent - said they, their friends or their family members receive Medicaid benefits.

This is bad news for federal and state lawmakers trying to rein in the program, but there are a number of things that could be done to limit eligibility and encourage middle-class baby boomers to buy insurance instead of using Medicaid, says IBD:

  • Recipients could be required to tap their home equity through liens or reverse mortgages.
  • Long-term care premiums could be given more favorable tax treatment.

Source: Editorial, "Morphed Medicaid," Investor's Business Daily, July 8, 2005; and "National Survey of the Public's Views About Medicaid," Kaiser Family Foundation, June 2005.


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