NCPA - National Center for Policy Analysis

Medicaid Funding System Encourages More Spending

November 17, 2014

Medicaid, the government program providing health care to the poor and disabled, was already financially unsustainable before the Affordable Care Act. In 2013, spending on the program increased 6.7 percent, reaching $449.5 billion. This year, however, experts are predicting a 12.8 percent rise in Medicaid spending, thanks to the ACA. Why? John R. Graham, senior fellow at the National Center for Policy Analysis, explains: Obamacare added millions to state Medicaid rolls, and many states have expanded coverage levels to adults up to 138 percent of the federal poverty line.

In 2013, there were 73 million Americans dependent on Medicaid. By 2024, that number is expected to reach 93 million. But Graham notes that Medicaid spending tends to be higher than official projections expect, because federal funding increases as state spending increases. Graham uses the example of California -- if the state spends 50 cents, the federal government gives it 50 more cents. This model encourages states to increase their outlays, as they're matched with federal dollars.

That problem will only get worse in the states that expanded Medicaid to adults up to 138 percent of poverty. The federal government promises 100 percent funding for the first two years, falling to 90 percent thereafter. Graham expects that state spending will only explode further which such generous federal funding terms. He encourages lawmakers to do away with the federal matching system and replace it with a block grant that allocates dollars to states based on their population size.

Source: John R. Graham, "Medicaid Spending Has Exploded, And It Will Keep Rising Faster Than Expected," Daily Caller, November 12, 2014.


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