NCPA - National Center for Policy Analysis


February 20, 2006

With Medicaid costs now consuming about 17 percent of state general-fund budgets and rising at more than twice the rate of inflation, state governments are scouring the health program for savings to protect their bottom lines. But changing a safety net for 52 million poor and disabled Americans involves delicate trade-offs -- and political risk, say observers.

As Medicaid consumes a rising share of state budgets, governors and legislators are experimenting with different approaches to curbing costs:

  • Missouri imposed stricter eligibility requirements, increased cost-sharing among recipients, disbanded some programs and voted to end Medicaid in 2008.
  • Florida received a federal waiver to create a defined-contribution plan where Medicaid recipients will get a fixed amount of money for health care through a managed care organization.
  • Vermont accepted a $4.7 billion cap on federal expenditures for Medicaid over the next five years.
  • Tennessee overhauled its TennCare health care program and eliminated about 300,000 adults from the Medicaid program and reduced benefits to others.

Some health-care experts argue that benefit changes themselves can't solve the long-term Medicaid problem. Instead, they say, health care costs overall need to come down so that more employers offer insurance and individuals can afford to buy their own policies.

Moreover, changes aimed at low-income individuals may not deal with the biggest driver of Medicaid costs: long-term care for a relatively small number of elderly and disabled beneficiaries. About 4 percent of Medicaid recipients account for half the program's expenditures, according to the Kaiser Family Foundation.

Source: Deborah Solomon, "Wrestling With Medicaid Cuts: States Face Difficult Choices Amid Shrinking Federal Funds," Wall Street Journal, February 16, 2006.

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