It's Official: Medicaid Spending Spirals Out of Control

BALTIMORE--The Centers for Medicare and Medicaid Services warned policymakers late Friday that Medicaid spending is projected to grow much faster than the economy over the next 10 years. With expenditures headed toward $5 trillion over the decade, agency officials said, now is the time to rein in costs.

While the news about the federal-state health care program isn't exactly unexpected, a new report compiled by the CMS Office of the Actuary--the first such report in Medicaid’s 42-year history--confirms the budget crunch both the U.S. and state governments have been battling and warns it will get worse. According to the report, Medicaid benefits spending will increase 7.3 percent from 2007 to 2008, peaking at $339 billion, and will grow at an annual average rate of 7.9 percent through 2017 to hit a high of $674 billion. That rate is far beyond the general economy’s current annual growth rate of 4.8 percent.

Medicaid benefits spending over the next 10 years is projected to total $4.9 trillion, according to the report.

“This is an urgent reminder that the current spending path of Medicaid is unsustainable,” said Kerry Weems, CMS acting administrator, during a media conference call.

Mike Leavitt, Department of Health and Human Services secretary, presented the report Friday at a 4 p.m. meeting of the National Association of State Budget Officers. “We must act quickly to keep state Medicaid programs fiscally sound,” he said. “If nothing is done to rein in these costs, access to health care for the nation’s most vulnerable citizens could be threatened.”

The increased expenditures will be fueled by growing enrollment and other factors, said Rick Foster, CMS chief actuary.

“The growth differential reflects a growing number of people covered by Medicaid; it also reflects growth in prices paid in the health care sector, as well as new, more complex [services],” Foster said.

The earlier the issues are dealt with, the more options policymakers will have, Foster said.

Unlike Medicare and Social Security, Medicaid is not tied to a trust fund, so solvency is not an issue, he noted. Still, if left to spiral higher and higher, Medicaid expenditures could imperil both federal and state budgets.

“Medicaid is the largest source of general revenue spending on health services,” Foster said. On average, he said, the federal government pays about 57 percent of a state’s Medicaid bill, while the state pays the other 43 percent.