As Congress prepares to debate the President's budget and looks ahead to address the growing federal deficit and the future sustainability of Medicare, Medicaid, and Social Security, a new study of future funding requirements for Medicaid by the Kaiser Family Foundation's Commission on Medicaid and the Uninsured (KCMU) projects a less dire situation than suggested by conventional wisdom.
The study, authored by Richard Kronick of the University of California, San Diego and David Rousseau of KCMU and published by the journal Health Affairs today, concludes that expected growth in government revenues is likely to be large enough to sustain Medicaid spending increases over the next 40 years, while also allowing substantial real growth in spending for other public services.
Unlike the annual examination of the long-term financial status of the Medicare program via the Medicare Trustees' report, there has been no comparable careful look at long-term Medicaid spending and the availability of government revenues to support it. This analysis fills that gap by providing a detailed forecast, based on historical trends, of projected spending over the next 40 years, 2005-2045, for Medicaid as currently structured and comparing projected Medicaid spending to projected overall health spending and federal and state revenue growth.
"Even under pessimistic assumptions, the study provides a new perspective on Medicaid's future financing," said study co-author Richard Kronick. "While a substantial component of state government spending, Medicaid is not likely to be the financial burden squeezing out other public priorities that some policymakers fear," he added.
After accounting for demographic and health coverage trends such as an aging population and declines in employer-sponsored insurance, the study finds that Medicaid's share (16.5 percent in 2005) of national health expenditures (NHE) is expected to remain at an average 16.6 percent from 2005 to 2025 and slowly rise to 19 percent by 2045. However, as overall health spending increases as a share of gross domestic product (GDP) from 2005 to 2045, there will be a commensurate increase in the share of GDP Medicaid spending represents, according to the study. The results lead the authors to conclude that "there is little that is special about Medicaid spending: It is likely to increase with health spending more generally, neither much more quickly nor much more slowly."
"As an integral part of the nation's health care system, covering 55 million people, Medicaid experiences the strains and pressures of the overall health system. This first of its kind study of Medicaid makes it clear that the growth over the next 40 years in Medicaid spending will largely be driven by the growth of health spending as a share of the economy. If there is a culprit in the room, it is not Medicaid but ever rising health costs that threaten future sustainability," said Diane Rowland, executive director of KCMU. "Efforts to reduce the growth in Medicaid without shifting costs or threatening coverage will ultimately require better controlling the rate of growth of health spending overall," she added.
How Rapidly Will Medicaid Grow?
Although long-term projections always involve uncertainty, these estimates provide a framework for assessing how future Medicaid spending might be affected by demographic and programmatic changes. The study projects that over the next 40 years, as overall health spending grows, Medicaid will also grow but stay at roughly the same share of national health spending in the coming decades due to three key factors:
- Although many adults are expected to lose employer coverage, few of them are eligible for Medicaid under current rules, and although more children are expected to enroll in Medicaid, the program's low per capita spending for children limits the impact;
- The increase in the number of Medicaid's disabled enrollees drove growth in the program's spending historically, but growth in this population has slowed in the past decade and is projected to remain slow over the next twenty five years; and
- The projections assume that nursing home and home health prices will grow roughly at the rate of growth of wages (which grow far slower than health care spending), meaning that while more elderly people will need long-term care (LTC), Medicaid LTC spending as a share of overall health spending is not likely to increase significantly.
Medicaid's Impact on State and Federal Spending