2006 October 28 Saturday
Tax Revenues Outpace Medicaid Costs First Time Since 1998

US state tax revenues managed to grow faster than the Medicaid program costs for the poor medically uninsured for the first time since 1998.

WASHINGTON, DC – State revenues increased faster than Medicaid spending for the first time since 1998, according to a new 50-state survey released today by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured (KCMU). The survey finds that an improved economy combined with the implementation of the new Medicare prescription drug benefit has contributed to a 2.8 percent growth rate in Medicaid spending for state fiscal year (FY) 2006 – the lowest rate of growth in a decade and the fourth consecutive year in which Medicaid spending growth has slowed. (See Figure 1 below.)

There's an interesting graph at the URL showing that in 2002 Medicaid costs grew 12.4% while state revenues declined 7.8%. State revenues also declined in 2003. Hard years for the states.

Medicaid is one of the government programs that subsidize employers who use low skilled imimgrants - both illegal and legal - as well as the children and grandchildren of those immigrants. The market price of labor understates the real cost of low priced labor for this and other reasons (e.g. schools, prisons, police).

Growth in employment helped reduce the growth in demand for Medicaid.

Positive economic conditions also contributed to a slowdown in Medicaid enrollment growth, which in turn helped reduce spending growth. The 1.6 percent enrollment growth for FY 2006 is the lowest rate since 1999 – nearly half the 3 percent growth predicted by Medicaid officials for the year. “When the economy improves, it is natural for Medicaid spending and enrollment growth to subside because fewer people turn to the program for assistance,” said Diane Rowland, executive vice president of the Kaiser Family Foundation and executive director of KCMU. “But with the continued growth in the uninsured population, Medicaid remains on the frontlines for coverage for low-income children and adults.” Looking forward to FY 2007, the survey finds a handful of states (5) plan to restrict eligibility while over half (26) plan to restore cuts from previous years, expand to new populations, or make positive changes to Medicaid’s application and enrollment process. Additionally, states are contemplating new options and implementing new requirements created by the passage of the Deficit Reduction Act (DRA) this year, although few have used the flexibility to change benefits and cost sharing requirements for FY 2007.

Medicaid is one of the unfunded entitlements that the US federal government forces on the states. Part of the Medicare drug benefit cost was also foisted on the states. I'm amazed I've never read this before.

The budget survey of state officials, conducted by KCMU and Health Management Associates for the sixth consecutive year, found that the spending growth of 2.8 percent would have been even lower (1.7 percent) had states not been required to finance a portion of the new Medicare prescription drug benefit via what is known as a clawback payment.

In 2007 Medicaid costs will grow more rapidly and likely once again outpace state tax revenue growth.

Despite the slowed growth, state Medicaid officials indicate that growing health care costs and the erosion of employer-sponsored health coverage are two reasons that overall pressure to constrain Medicaid spending has not subsided. In fact, based on budgets states adopted for FY 2007, Medicaid spending growth is projected to increase to 5 percent next year.

When the US goes into its next recession the gap between Medicaid cost growth and revenue growth will probably match the 2002 pattern. A downturn will lead employers both to lay off and also to cut medical benefits for those employees they keep. The trend of medical costs rising faster than inflation is going to end up hollowing out other functions of government while also driving up taxes.

The rise in the number of medically uninsured does not just increase the cost of government programs for the poor. Medical uninsurance also causes rising cost shifts onto the medically insured. This is one reason why raises haven't kept up with inflation for many workers. Employers are instead spending more on medical insurance. Immigrants have especially high rates of medical uninsurance. The lower skill level of illegal immigrants especially drives up the number of medically uninsured. We pay for this while a small fraction of the business owners derive big benefits at our expense.

Share |      By Randall Parker at 2006 October 28 08:14 PM  Economics Health

John S Bolton said at October 28, 2006 11:57 PM:

If medical expenditures are $6,000 per person per year, and over-65's get half of this, that leaves $3,000 a year for everyone else.
If an immigrant comes in and makes the median income of foreign-born, $16,000, how will his taxes cover the implicit premium of around $3,000 a year, as above, even if he has no dependents?
When the labor force participation of foreign-born is scarcely higher than that for the total population of around 50%, an immigrant will most often not be a worker, but all of them get a medical insurance policy of sorts, worth thousands per year in implied premiums.
The incentive for employers to throw their costs onto others when they can, as in this case where the left and the moderate right are tolerant or enthusiastic about bringing in low-income immigrants, is a vicious problem.
Normally business owners are net taxpayers, sometimes the only one of any size in a jurisdiction, so that they can see that their interest is not in encouraging those on net public subsidy to migrate to such a place.

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