Top 5 Things to Know About Medicaid

December 19, 2012

Three weeks ago we gave you a broad overview of the federal spending programs known as entitlements. We have explained the largest of those, Social Security, and the second largest, Medicare. This week we look at the third, Medicaid.

  1. What Is Medicaid And How Much Is Spent On It? Medicaid pays for health care insurance for low-income individuals. The income threshold and specific benefits for the program are set by each individual state, but broadly the program provides, “Health insurance for low-income families with children and people with disabilities who cannot obtain or afford private-sector coverage; Supplemental coverage for low-income Medicare recipients for Medicare premiums and for services not covered by Medicare; and Long-term care coverage for people of all ages with disabilities.” For fiscal year 2010, federal and state governments spent about $400 billion on Medicaid. Kaiser Family Foundation estimates 63 million Americans are beneficiaries.
  2. How Is Medicaid Funded? The program is funded jointly by the federal government and each individual state government. The federal government finances the program with general revenues. This summer’s U.S. Supreme Court ruling on the 2010 health care reform law allowed states flexibility on the bill’s Medicaid requirements. According to the CBO the decision allowed “states to choose whether or not to expand eligibility for coverage … Under that law as enacted but prior to the Court’s ruling, the Medicaid expansion appeared to be mandatory for states that wanted to continue receiving federal matching funds …”
  3. Will This Program Go Broke Too? Medicaid is funded with general revenues so, insofar as the federal and state governments are going broke, so is Medicaid. Costs for the program are rising. According to the Urban Institute, “Between 2011 and 2020 overall Medicaid expenditures are projected to grow at 8.7 percent per year by the CMS actuaries and 8.1 percent per year by CBO. Increases in overall Medicaid spending will continue to be driven by enrollment growth largely because of the Affordable Care Act.” Indeed, with the mandates passed in the 2010 reform law, enrollment is expected to rise to 27.4 percent by 2019.
  4. Are There Any Proposals To Reform The System? Besides direct cuts to the program or a cut back in services rendered, two reform options are on the table. The Cato Institute explains: “One idea is turn the program into a block grant, which would provide a fixed amount of federal funding to each state. … A block grant would provide strong incentives for states to trim their Medicaid programs, combat fraud and abuse, and pursue more innovative and cost-effective health care solutions. Another idea is to convert Medicaid into a system of direct aid to recipients by means of a voucher or refundable tax credit. … As with block grant reforms, this reform approach would help the federal government control program spending and reduce it over time.”
  5. How Is Medicaid Affected By the Automatic Sequester Cuts? Medicaid is exempt from the sequester spending cuts.

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