Where the Money Goes

Last year Medicaid served a record high number of approximately 60 million individuals at a cost of about a $427 billion to federal and state budgets. Nevertheless, 50 million Americans are still living without health insurance while unemployment rates linger around 10 percent. The major expansions to the Medicaid program by the Affordable Care Act (ACA) are scheduled for 2014. In the meantime, states are struggling to finance their current Medicaid programs and to cope with increasing enrollment, as the enhanced federal support by the American Recovery and Reinvestment Act (ARRA) approaches expiration this coming July.

But before getting caught up in the details of the current debate, it’s important to get a grasp of the program.

Elderly and Disabled People

The elderly and disabled account for the majority of Medicaid spending. In 2007, 10 percent, or 5.8 million enrollees, were elderly, accounting for 25 percent of annual Medicaid spending, or $75 billion. Since Medicare does not cover institutional care, Medicaid is the largest source of public assistance for nursing homes. In 2009, Medicaid paid for 40 percent of all nursing home spending in the US.

In addition, 20 percent of people in the U.S. with severe disabilities receive Medicaid. Fifteen percent of enrollees are disabled, accounting for 42 percent, or $126 billion annual spending.

The elderly and disabled represent the highest and costliest use of acute and long-term care services. In 2009, average spending per elderly or disabled enrollee was five times more than for other Medicaid enrollees.


All states offer needy children coverage either through Medicaid or the Children’s Health Insurance Program (CHIP), which insures children with family incomes above the threshold for Medicaid. In 2007, 49 percent of Medicaid beneficiaries were children, accounting for 20 percent of annual Medicaid spending, or $60 billion. Children under age 19 constituted the largest portion of Medicaid growth from June 2009 to June 2010 – an increase of 54 percent, or 1.8 million new enrollees.

The percentage of eligible children participating in Medicaid or CHIP varies significantly by state, ranging from 55 percent in Nevada to 95 percent in Massachusetts and the District of Columbia. Overall, only 82 percent of eligible children receive public insurance. A major reason that many eligible children are not covered is the often complicated and burdensome process of determining eligibility. This process occurs yearly, and some states mandate it multiple times a year. Many eligible children end up being dropped, often reapplying later on, following a gap in coverage. This is a process called “churning,” which the ACA aims to solve.

State Cuts

Since the program began in 1965, Medicaid enrollment has increased during economic downturns – and the most recent recession is no exception. By the end of fiscal year 2011, Medicaid enrollment is estimated to increase by another 6.1 percent across the country on top of the 17.8 percent, or 7.6 million new enrollees, added during the recession. Though enhanced federal funding through the stimulus bill did help states sustain their Medicaid programs, 46 states have estimated budget gaps will reach $160 billion by the end of the current fiscal year.

Nearly every state has already made cuts to its Medicaid program and is looking to make drastic cuts in Medicaid spending in 2012. But the nature of these cuts is limited by the eligibility and coverage protections put in place by the health care reform law. The Federal government will eventually cover 90 percent of the cost of the planned 2014 Medicaid expansion, but in the meantime states are prohibited from altering Medicaid eligibility provisions if they want to receive that federal funding. This past Sunday governors met with the Department of Health and Human Services Committee regarding the “inflexibility” of such a provision, and to voice a variety of complaints about Medicaid.

Future Cost of Medicaid

The cost of Medicaid currently accounts for 16 percent of national health expenditures, which totaled $2.3 trillion in 2008. According to the most recent National Health Expenditure Projections, from 2014 to 2019, when Medicaid eligibility is expanded to everyone under the age of 65 with incomes of less than 138 percent of the federal poverty line, Medicaid and CHIP enrollment will increase by 21.8 million people, covering a total of 82 million.

However, at this time it seems practically impossible to estimate the future costs of Medicaid. Last June Daniel Callahan posted about the contradictory and ultimately inconclusive predictions of the ACA’s impact on Medicare spending. Current predictions of the ACA’s impact on Medicaid spending fall into this same confusing category. In fact, there is complete disagreement over whether the planned expansion of Medicaid will mean savings or increased spending for the states: estimates range from a nationwide savings of $106.8 billion to increased spending of $20 billion.

Moreover, with the very constitutionality of the ACA expected to be considered by the Supreme Court and Congressional Republicans vowing to fight the ACA by blocking sections of the law or finding ways to cut off funding, it remains unclear how the ACA will finally play out, much less what all of this will mean for Medicaid.

Brittany Rush is an intern at The Hastings Center.

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  1. I value the knowledge on your website. Thank you so much!

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