Nurse measuring blood pressure of senior man at home. Smiling to each other. Home care.
Health care in the United States is expensive. Health insurance premiums and out-of-pocket costs continue to rise, driven largely by higher prices at hospitals and other health care providers. The costs of the two big government programs—Medicaid for lower-income people and Medicare for the elderly—also continue to rise. Recent research from Pew Charitable Trusts finds that since 2000, states are devoting more of their revenue to Medicaid. If costs don’t come down, states are at risk of having Medicaid spending overrun the rest of their budgets.
In 2000, states spent about 12% of their own revenue on Medicaid. Since then, the share has increased to over 17% (figure below), driven mostly by increases in enrollment. According to Pew, more than twice as many people were enrolled in Medicaid in 2017 than in 2000. Some of this increase was driven by job losses due to the recessions of 2001 and 2007 – 2009, which caused incomes to fall and made more people eligible for government assistance. State spending did not increase significantly until 2011, however, since the Federal Medicaid matching rate was increased in 2009 and 2010 as part of the American Recovery and Reinvestment Act. Once this rate returned to normal, state spending increased to cover the difference.
average state medicaid spending over time
Another contributor to the enrollment increase was states expanding Medicaid coverage as part of the Affordable Care Act (Obamacare). From 2014 to 2017, 31 states expanded their Medicaid programs to households earning 138% of the federal poverty level. The federal government paid for the entire cost of expansion for the first three years but beginning in 2017 states were required to pay 5% of the cost. The states’ share increases from 5% to 10% this year, which is likely to further increase the percentage of revenue states spend on Medicaid.
This average percentage hides a lot of variation. The states that spent the largest share of their own revenue on Medicaid in 2017 were New York, Rhode Island, Pennsylvania, Missouri, Louisiana, and Massachusetts (figure below). New York spent nearly 30% of its own revenue on Medicaid (black bar), up 2.3 percentage points since 2000 (gray bar). Louisiana and Massachusetts both spent 22% in 2017, but Louisiana’s percentage doubled since 2000 while Massachusetts’s increased by seven percentage points. Only four states had percentages lower than 10% in 2017: Utah (5.8%), Hawaii (8.2%), Nevada (9.4%), and Idaho (9.9%).
Top 6 states medicaid spending
Since 2017, five other states decided to expand their Medicaid programs, bringing the total to 36, while several others are considering expansion. But this data from Pew should give them pause. As Medicaid spending consumes more of states’ revenue there is less to spend on other government goods and services, such as infrastructure, education, and parks.
An example of this is Louisiana, which doubled its share of revenue spent on Medicaid from 2000 to 2017. In a report from the Foundation for Government Accountability that also examines the rising cost of Medicaid to states, the authors note that the share of Louisiana’s budget devoted to education declined by 16% over the same period. A similar 14% decrease in education spending occurred in Alaska as Medicaid spending increased from 3% of its own revenue to 13% according to Pew.
Many argue that health care is vital—even a right—and so expanding Medicaid to more people is the proper thing to do. But governments have a lot of things they can spend money on that improve people’s lives. A good education, for example, typically leads to better job prospects and higher wages. Other research finds that early childhood programs can lead to better adult health outcomes. Good infrastructure—roads, highways, ports, telecommunications—improves the economy by making it easier to move people, goods, and ideas to where they are most valuable.
Finally, government could reduce spending and lower taxes, putting more money back in the hands of people who spend or invest it, creating jobs in the process, or donate it to charity. This option is especially relevant to high-tax states like New York that are losing residents to lower-tax states like Florida. Even New York Governor Andrew Cuomo recognizes that his state’s tax code hurts its ability to attract businesses, resulting in less economic growth and fewer job opportunities for residents. While Governor Cuomo and other officials may be tempted to raise taxes to cover rising Medicaid costs, this would only make the problem worse.
Officials and voters in states considering expanding Medicaid need to consider these trade-offs. Such trade-offs are necessary because of scarcity: There are an unlimited number of things to spend money on but only a finite amount of resources. If money is spent on one thing, it can’t be spent on another. For example, expanding Medicaid may require more nurses, but a person who works as a nurse can’t be a teaching at the same time.
The only way to get more of everything is to figure out how to do more with less, which means increasing productivity. Expanding Medicaid does nothing to address the underlying productivity or supply problems in health care, many of which are caused by government regulation.
State certificate-of-need laws artificially restrict the number of hospitals, MRI machines, and other pieces of medical equipment, limiting access and raising prices in the process. Scope-of-practice restrictions in many states prevent nurse practitioners from using all their skills and know-how to treat patients, often as effectively as doctors, but at a lower cost. Telemedicine—when patients visit doctors via video, phone call, or text—is another way to expand access to care and lower costs, but again, many states restrict it. Medicaid expansion merely doubles down on this unsustainable status quo.
Health care is important and the U.S. health care system needs improvement. Medicaid expansion, however, doesn’t do anything to change the current system. Improving the system requires real reforms that increase productivity and lower costs, and until they occur, Medicaid is likely to continue eating into state budgets and crowding out other government goods and services.