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poverty efforts generally. For example, it dis-

ments to providers, reducing eligibility and

benefits, and increasing patient copayments.8

courages self-help. Medicaid is a means-test-

ed program; if an individual's income exceeds

All states have reduced provider payments and

a certain amount, that person loses eligibili-

access to prescription drugs. Two-thirds of

ty. Thus, poor recipients may fail to climb

states have restricted eligibility or benefits. In

out of poverty if it would mean losing

particular, Tennessee governor Phil Bredesen

Medicaid benefits, which average more than

(D) is attempting to cut 323,000 people from

that state's TennCare program.9 Mississippi

$6,000 per beneficiary. Likewise, individuals

who are not poor may allow themselves to

has sought to eliminate eligibility for 65,000

Medicaid beneficiaries.10 Missouri plans to

fall into poverty to obtain Medicaid subsi-

dies. Finally, the tax burden Medicaid impos-

remove 90,000 beneficiaries from its Medicaid

rolls11 and has gone as far as to sunset its

es on near-poor individuals--which includes

Medicaid program in 2008.12 Half of the states

Medicaid's effect on the cost of private med-

ical care and health insurance--may frustrate

plan to cover their shortfall by increasing taxes.

the efforts of those who want to lift them-

Such measures are likely to continue.

selves out of poverty. (The taxes required to

Medicaid spending continues to grow faster

finance Medicaid may also discourage work

than all other state budget items and now

on the part of other taxpayers.) Forgone self-

accounts for more than 21 percent of state

spending.13 The National Association of

help efforts are an important unseen cost of

Medicaid.

State Budget Officers estimates that total

Just as Medicaid's means-tested subsidies

Medicaid spending reached $309 billion in

discourage self-help generally, they discour-

2004, surpassing elementary and secondary

age other efforts to provide medical care to

education as the largest item in state budgets

(see Figure 1).14 That organization reports,

recipients (and potential recipients). This

effect is typically referred to as "crowd-out" of

"Even after a full economic recovery is under-

other efforts. For instance, eligible individuals

way for state budgets, increases in Medicaid

may rely on Medicaid to finance their medical

costs will far outstrip the growth in state rev-

enues into the future."15

care rather than take steps (such as mutual

aid or purchasing private health insurance) to

In its budget for fiscal year 2006, Congress

cover their own medical expenses. Likewise, in

will grapple with runaway Medicaid costs.

most cases, the availability of matching feder-

Congressional Republicans have pledged to

Medicaid's most

al funds encourages states to increase medical

reduce Medicaid spending by $10 billion, or

assistance to the poor. However, states can use

just less than 1 percent, over the next five years.

obvious effect is

Medicaid revenue to displace effort they

Congress also created a Medicaid Advisory

the access to

would otherwise exert themselves. Individuals

Commission to make recommendations by

medical care it

who are not poor may reduce charitable

September 1, 2005, on how to attain those

efforts to provide medical care to the needy

short-term savings. That commission is fur-

provides its

because they believe the problem to be taken

ther charged with making recommendations

beneficiaries.

care of or because Medicaid's total tax burden

"that ensure the long-term sustainability of

makes them less able to donate. In those and

the program." Those recommendations are

However,

due by December 31, 2006.16

other ways, Medicaid crowds out potentially

Medicaid imposes

more efficient ways of targeting resources to

a number of

the identified need.

Medicaid's Unseen Costs

Many of Medicaid's unseen costs are spe-

unseen costs

cific to in-kind programs. These include

associated with

costs that stem from the overuse of medical

Medicaid's most obvious effect is the

care, increasing costs for private payers, and

access to medical care it provides its benefi-

anti-poverty

giving Medicaid patients poorer-quality care

ciaries. However, Medicaid imposes a num-

efforts.

than they could obtain with private coverage.

ber of unseen costs associated with anti-

4