July 13, 2006 9:35AM

The Spin on Medicaid

The Administration claimed this week that Medicare and Medicaid spending has slowed, but a close look at the overall picture tells a different story. My colleague Michael Cannon has already posted his opinion about Medicare spending. Here’s the low‐​down on Medicaid.

The official spin:

Medicaid cost projections are once again declining, reflecting … a slowdown in Federal Medicaid spending growth from over 12 percent per year in fiscal year 2000–2002 to 7.2 percent from 2002–2005, down further to 4.6 percent projected for fiscal year 2006–2007.

And the complete story:

Summary budget tables — updated during the release of the Administration’s Mid‐​Session Review of the Budget this week — indicate that federal Medicaid and SCHIP (State Children’s Health Insurance Program – also a part of Medicaid) outlays would grow from $129 billion in 2001 to $213 billion by 2008. That’s a cumulative (geometric) annual average growth rate of 7.7 percent during the Administration’s full tenure. The nation’s Gross Domestic Product, on the other hand, would grow at a much slower pace — just 5.2 percent per year during the same period.

Much of Medicaid spending growth resulted from the substantial surge in enrollments and benefits per enrollee during the aftermath of the 2001 recession. Medicaid outlays would be expected to surge during recessions but should abate when growth picks up. The latter did not occur during the 1991 and 2001 recession episodes. During the later recession, changes in federal regulations made it easier for states to expand coverage to broader groups and claim federal matching grants against such coverage. And evidence from micro‐​data surveys indicates that it was not the poorest groups that received most of the latest increases in Medicaid coverage and benefits.

The reasons for the current slower growth in Medicaid spending are the transfer of the fastest growing prescription drug coverage to Medicare and robust economic growth. However, according to the Administration’s projections, faster Medicaid spending growth – at 7‐​plus percent per year — is projected to resume after 2007.

Providing greater power to states to redesign their programs while persisting with a federal financing mechanism of matching grants (rather than block grants with capped growth) promotes states’ incentives to spend more. That will cause…you guessed it…more spending on our middle‐​class Medicaid entitlement.