Spending on Medicaid increased a mindboggling 344 percent between 1990 and 2007, according to a new S&P analysis. The paper raises one counterintuitive point: Despite advocates constant fear of federal cuts, any changes to Medicaid financing policy in Washington tend to mean more money for the program, not less. Washington does tinker with how the program is paid for, but it tends to be a good thing for states. Here’s what that looks like in a chart:
“Federal matching support, which has largely kept pace with the program’s growth, has somewhat insulated state finances from the overall growth of Medicaid,” S&P analysts write, in a paper that focuses on why Medicaid won’t bust states’ credit ratings. “During recessions, state finances have historically been even further shielded from bearing the full costs of increased Medicaid utilization.”
This runs counter to a lot of what Medicaid advocates fear: Changes to federal policy could greatly reduce spending on the entitlement program. But to S&P’s point, that hasn’t happened lately. The automatic cuts in the deficit reduction deal do not touch the entitlement program. Even when the supercommittee was negotiating, Medicaid managed to lay relatively low, dodging cuts in many of the proposals.
This doesn’t necessarily make funding Medicaid easy for states: State spending on the program has increased, on average, by 10.1 percent between 2010 and 2011, according to the National Association of State Budget Officers. Many states are freezing or reducing how much they pay Medicaid doctors. But if the federal government hadn’t kept increasing it’s Medicaid spending, state budgets would’ve been squeezed considerably harder.