Nearly 17 Cents of Each State Revenue Dollar Goes to Medicaid
The share of states’ own money spent on Medicaid health care coverage for low-income Americans fell slightly in the second year of the program’s expansion under the Affordable Care Act (ACA), even as enrollment grew. Still, a post-recession spike in states’ costs persisted. In fiscal year 2015, Medicaid consumed 16.7 cents of each state-generated dollar—4.5 cents more per dollar than in fiscal 2000.
Although every state spent more on Medicaid than in 2000, the effect on their finances has varied after factoring in how much revenue each took in. In 2015, only two states—New York and North Dakota—spent a smaller slice of their own dollars on Medicaid than in 2000, while 10 states spent their largest percentage of any year since 2000.
Increased enrollment has been one of the major drivers of growth in Medicaid spending, with more than twice as many people enrolled in 2015 than in 2000. Because Medicaid is an entitlement program, states must provide certain federally required benefits for any eligible enrollee, with the state and federal government sharing the costs.
From 2000 to 2013, a number of factors drove up enrollment, including two economic downturns, which caused people to lose jobs and associated health insurance coverage, and a gradual erosion of employer-sponsored insurance. In 2014 and 2015, millions more joined the program as the ACA was implemented, but the federal government absorbed most of the associated expense. Changes proposed by Congress in 2017 could significantly affect levels of enrollment and federal assistance.
Medicaid is most states’ biggest expense after K-12 education. States in 2015 collectively spent $211.6 billion of their own resources to provide health benefits for eligible low-income Americans. This was a $9 billion increase from 2014. But because states' revenue rose slightly faster than states’ Medicaid bills, the program accounted for a smaller percentage of state-generated dollars: 16.7 percent—or 16.7 cents of each dollar—compared with 16.8 percent in 2014.
The states’ 4.5 percent spending increase between 2014 and 2015 was small compared with the increase in the program’s total costs. Medicaid spending rose by $57.2 billion—or 11.7 percent—in 2015. This was the largest nominal spending increase in 13 years, as nearly 4 million more people gained coverage. States were shielded from much of the cost increase, though, because the U.S. government agreed to reimburse 100 percent of expansion costs through 2016 for states that chose to extend health coverage to newly eligible low-income adults, gradually dropping to 90 percent in 2020.
Among 26 states where spending fell as a share of own-source revenue from 2014 to 2015, 18 had expanded their Medicaid programs in accordance with the ACA.
Medicaid’s claim on each revenue dollar affects the share of state resources available for other priorities, such as education, transportation, and public safety. Because Medicaid entails certain mandatory spending, policymakers have less control over growth in their states’ costs than they do with many other programs. The state Medicaid spending indicator excludes federal support and examines only the cost to states because that spending has a direct impact on state operating budgets, which rely on state-generated revenue.
A comparison of states’ Medicaid spending relative to their own resources in 2000 and 2015 shows:
- Only New York and North Dakota saw Medicaid spending fall as a share of own-source revenue. In New York, Medicaid’s share of revenue swung above and below its 2000 level (26.5 percent) throughout the study period, ending 0.1 percentage point lower—equivalent to 0.1 cent less of each state-generated revenue dollar. In North Dakota, Medicaid accounted for 7.3 percent of state dollars in 2000 and 6.4 percent in 2015, a decline of 0.9 percentage points. The percentage fell even as state Medicaid costs increased because North Dakota’s revenue surged faster over the period, though this trend began to reverse in 2015 as the oil boom slumped.
- Besides the declines in New York and North Dakota, the slowest growth was in six states with increases of 1.5 cents or less per own-source dollar: Michigan (1.0), Hawaii (1.1), Illinois (1.1), Washington (1.4), New Jersey (1.5), and Tennessee (1.5).
- Louisiana’s share increased the most since 2000. In 2015, the state spent 12.8 cents more of each state-generated dollar on Medicaid than in 2000. The next-largest increases per revenue dollar were in Alaska (10.1 cents) and California (8.6 cents).
- The 10 states where Medicaid in 2015 was at its highest level since 2000 were Alaska, Delaware, Louisiana, Mississippi, Montana, Ohio, Oklahoma, South Dakota, Texas, and Wisconsin. Seven of the states with peaks elected not to participate in the ACA’s Medicaid expansion, while Alaska, Delaware, and Ohio did expand eligibility.
- Six states spent more than one-fifth of their own-source revenue on Medicaid in 2015: New York (26.4 percent), Louisiana (23.3 percent), Rhode Island (23.3 percent), Pennsylvania (21.4 percent), Missouri (21.3 percent), and Tennessee (20.5 percent). New York spent the largest share of its own-source revenue on Medicaid in every year of the study period. Louisiana joined this group for the first time since at least 2000.
- The states that spent the lowest share of own-source dollars on Medicaid in 2015—at less than 10 percent—were Utah (6.1 percent), North Dakota (6.4 percent), Wyoming (7.5 percent), Hawaii (8.3 percent), and Nevada (9.2 percent). Alaska fell out of this group for the first time since at least 2000 because falling revenue due to low oil prices, combined with stable Medicaid spending, swelled the share spent on the program by 4.4 percentage points.
Influence of federal policy changes
Medicaid is a state-administered program, but the federal government covered from 51 to 79 percent of states’ Medicaid bills in 2015, for a total of 61.9 percent of costs.
Changes in federal policies have helped shape states’ financial responsibilities for Medicaid since 2000.
Most recently, the Affordable Care Act provided an opportunity for states to expand their programs with enhanced federal support. The latest 50-state data reflect nearly two years—seven quarters—of the ACA’s Medicaid expansion, which took effect in January 2014. The law expanded Medicaid eligibility to all individuals under age 65 who earn up to 138 percent of the federal poverty level, a change that the Supreme Court later ruled was optional for states. As of the federal fiscal year ending Sept. 30, 2015, the time frame for this analysis, 29 states had expanded their programs in accordance with the ACA, with Alaska, Indiana, and Pennsylvania participating for part of the fiscal year. As of June 2017, 31 states had agreed to expand eligibility for Medicaid.
In response to the 2001 and 2007-09 recessions, as state tax revenue fell, the federal government sent extra dollars to states to help cover the increased costs associated with higher Medicaid enrollment. When enhanced federal aid from the Great Recession tapered off between December 2010 and June 2011, states’ share of the costs spiked while their tax revenue was still recovering, leading spending to peak at 17 cents of each state-generated dollar in 2013.
In 2006, the federal government began relieving states of prescription drug costs for “dual eligibles,” individuals who qualify for both Medicaid and the federal Medicare program. In return, states are required to share some of their savings with the federal government through annual “clawback” payments, which are included in this analysis as part of state Medicaid spending.
The proportion of federal reimbursement that states receive is one of several factors that influence the wide range in the share of their own-source revenue spent on Medicaid. This variation is attributable not only to state Medicaid policy decisions—the breadth of health care services covered, eligible populations, and provider payment rates—but also to tax and other policy decisions that determine state revenue. Variation also is driven by factors outside of policymakers’ direct control, such as state economic performance, demographics, resident health status, and regional differences in health care costs and practices. (For more information, see “State Health Care Spending on Medicaid.”)
Download the data to see individual states’ Medicaid spending as a share of own-source revenue for each fiscal year from 2000 to 2015. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.
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