States together spent 17.1 cents of every state-generated dollar in fiscal year 2017 to provide Medicaid health care coverage to low-income Americans—nearly 5 cents more than in fiscal 2000 and the largest amount since that year. After a post-recession spike, the share of state funds spent on the program has stayed high but nearly level—even as states that expanded Medicaid eligibility for the first time picked up a fraction of the extra costs.
Every state except Illinois spent a larger share of its own dollars on Medicaid in 2017 than in 2000, though the decline in Illinois reflects a delay in payments rather than a reduction in costs.
Percentages in 13 states reached a new high, according to the most recent 50-state administrative data, including in eight states that chose to expand coverage under the Affordable Care Act (ACA) to newly eligible low-income adults. The increases varied widely, however, from less than 1 cent more of each state-generated dollar in Hawaii, Michigan, and Tennessee, to 11.5 cents more in Louisiana.
Medicaid is most states’ biggest expense after K-12 education. States and the federal government share costs for the safety-net program, which provides medical coverage for eligible groups of children, adults, people with disabilities, and the elderly.
The costs borne by states surged in the wake of the Great Recession, after the expiration of federal economic stimulus dollars that had helped cover a spike in Medicaid enrollment during the downturn. As a share of own-source revenue, states’ collective costs have plateaued at roughly 17 cents of each revenue dollar since 2012—with 2017’s share just a fraction higher than a year earlier—even with the ACA’s optional expansion of Medicaid coverage beginning in 2014. In 2017, for the first time, the 31 states that by then had chosen to expand Medicaid coverage began picking up 5 percent of the costs for about 12.2 million extra recipients. Previously, the federal government had reimbursed states for the full costs of the expanded population. By 2020, states will pick up a maximum of 10 percent of the expansion costs.
This state Medicaid spending indicator excludes federal support, examining only the cost to states because that spending—and increases relative to revenue—exerts pressure on their operating budgets, which rely on state-generated revenue.
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 is an entitlement program, states must provide certain federally required benefits for any eligible enrollee, even during times of sluggish revenue growth. So policymakers have less control over growth in states’ Medicaid costs than they do with many other programs.
A comparison of states’ Medicaid spending relative to their own resources in 2000 and 2017 shows:
States in 2017 collectively spent $228.2 billion of their own resources to provide health benefits for 73.8 million Medicaid recipients. This was $7.8 billion more than in 2016, a 3.5 percent rise. State revenue rose at nearly the same rate (3.4 percent), nudging the slice of state dollars devoted to Medicaid coverage (17.1 percent) just a fraction higher than in 2016.
Higher enrollment has been one of the major drivers of growth in Medicaid spending, with more than twice as many people enrolled in 2017 than in 2000. However, enrollment growth has been slowing since 2014. 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—and a gradual erosion of employer-sponsored insurance. From 2014 through 2017, millions more joined the program as the optional expansion under the ACA was implemented by 31 states, but the federal government agreed to absorb the first three years of all related expenses for newly eligible enrollees. As states for the first time began picking up a portion of these costs in 2017, total spending—including both state and federal funds—per enrollee for newly eligible adults ($5,244) was lower than the average for all Medicaid enrollees ($7,654), according to the Medicaid and CHIP Payment and Access Commission.
Future enrollment growth could be curbed because of low unemployment and federally approved actions by some states to require work or other community engagement as a condition of eligibility for certain adults. However, other drivers are placing upward pressure on state expenditures, including rising prescription drug prices, provider payment rate increases, and responsibility for an increasing share (10 percent by 2020) of Medicaid expansion costs. State policy choices to further expand coverage or an economic slowdown could also lead to growth in spending.
Medicaid is a state-administered program, but the federal government covered from 50 to 74.6 percent of states’ bills for the program in 2017, for a total of 61.6 percent of costs. Federal spending on Medicaid grew by 1.6 percent that year, from $360.5 billion to $366.2 billion—the smallest annual increase since 2012, when stimulus dollars expired.
Changes in federal policies have helped shape states’ financial responsibilities for Medicaid. Most prominently in recent years, the ACA provided an opportunity for states to expand their programs with enhanced federal support. The latest 50-state data reflect nearly four years—15 quarters—of the ACA’s Medicaid expansion, which took effect in January 2014. The law expanded Medicaid eligibility to all adults under age 65 who earn up to 138 percent of the federal poverty level, a change that the U.S. Supreme Court later ruled was optional for states. 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, dropping to 95 percent in 2017 and ultimately to 90 percent by 2020. As of the federal fiscal year ending Sept. 30, 2017, the time frame for this analysis, 31 states had expanded their programs in accordance with the ACA. As of November 2019, 36 states had agreed to expand eligibility for Medicaid, though Idaho, Nebraska, and Utah had not established an implementation date.
States that have chosen to expand Medicaid coverage have typically drawn from their general funds to cover their share of the bill. According to the Kaiser Family Foundation, some expansion states have been able to offset costs from newly eligible enrollees with related budget savings, such as reductions in behavioral health spending. A number of states also report using new or increased provider taxes and fees to help fund the expansion.
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.
In 2006, the federal government began relieving states of prescription drug costs for “dual eligibles,” people 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 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 each state’s personal income levels. States with lower per capita income have higher federal reimbursement rates, and vice versa. Variation also is driven by tax and other policy decisions that determine state revenue and 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 2017. Visit Pew’s interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.