A well-used but misleading Medicaid statistic

“Cash-strapped states are also feeling the burden of the Medicaid entitlement. The program consumes nearly 22 percent of states’ budgets today, and things are about to get a whole lot worse.”

— Sen. Orrin Hatch (R-Utah), June 23, 2011, at a hearing of the Senate Finance Committee

 “Medicaid is the lion’s share of that spending burden as it now consumes about 22 percent of state budgets now and will consume $4.6 trillion of Washington’s budget over the next ten years.”

— Former Kentucky governor Ernest Lee Fletcher (R), June 23, 2011, at the same hearing

“Across the country, governors are concerned about the burgeoning cost of Medicaid, which in fiscal 2010 consumed nearly 22 percent of state budgets, according the National Association of State Budget Officers. That’s larger than what states spent on K-12 public schools.”Washington Post front page article, June 14, 2011

When a statistic is universally tossed around as a certified fact, it’s time to get suspicious.

Full article here

Such is the case with this oft-cited statistic that 22 percent of state budgets is being gobbled up by Medicaid, the state-federal program that provides health coverage for the poor and the disabled. Medicaid supposedly is even dwarfing what is spent on educating children and teenagers.

But note the phrase “state-federal.” There’s billions of dollars in federal money involved, and the “22-percent” statistic obscures that fact. Let’s dig a little deeper into the numbers.

The Facts

Medicaid was a central part of President Lyndon Johnson’s “Great Society” initiative in the mid-1960s. Each state administers its own Medicaid program, but with federal oversight, federal requirements—and plenty of federal dollars. On average, the federal government provides 57 percent of Medicaid funds.

Initially, Medicaid was focused low-income Americans, but elderly nursing home care has also become a big part of it. The new health care law would also greatly expand eligibility to people up to 133 percent of the official poverty line.

There’s no question that the recession has put pressure on Medicaid spending, as more people lost jobs or income and so became eligible for coverage. The new requirements of the health care law also will boost Medicaid spending.

The assertion that Medicaid is 22 percent of state spending, and thus now exceeds education spending, comes from an annual survey of the National Association of State Budget Officers (NASBO). But if you dig into the report — if you just go to page one — you will see that this number includes the federal contribution, in what is known as “total funds.”

If you want to see what states themselves are spending on Medicaid —“general funds” — you have to use another set of statistics.

As NASBO says on page one, “For estimated fiscal 2010, components of general fund spending are elementary and secondary education, 35.7 percent; Medicaid, 15.4 percent; higher education, 12.1 percent; corrections, 7.2 percent; public assistance, 1.9 percent; transportation, 0.8 percent; and all other expenditures, 27.0 percent.”

In other words, without the federal dollars included, Medicaid falls to second place, far behind education. It turns out that on average, states spend 15.4 percent of their funds on Medicaid — not 22 percent.

Brian Sigritz, NASBO’s director of state fiscal studies, said, “You are correct that there are several different ways of looking at Medicaid spending that you can use. If you consider just general funds, K-12 easily remains the largest component of general fund spending, as it historically has been.”

Indeed, when you look at NASBO’s historical data (table three of this report), it becomes clear that Medicaid spending, as a proportion of general funds, has remained relatively consistent since 1995 — about 15 percent — in contrast to the popular image of being a drain on state budgets.

Sigritz said that the two figures provide a different picture of state spending. “General funds gives you a sense of spending deriving from state revenue, while total funds gives you a sense of total state expenditures,” he said.  “Typically when you discuss overall state budgets you examine the various funding sources that go into them including general funds, other state funds, bonds, and federal funds.”

The Office of the Actuary for Medicare and Medicaid makes this distinction. The 2010 Actuarial Report for Medicaid notes the broad figure, but then takes pains to add: “This amount, however, includes all Federal contributions to State Medicaid spending, as well as spending from State general revenue funds and other State funds (which for Medicaid consists of provider taxes, fees, donations, assessments, and local funds).” The report concludes: “When only State general revenues are considered, however, Medicaid spending constitutes an estimated 16.2 percent of expenditures in 2009, placing it well behind education.”

Antonia Ferrier, a spokeswoman for Hatch, defended the 22-percent figure, noting its wide use. “It is part of their budgets, and there are many different streams of funding that fund those state budgets (including federal funding, taxes, etc.) that fund their many programs,” she said.

But Colleen Chapman, a spokeswoman for the Georgetown University Center for Children and Families, a policy and research center, said, “In the current budget debate, the data are being misused to argue that the Medicaid program in states is out of control and needs to be cut dramatically, when in fact, Medicaid is still much less of state spending than education and has not grown, as a portion of state budgets, in any way close to the mammoth way that others argue it has.”

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