Report: Medicaid Costs Growing Rapidly

The cost of Medicaid (search) continues to grow faster than any other portion of state spending, overtaking primary education for the first time and forcing reductions in welfare and other assistance, according to a report released Tuesday by the nation's governors and budget officers.

Even as state economies, on average, showed improvement in the past year after a long spell of red ink, Medicaid and other health care costs gobbled up nearly all the new money — and will continue to do so, officials said. Medicaid is the joint state-federal health care program for the poor.

"What we're seeing is Medicaid is going to trump education spending, going forward," said Ray Scheppach, executive director of the National Governors Association (search).

Among its conclusions, the report found:

— Medicaid costs for states grew at 6 percent last year, the fiscal year that ended for most states in June, faster than any other state category. It is expected to grow at 4.6 percent this year, and at 12.1 percent next year.

— Medicaid is estimated at 21.9 percent of total state spending this year, with K-12 education at 21.5 percent.

— Overall, states increased general fund spending by 1.4 percent last year, and were estimated to raise spending by 2.4 percent this year (those figures don't include federal spending; together, total spending rose 4.5 percent each year).

The report focused solely on spending and the needs of the states — not the revenues and improvements states have seen in the past year from growth in the economy.

However, Scheppach said that states' revenues have grown roughly 7 percent over the past year on average, a solid improvement after three previous years when revenue growth fell sharply.

"There are going to be headlines of improving economies," said Scott Pattison, executive director of the National Association of State Budget Officers (search). "But when you look at the balance sheets, they have to spend that immediately."

"So new programs, or even making up for the budget cuts of the last few years, is almost impossible for states right now," he said.

The Medicaid costs don't capture all the burdens created by health care. Health care for state employees, poor children and prison inmates takes up roughly 10 percent of state general fund costs.