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Blog - Medicaid and the states: an update

As Congress and the White House wrangle over a compromise to avert the fiscal cliff, the anxiety (for hospitals) and expectation (among experts) regarding possible Medicare cuts is clear, as my colleague Jessica Zigmond reported.

Now, new reports on state budgets suggest continued strain on Medicaid (another major insurer) despite a modest recovery under way.

State budgets have recovered slowly from the last recession. Medicaid, which is jointly financed by states and the federal government, accounts for the single largest state expense. Medicaid paid $152.5 billion to hospitals in 2010, or nearly one-fifth of spending on U.S. hospitals that year.

Even the good news about state budgets comes with a caveat. For the first time since the downturn, state revenue in the coming year will exceed revenue states collected in 2008—but only without adjustment for inflation, the National Association of State Budget Officers reported last week. (It is “a turning point,” the group said.)Twenty-four states adopted budgets for fiscal 2013 that spend less than in 2008, the report said.

The National Conference of State Legislatures, in a separately released report this week, compared states' rebound from the Great Recession to recoveries from recessions in the prior two decades.

“Unlike previous recoveries—where it was common to see a robust upturn—the post-Great Recession period feels more like malaise than a recovery for states,” the report said. State revenue needed one year to rebound from the 1990-91 recession. Revenue dipped for two years after the 2001 downturn. The projection for Great Recession? Five years.

“They're coming out of an extremely deep hole,” said Phil Oliff, a policy analyst with the Center on Budget and Policy Priorities who studies state budgets. “Revenues plummeted but needs continued to increase.”

Demand for Medicaid continues to exceed budgets. The biennial Medicaid budget in Texas fell short by $4.3 billion, the National Conference of State Legislatures said. Nine other states reported Medicaid and health spending exceeded state budgets for fiscal 2013.

Not all the news is discouraging. Thirty-two states enacted general fund spending increases for Medicaid, the State Budget Officers said. (Ten decreased Medicaid spending.)

Of course, the nation's budget debate could end badly for the economy or create a continued drag on recovery.

“Growth has been sub-par and it continues that way,” said Beth Ann Bovino, chief deputy economist in global fixed income research for Standard & Poor's on a recent conference call to discuss the fiscal cliff. “Why does that make sense? Well, because of deleveraging. We've seen households deleverage, business deleverage and now the concerns that government will deleverage as well.”

You can follow Melanie Evans on Twitter: @MHmevans.
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