Medicaid spending in 2002 grew at its fastest rate in a decade -- 13.2% -- and states face their "most dire fiscal situation since World War II," the National Governors Association and the National Association of State Budget Officers said in their biannual report. Many states have exhausted their "rainy day" funds and their options for budget cuts. States' year-end balances "clearly illustrate the extent of the budget problems," the report said. Total state year-end balances are projected at $14.5 billion, or 2.9% of projected fiscal 2003 expenditures. Balances of 5% of expenditures are generally considered healthy.
Medicaid consumed about 20% of state spending with growth driven primarily by increased enrollment and higher pharmaceutical costs. Healthcare, overall, made up 30% of total state expenditures. The most prevalent method of Medicaid cost containment is controlling pharmaceutical expenditures followed by reductions or limits to provider payments, the report said. "The combination of long-run deterioration in state tax systems coupled with an explosion of healthcare costs is creating an imbalance between revenue and spending. To make matters worse, we've had a collapse of capital gains tax revenue added to the overall loss of revenue attributable to slow economic growth," NGA Executive Director Raymond Scheppach said in a written statement. -- by Julie Piotrowski