Where the money is — Medicaid

By Steve Poftak
May 2nd, 2008

MassInc published a nice piece of research recently that analyzed state spending and held a good forum on it.

The author of the research paper, Cam Huff, found that Medicaid was growing like crazy:

Medicaid spending totaled $7.4 billion in 2006, an increase over 1987 of more than $4.5 billion, or 163 percent. This percentage growth was almost five times that of the budget as a whole. Medicaid’s share of the budget rose from 13 percent to 26 percent between 1987 and 2006. Increases in Medicaid were two-thirds of the overall growth in state spending.

And its notoriously difficult to figure out why:

the program has become progressively more difficult to understand. While it, like the health care system as a whole, is inherently complex, its daunting jargon and baroque accounting raise high barriers to comprehension. The state budget process does little to shed light on how the program operates and what is driving up its costs.

But it’s where the money is, when spending growth is being considered. At its simplest, Medicaid is a short equation:

Eligible Populations X Take-up Rate X Covered Benefits X Utilization Rate X Reimbursement Rate

So which one do you want to cut back on to control costs? And what are the unintended consequences of cuts in each area?

I don’t have the answers here, but this is the real spending puzzle for state policymakers to wrestle with.