June 28,2008
Medicaid is Affordable and Sustainable
by Ted Boettner and Robert Diznoff
Next to the federal Medicare program for the elderly, West Virginia Medicaid is the single most important health insurance and long-term care program in the state. About one in five state residents receive health benefits directly through Medicaid. Additionally, Medicaid supports thousands of jobs with the $2 billion it receives in federal funding.
Despite Medicaid’s importance to West Virginia families and the economy, the program is often perceived as too expensive and unsustainable.
While state Medicaid spending has almost doubled over the last decade (from $335 million in 1996 to $651 million in 2007), its growth compared to overall state spending has actually declined.[i] As Chart 1 shows, state Medicaid spending as a share of state-source spending (state expenditures minus federal expenditures) dropped from a high of 10.5 percent in 1997 to under 10 percent in 2007.
CHART 1: General Revenue Medicaid Spending vs. State-Source Medicaid Spending
Although overall Medicaid spending has not grown in
proportion to total state spending, the share of Medicaid
funding paid for from the General Revenue Fund has grown
rapidly. As Chart 1 illustrates, General Revenue Medicaid
spending as a share of total state-source spending has soared
from 6.9 percent in 1997 to 10.6 in 2007. While this figure is
high, states generally spend about 17 percent of their General Revenue
Funds on Medicaid.[ii]
The increasing share of General Revenue Funds going toward
Medicaid is due in part to the
phase out of the individual
provider tax on certain health care providers that was enacted
in 2002.
CHART 2: State-Source Medicaid Spending by Funding Source, GRF and Provider Tax
The individual provider tax is a tax on gross receipts from
various medical services and is part of the Special Revenue Fund
in the state budget. Since the phasing out of certain individual
provider taxes, the state has relied more on the General Revenue
Fund to pay for Medicaid.
Chart 2 shows that the provider tax made up 37.4 percent of total state-source Medicaid spending in 2002 and 28.5 percent in 2007. The decrease in provider tax revenue over this eleven-year period could have been more dramatic if it had not been for the strong growth in the health care industry in West Virginia over the last decade.[iii]
Conversely, Medicaid spending in the General Revenue Fund (as a share of total state-source Medicaid spending) grew dramatically, from about 50 percent in 2002 to almost 73 percent in 2007.
If policymakers are concerned that Medicaid spending in the General Revenue Fund is growing too rapidly, they could take a new look at the provider tax or at other taxes that could be dedicated to state funding for Medicaid. Increasing the tax on products that are a proven cause of poor health such as tobacco products, alcohol or soda pop would be a reasonable solution.
End Notes
[i] WV Center on Budget and Policy, Medicaid Matters: Deciphering the Governor’s FY 2009 Budget (Revised), March 2001
[ii] National Association of State Budget Officers, 2006 State Expenditure Report, December 2007 http://www.nasbo.org/Publications/PDFs/fy2006er.pdf
[iii] CBP analysis of Current Employment Statistics data from the US Bureau of Labor Statistics: From 1997 to 2007, more than 49,000 new jobs were created in the field of education and health services. This was the largest increase in job growth of any sector.