As our national economy weakens, we face the danger that tax revenues will fall below the level needed to pay for the services funded in this year's budget. At the same time that tax revenue could decline, people will depend, more than ever, on government to maintain a health care safety net so that losing a job doesn't mean your family loses access to health care.
Because safety net costs increase exactly when the economy weakens, state governments face serious fiscal challenges in periods of national recession. But in developing solutions during difficult times, it is important to distinguish between cyclical issues and long term trends. A report released last week by the Massachusetts Budget and Policy Center and the Massachusetts Medicaid Policy Institute examines long term trends in state Medicaid spending. We find, contrary to much of the conventional wisdom, that Medicaid costs have grown only slightly faster than the economy over the past business cycle.
By comparing the growth in Medicaid spending to that of total personal income in the state between 1996 and 2007, the study shows that the fiscal pressure on the state budget caused by the growth in Medicaid spending has been about $30 million a year - about $315 million overall.
$315 million is not a trivial amount, but it is only about one percent of the state budget. To put the fiscal effects of this Medicaid spending growth in context, it can be compared to changes in tax revenue over the same period. State tax revenue as a share of income declined by over three billion dollars, primarily because of tax cuts adopted between 1996 and 2007.
Recognizing that our Medicaid program has not been the fiscal bogeyman that it is sometimes painted as being should not be an excuse for ignoring the need to be vigilant in controlling costs while protecting quality. For starters, the state should continue its effective strategies to control drug costs, maintain its commitment to expand the use of electronic medical records, and build the capacity in the community to provide appropriate long term care.
Executive Director, Massachusetts Budget and Policy Center
This program aired on October 2, 2008. The audio for this program is not available.