Critical Condition

NRO’s health-care blog.

The Great Recession Does Not Explain the Breathtaking Growth of Medicaid Spending


Although the White House’s PR was focused on keeping teachers employed, last week’s bailout of government-employee unions included a huge chunk of change for Medicaid, the joint federal-state program for low-income Americans. This follows the so-called “stimulus” bill, signed in February 2009, which increased federal funding to each state’s Medicaid program by 5.5 to 11.5 percent until the end of this year. Because Medicaid is a welfare program, some economists might think that this increased spending is appropriate: In a recession, welfare programs grow, and they shrink when prosperity returns. At university, they told me that such programs are “automatic stabilizers.”

But Medicaid is not an “automatic stabilizer.” In fact, it’s been growing through thick and thin, in good times and bad, at a faster rate than Medicare, the program for the elderly that started the same year. While Medicare’s share of national health spending doubled between 1967 and 2008, much of this was a recent “growth spurt” concurrent with the Medicare Prescription Drug Benefit, which launched in 2006. Medicaid’s share increased three times over the same period. Whereas Medicaid was only two-thirds the size of Medicare in 1967, it had grown to three-quarters the size of Medicare by 2008. (SCHIP, the State Children’s Health Insurance Program, which began in 1997, is included in the Medicaid figures because it is a similar state-federal welfare program.) For this disproportionate growth to be reasonable, the number of poor people in the U.S. would have had to grow faster than the number of seniors, which defies reality.

So out of control is Medicaid that its growth has not only dramatically outpaced both Medicare and private health spending but still appears to be ramping up. In 2008, Medicaid, SCHIP, and expansion programs cost $1,162 for every American resident. (Not every Medicaid beneficiary, for which the number is obviously much greater, but for every American!) While this looks tame compared to $4,039 for private health spending, the gap has closed dramatically since 1967, when Medicaid spending was only $15 for every American and private health spending $160.

While the average American spent almost five times as many real (inflation-adjusted) dollars on private health care in 2008 as in 1967, he contributed almost 15 times as much towards Medicaid as he did before. The amount spend on Medicare went up by a little more than 12 times.

Nor does Medicaid grow counter-cyclically: Even when GDP growth was strong, for example between 1994 and 2000, Medicaid just kept growing. The president’s faction want us to believe that repetitive Medicaid bailouts are necessary in hard times. But a better explanation for Medicaid’s breathtaking growth is government greed, not human need. (For the complete analysis, see here.)


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