LTC Bullet:  Medicaid, State Budgets, and LTC Insurance

Tuesday, April 16, 2002


*** If this Bullet interests you and you'd like to dig deeper into the topic, come to an LTC Graduate Seminar.  The next opportunity is April 22 in Baltimore.  See for details and future opportunities.  The Baltimore Grad Seminar is special because we have several long-term care leaders registered to attend including representatives of the American Health Care Association, the Health Insurance Association of America, The Seniors' Coalition, and the American Legislative Exchange Council.  Seating is very limited so contact immediately if you wish to register. ***

*** New content added today to the Center's donor-only zone includes the following:

The LTC Reader #15--Book Report--The Ultimate Safe Money Guide by Martin D. Weiss

The LTC Reader #16--Book Report--J.K. Lasser's Choosing the Right Long-Term Care Insurance, by Benjamin Lipson

The Data Base #15--Spotlight on Five States Facing Medicaid Crisis (ID, IN, MO, NC, and TX)

The Data Base #16--CMS Actuaries Predict LTC Expenditure Growth 

Zone in now or go to to find out how to qualify.  ***


The Kaiser Commission on Medicaid and the Uninsured published a report on "The Role of Medicaid in State Budgets" in October 2001.  You can read it in full at, but here are some pertinent excerpts. We'll close this Bullet with our take on what it all means in a "LTC Comment."

"Last year, Medicaid covered some 44 million people, including 22.6 million children, 12 million elderly and disabled people, and 9.2 million adults . . . .  More than one in four children in the United States now rely on the program for their health care coverage.  Medicaid . . . is the single largest purchaser of nursing home services and other long-term care services . . . in the United States. . . .  In 1999, federal Medicaid funds represented roughly 40 percent of federal grant-in-aid dollars that flowed to the states." 

"While Medicaid spending grew at the relatively modest average annual rate of 5.5 percent between fiscal year 1996 and 1999, it grew by 9 percent in fiscal year 2000 and by an estimated 11 percent in fiscal year 2001.  Soon after the resurgence in Medicaid spending, states began to experience fiscal difficulties due to a downturn in the economy."

"According to new data gathered by the National Conference of State Legislatures in mid-October, 44 states are now reporting that revenues have come in below forecasted levels in the opening months of state fiscal year 2002 (which began in July of 2001 for most states).  A smaller, but still significant number of states also are reporting that their expenditures are exceeding budgeted levels.  In these states, Medicaid is often cited as one of the programs that is growing most rapidly."

"A state official in Michigan . . . reported that 'The September 11 attacks appear to have sent an already weak economy into a tailspin,' while a Florida official reported that things 'went south' after the attacks."

"During the relatively modest recession of the early 1990s, states would have needed reserves that equaled approximately 17 percent to 19 percent of their state general funds budgets to maintain expenditures through the recession without increasing taxes.  At the beginning of state fiscal year 2002, states had reserves that equaled 5.9 percent of general fund expenditures--only a little more than a third of what would have been needed to get through he last recession without spending cuts or tax increases."

"Of particular concern to states is that future Medicaid spending growth is projected to outstrip relatively weak revenue growth, causing Medicaid to consume a larger share of their budgets over time."

"In light of the worsening fiscal situation of states the pressure to find effective strategies to control Medicaid spending is likely to be stronger than ever."

"Although they represent a relatively small share of Medicaid beneficiaries, the elderly and disabled account for the vast majority of Medicaid spending.  In fiscal year 1998, for example, elderly and disabled beneficiaries accounted for more than two-thirds of all Medicaid spending on benefits and for four in five Medicaid dollars spent on prescription drugs."

"[T]he increased cost of caring for elderly and disabled Medicaid beneficiaries was the single largest factor behind the $12.4 billion increase in federal Medicaid spending between 2000 and 2001."

"With the exception of Vermont, all states and the District of Columbia are required to balance their budgets each year.  Given the resurgence in Medicaid spending growth and Medicaid's large share (on average 15%) of state budgets, many state policymakers will be looking for options to cope with Medicaid expenditure growth during the downturn."

LTC Comment:  When economic times are good, most analysts and politicians take for granted that Medicaid can be the long-term care safety net--not just for the poor, but for the middle class as well.

When economic times turn bad, however, that perspective changes.  The last recession we faced in the early 1990s spawned closure of loopholes and mandatory estate recoveries (OBRA '93), "throw granny in jail" (HIPAA '96), and "throw granny's lawyer in jail" (BBA '97).

Some of those measures made good sense.  Others were ham-handed and counterproductive.  None had the intended effect--to discourage Medicaid dependency and encourage private LTC financing alternatives--because they were not, or could not reasonably be, enforced.

But here we are in another recession with state tax receipts down, with welfare rolls up, and with Medicaid costs skyrocketing at double-digit rates again for the first time in a decade.  Let's hope this Congress and President Bush can do a better job than former Congresses and Presidents in targeting Medicaid to the genuinely needy and encouraging everyone else to save, invest or insure for long-term care.

The time has come for a double whammy:  above the line tax deductibility for private long-term care insurance combined with reasonable controls on Medicaid nursing home eligibility, along the lines of the Center's LTC Choice proposal.  (Read "LTC Choice:  A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle" in .pdf format at