June 25, 2015
In fiscal 2014, Medicaid comprised 51 percent of all federal funds to states, according to NASBO’s State Expenditure Report, released in November 2014. This marked the first time in the 27-year history of the State Expenditure Report that Medicaid represented over half of all federal funds to states.
Medicaid as a percentage of all federal funds to states had remained relatively consistent until fiscal 2014. Every year between fiscal 1995 and fiscal 2013, Medicaid represented between 42 to 47 percent of all federal funds to states. In fiscal 2013, Medicaid was 46.6 percent of all federal funds to states. The increase in fiscal 2014 resulted from federal funds for Medicaid growing 17.8 percent. Conversely, state funds (general funds and other state funds combined) for Medicaid only grew 2.7 percent in fiscal 2014. The rate of growth in federal funds exceeded state funds since costs for those newly eligible for coverage in states implementing the Medicaid expansion under the Affordable Care Act (ACA) are fully federally funded in calendar years 2014, 2015, and 2016. Federal funding will then phase down and will be 90 percent by 2020 and beyond.
All federal funds to states (including K-12, higher education, public assistance, Medicaid, corrections, transportation, and “all other”) are estimated to have increased 7.6 percent in fiscal 2014. This increase in all federal funds to states in fiscal 2014 was solely due to additional Medicaid dollars, mainly resulting from the expansion of Medicaid in some states under the ACA. While federal Medicaid funds to states increased $41.8 billion in fiscal 2014, all other federal funds to states are estimated to have declined $3.4 billion.
Medicaid in fiscal 2014 also represented 25.8 percent of total state expenditures (general funds, other state funds, bonds, and federal funds combined), the highest level since NASBO began collecting data in its State Expenditure Report. In fiscal 2009, Medicaid surpassed elementary and secondary education as the largest category of total state spending, due to the rise in health care costs. While Medicaid is now the largest category of total state spending (which includes federal funds), elementary and secondary education remains by far the largest category of spending from states’ own funds, which includes both general funds and other state funds.
Earlier this month, NASBO released its Spring Fiscal Survey of States, which includes estimated fiscal 2015 data and examines governors’ proposed budgets for fiscal 2016. The report also includes updated Medicaid data, including information on percentage spending changes, changes in enrollment, and budget actions related to Medicaid. The report found that total Medicaid spending is estimated to increase 18.2 percent in fiscal 2015, with state funds growing 5.2 percent, and federal funds increasing 24.2 percent. The sizeable increase in fiscal 2015 is largely attributable to the fact that fiscal 2015 is the first full year of Medicaid expansion under the ACA for almost all of the expansion states; fiscal 2014 reflected a partial year impact under the ACA for those states that began expansion on January 1, 2014.
With federal Medicaid funds to states estimated to have increased 24.2 percent year-over-year in fiscal 2015, it is expected that Medicaid will once again represent a majority of all federal funds to states when NASBO releases its next State Expenditure Report in the fall with spending data on all program areas and fund sources for fiscal 2015. Furthermore, it is likely that Medicaid as a share of all federal funds to states in fiscal 2015 will exceed fiscal 2014’s all-time high level of 51 percent.