Just before the July 4 holiday the White House Council of Economic Advisers released a report titled “Missed Opportunities: The Consequences of State Decisions Not to Expand Medicaid.” The Pew Trusts also released a data compilation last week. But that one showed why many states, which had large and growing Medicaid programs even before Obamacare, have not rushed to embrace greater expansion.
Pew examined data from 2000 to 2012 and found large increases in state Medicaid spending even after adjusting for inflation. Nationally, Medicaid spending grew an average of 4% more than inflation every year during this period. All but two state Medicaid programs grew at real (inflation-adjusted) rates greater than 2% annually. In addition, programs in eight states and the District of Columbia grew at rates exceeding 5.9% per year–meaning that spending doubled during the 12-year period, even after accounting for inflation.
Some might argue that robust economic growth, which leads to an expanding revenue base, could allow states to absorb sustained increases in Medicaid spending greater than the level of inflation. But the Commerce Department’s Bureau of Economic Analysis found that inflation-adjusted gross domestic product grew 23.1% from 2000 through 2012. Meanwhile, Medicaid spending grew nearly three times as fast in inflation-adjusted terms: an average of 63% nationally. Only one state, New Hampshire, increased its Medicaid spending at a rate slower than the national economy grew from 2000 through 2012.
So during the decade before Obamacare took effect, states had dramatically increased their Medicaid expenditures—spending well above inflation and exceeding the economic growth their revenue forecasts are based on. Greater Medicaid expenditures have an opportunity cost: Many states have had to divert funds from education or other priorities to cover increased spending on health. Little wonder that many states have decided not to expand Medicaid further. In some respects, it may be smarter to ask why so many decided to embrace expansion.
This post was originally published at the Wall Street Journal Think Tank blog.