State Medicaid Spending Since 2007

With the release of the FY 2011 Health and Human Services appropriations bill this week, Iowans are finally seeing the ugly picture forced by a $172 million cut in state spending forced by legislative Democrats. While the press will focus on the pain being felt this year, they will be missing the real problem with this budget – what happens to Medicaid next year.

Since taking over control of the Legislature in 2007, legislative Democrats have had an interesting relationship with Medicaid. For many years while in the minority, Democrats attempted to portray themselves as the defenders of the program. But once they took control, the way they approached Medicaid changed. In four years, the waiting lists for the HCBS waiver programs – which keep people in their homes and out of nursing facilities – has yet to be cleared.

And while overall state spending grew by 19 percent, Governor Culver and legislative Democrats were only able to find money to give Medicaid providers a one percent increase in reimbursement rates. Instead of properly funding the program, Medicaid has been transformed into a easily accessed bank account to fund other programs and new ideas.

As Medicaid has grown, the use of General Fund resources to pay for it has dropped.

In the last state budget constructed by House Republicans – FY 2007 – $652 million of the $771 million of state funding spent on Medicaid came from the state’s General Fund. As the attached graph shows – while the cost of Medicaid has grown, the use of General Fund resources to pay for it has dropped.

In FY 2010, just $606 million of the $984 million spent on Medicaid comes from the state’s income and sales tax revenues. Another $100 million comes from the 2007 cigarette tax hike. The rest comes from a variety of sources of non-recurring funds, like one-time federal stimulus funds and the continuing draw down the Senior Living Trust Fund.

The proposed FY 2011 budget marks a dramatic shift in how the state funds Medicaid. Next fiscal year, the state will use almost as much one time and non-recurring funding for Medicaid as it will from the General Fund and the 2007 cigarette tax increase. Among the sources will be $225 million of federal stimulus funds, $187.8 million taken from the state’s Cash Reserve Fund, and the final dollars out of the Senior Living Trust Fund.

This may get the state through FY 2011, but it creates a monumental problem in FY 2012. With normal growth factor for the program of six percent, Iowa would need $1.071 billion to maintain the current program. The recurring revenue that would be spent on Medicaid is $534 million. This means the next governor and the 84th General Assembly would have to find $537 million in new money to maintain Medicaid as it is today.

While Medicaid providers and advocates will raise issues over a variety of legitimate concerns over the Fiscal Year 2011 Health and Human Services budget, one question should be asked of all of them. What is going to happen to Medicaid in 2012?

(Download an excel spreadsheet for a breakdown of the money)