Report: States headed for Medicaid funding upheaval

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Paul Volcker
Paul Volcker
Regardless of whether states choose to expand Medicaid under healthcare reform law, they are facing huge fiscal crisis conditions, largely due to rising healthcare costs and government pension obligations, new research says.

Medicaid cost growth will outstrip revenue growth by an ever-growing margin due to increasing enrollments and escalating healthcare costs, according to a new report from the State Budget Crisis Task Force. Former Federal Reserve Chairman Paul Volcker and former New York Lt. Gov. Richard Ravitch (D) organized the panel.

Operators intensely study Medicaid funding since it pays for the majority of U.S. nursing home care.

An even larger problem than healthcare, report authors said, is unfunded state government pension obligations, which could total $3 trillion.

The task force focused on the budgets of six large-population states: California, Illinois, New Jersey, New York, Texas and Virginia.

The authors point out that states cannot control Medicaid spending without the help of the federal government.

“The threats and risks vary considerably from state to state, but the storm warnings are very serious,” Ravitch and Volcker said. “The costs, whether in service reductions or higher revenues, will be large. Deferring action can only make the ultimate costs even greater.”

They said the main problems are structural, not cyclical. Volcker said he does not believe Medicaid expansion mandated by the Affordable Care Act will reduce state Medicaid costs in the short term and that an overhaul of the system is needed. He also pointed to a rise in the number of Medicare users as a major strain on the overall healthcare funding matrix.
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