Report: State budgets recovering, still struggling with Medicaid drag

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States budgets are slowly recovering form fiscal crises of recent years, but Medicaid costs continue to be a major stumbling block. That's the mixed message from a report released Thursday by the National Governors Association and the National Association of State Budget Officers.

For the first time, healthcare costs have risen about education spending in state budgets. For 2005 budgets, state directors believe Medicaid costs will rise more than 12%, though more modest expansion of 8% to 9% is expected beyond that.

"The light at the end of the tunnel is beginning to appear; unfortunately, it's a long tunnel," said Ray Scheppach, executive director of the National Governors Association. "Are states better off than they were a couple of years ago? Certainly. Are they where they want to be or where they should be? No way, and that is attributable to the rising health care costs. The growth rate on Medicaid is rapidly reaching its breaking point."

Scheppach added that "serious structural changes to Medicaid" are needed for states to be able to take proper care of members of the baby boomer generation. The full NGA report can be found at