Medicaid growth hits near-record lows as economy improves

State Medicaid spending is at near-record lows, thanks mostly to the improving economy, according to data released Thursday.

Medicaid, which primarily serves the poor, is one of the country's biggest entitlement programs. Yet over the past two years, federal spending on Medicaid has shrunk and state spending has grown at low levels while demand for the program has dropped as the economy improves, according to the Kaiser Family Foundation's annual Medicaid survey.

The findings could challenge one of Republicans' harshest attacks against President Obama — that he has fostered a culture of dependency while the economy has languished.

State spending on Medicaid grew by just 2 percent in 2012, according to Kaiser. States are budgeting for an average increase of 3.8 percent in 2013 — one of the lowest rates in the past 15 years.

To be sure, states have undertaken aggressive cost-cutting plans on their own, often moving their Medicaid programs into managed care or capping payments for certain services. Those efforts contributed to the slowdown in cost growth, but Kaiser said the changes stem primarily from "an improving economy which resulted in lower enrollment growth."

Medicaid is a strain on state budgets because need for the program is at its highest when the economy is weakest — meaning costs rise as tax revenues fall. But the number of new Medicaid recipients grew slowly in 2012 and is expected to stay low in 2013.

Enrollment grew by 3.2 percent in fiscal 2012 and is expected to grow even more slowly in 2013. It's the slowest the program has grown since 2008 — the beginning of the economic downturn.

The federal government hasn't been making up for the drop in state spending. Extra federal money provided in the stimulus expired in 2011. That increased states' burden by nearly 30 percent.

States have worked to contain costs by limiting services and payments to some healthcare providers, but they haven't been able to dramatically shrink their Medicaid rolls. Provisions in the stimulus and Obama's healthcare law prohibit states from cutting their baseline eligibility criteria ahead of 2014, when the program is set to expand under the healthcare law.

Medicaid is still a drag on state budgets, but not as big a drag as many governors have feared, according to the Kaiser data. About one-third of state Medicaid officials are projecting a Medicaid shortfall in 2013, down from half who made the same projection about 2012.

Ten states are even budgeting for an overall decrease in Medicaid spending, Kaiser said.