Medicaid spending in context

Spending

Combined federal and state expenditures for Medicaid accounted for about 16 percent of U.S. health care spending in calendar year (CY) 2014, the most recent year for which historical data are available. In comparison, Medicare accounted for about 20 percent and private insurance accounted for about 33 percent of U.S. health care spending (CMS undated).

Medicaid’s unique role

For certain types of care, Medicaid accounts for a larger portion of total U.S. spending than any other type of payer. National Health Expenditures (NHE) data compiled by the Centers for Medicare & Medicaid Services Office of the Actuary show that in CY 2014, Medicaid financed 32 percent of nursing home care and 56 percent of the category of other health, residential, and personal care that includes a variety of home and community-based services (MACStats, Exhibit 3). Another analysis that broke NHE data into different categories found that Medicaid accounted for 51 percent of all long-term services and supports (LTSS) spending in CY 2013, $155 billion out of a total $310 billion (Reaves 2015). Medicaid pays for more than one quarter (27 percent) of all spending on mental health services and about one fifth (21 percent) of all spending on substance abuse treatment (SAMHSA 2013).

Medicaid spending trends

Medicaid and CHIP have increased as a share of U.S. health care spending over time, along with Medicare and private insurance; in contrast, the out-of-pocket and other third-party payer shares of spending have decreased (See Table 3 in CMS undated). In addition, as health care has consumed a growing share of the nation’s economy, so have Medicaid and CHIP. Between CY 1970 and CY 2015, total U.S. health care spending increased from 6.9 percent of gross domestic product (GDP) to 17.8 percent; over the same period, Medicaid and CHIP spending increased from 0.5 percent of GDP to 3.1 percent (See CMS analyses of national health expenditures here.)

Similarly, the programs represent a growing portion of the federal budget, having increased from 1.4 percent of federal outlays in FY 1970 to 8.9 percent in FY 2014; in comparison, Medicare increased from 3 percent of federal outlays to 14.4 percent. (See analyses by the Office of Management and Budget, Tables 8.1 and 8.3 2015.) Unlike Medicare, for which a substantial portion of federal spending is financed by dedicated revenue sources that include payroll taxes and enrollee premiums, federal spending for Medicaid and CHIP is financed by general revenues.

Medicaid’s share of state budgets

The state (often referred to as nonfederal) share of Medicaid comes from a variety of sources, but at least 40 percent must be financed by the state and up to 60 percent may come from local governments. Medicaid’s share of state budgets varies across states and differs substantially depending on how it is measured. The program accounted for 25.6 percent of state spending from all sources—including federal funding—in state fiscal year (SFY) 2014, but only 15.3 percent of state-funded spending that must be raised by states through taxes and other means.

Also see MACStats: Medicaid as a Share of States’ Total Budgets and State-Funded Budgets and Trends in Medicaid Spending and State Budgets, a presentation at the May 2015 Commission meeting.

Learn more about Medicaid and CHIP spending in the most current compilation of MACStats tables and figures.