Over the coming weeks this blog will highlight a key feature of Medicaid and the individual states that administer Medicaid and CHIP leading up the the program’s 50th anniversary (July 30th). Hopefully, you’ll learn some interesting facts about Medicaid and each of the 51 state programs.
Medicaid’s effect on the economy is a complex set of influences. In many ways, during an economic downturn Medicaid acts as a fiscal stabilizer. As unemployment increases, more people become eligible for the program. These newly eligible people utilize the services offered under Medicaid and stimulate spending.
Unfortunately, one of the key features of the program also makes Medicaid vulnerable to cuts during the economic downturns. Medicaid is jointly financed by states and the federal government. Since states must balance their budgets annually, when recessions reduce state revenues states cut Medicaid services. This action prevents Medicaid from achieving the full potential of a fiscal stabilizer.
In the latest recession, the federal government — who isn’t required to spend the same amount as they take in annually– temporarily increased the percentage that they contribute to Medicaid. This made Medicaid act as a fiscal stabilizer and provided needed health coverage to millions of Americans. If you’re interested in this topic, I suggest reading this Urban Institute/Kaiser report or this Kaiser Family Foundation report (from which I included these fun charts).