States’ Medicaid Costs Top Higher Education Outlays

For the first time, states now spend more on health care than higher education, according to a study released at a conference of state legislators here Monday.

The study found that state spending on Medicaid, the joint state-federal program that provides health care for the poor, soared by 17.6% in fiscal 1993 and exceeds the amount states spend on higher education by one-sixth. With medical costs expected to rise again this year, the study projects that states are likely to spend as much as 22% more on Medicaid than higher education in fiscal 1994.

“The costs of health care spending are growing more rapidly than we have the capacity to raise revenue” to pay for it, said Arizona state Rep. Art Hamilton, president of the National Conference of State Legislatures, which conducted the study.

Still, the survey indicated that the pressure on the states from health care costs may be somewhat moderating. In 1994, state spending on Medicaid is expected to rise 7.5%, still greater than overall state spending, but far below the nearly 20% annual increases of the last few years. Officials attributed the slowdown to smaller cost increases for medical services and a slackening in caseload increases as the economy improves.

But, the report cautioned that states have generally underestimated the growth in Medicaid costs before and suggested that the 7.5% estimate “should be regarded as a minimum growth rate, not a realistic forecast, if past events are an accurate guide.”

Overall, the study found that the financial condition of most states “in better shape than they have been for a number of years,” though California and New England remain sharp exceptions.

State tax revenues are expected to rise only $3.8 billion in 1994, an increase of 1.2% over current collections.

Along with health care costs, states are being squeezed by rapid increases in prison expenditures swelled by court mandates to improve prison conditions and legislative decisions to toughen minimum mandatory sentences.

By contrast, spending on primary and secondary education--the largest expenditure for most states--is expected to rise only 1.7% in 1994. Higher education spending is expected to increase by just 2.7%. In both cases, California substantially dragged down the national average.