The Medicaid alarm is ringing

Two years ago this week, we warned legislators that a day of reckoning was coming for Medicaid.

“Any discussion of expanding Medicaid coverage or eligibility should start with the understanding that current spending levels are unsustainable, and increasing those levels just accelerates the date of reckoning,” we wrote.

With Congress looking to make $2 trillion in spending reductions, that day is suddenly closer, if it has not yet arrived.

U.S. House Republicans want to trim $880 billion from funding overseen by the Energy and Commerce Committee, which controls Medicaid and Medicare spending, among other appropriations. Medicaid is the most likely source of most of these savings. As The New York Times put it on Tuesday: “What can House Republicans cut instead of Medicaid? Not much.”

Even if immediate reductions in the rate of growth of Medicaid spending survive the current budget negotiations, changes have to come. The Congressional Budget Office (CBO) projected last year that federal spending on Medicaid and the Children’s Health Insurance Program (CHIP) would increase from $571 billion in 2023 to $858 billion in 2034 despite falling Medicaid enrollments.

The federal deficit in Fiscal Year 2024 was $1.8 trillion. The federal debt surpasses $36 trillion. Washington’s deficit spending is driven primarily by entitlement programs. Last fiscal year, Washington spent more on interest payments than defense. Congress, at last, is starting to pay attention.

The CBO recommended in December that Congress cap Medicaid spending and reduce federal matching rates as a way of reducing federal deficit spending. House Speaker Mike Johnson this week rejected those options for the current stopgap spending bill, but they remain on the table going forward.

Looming federal reductions, even in just the rate of growth of the program, are not the only reason for legislators seek savings in Medicaid.

Medicaid now consumes 29.6% of New Hampshire spending, according to the National Association of State Budget Officers. That’s 10 percentage points higher than K-12 education spending (19.6%).

Despite having the lowest poverty rate in the nation, New Hampshire devotes a higher share of its state spending to Medicaid than all other New England states except Maine. To the extent that Medicaid funds health insurance coverage for able-bodied adults who could purchase insurance on the private market or obtain it from an employer, these are wasted dollars that could fund other state priorities or be returned to taxpayers.

Activists and some legislators have expressed alarm that Gov. Kelly Ayotte has proposed a premium payment for some Medicaid recipients. Given the size of the Medicaid spending problem, Ayotte’s proposal is extremely modest and should meet with zero opposition. Maine, Massachusetts, Connecticut and New York charge premiums to some Medicaid recipients. New Hampshire should have been doing this all along.

Though a premium is a good start, it can’t be the end of the conversation. A more serious reconsideration of Medicaid spending should follow. Long-time assumptions about the federal government’s ability to continue borrowing to pay for this program are no longer operable, and the state’s own contribution is straining other budget priorities.

It is not financially sustainable for Medicaid to continue consuming more and more of the state budget. If lawmakers are not reconsidering current levels of Medicaid eligibility and spending, particularly for the population that received expanded Medicaid coverage after the Affordable Care Act, they are setting the state up for a nasty fiscal surprise in the not-too-distant future.