Beware the Medicaid Hole

All signs are pointing toward Medicaid blowing an enormous hole in Missouri's next budget unless state lawmakers take action now to avoid the financial ditch.

For years, I've written about how big of a problem the Medicaid program is for Missouri's budget. More recently, I've discussed our state's broader budgetary troubles. Medicaid has long been Missouri's single largest budget item, and the size of the program continues to only increase. Since 2020, program enrollment has increased by more than 40%, with more than 1.4 million Missourians now on the rolls. Additionally, Medicaid's total cost has grown by nearly 80% in just four years, from approximately $10.8 billion to $19 billion.

One saving grace over this period of skyrocketing growth is that state taxpayers have been spared from the brunt of the cost increases due to an enormous injection of federal funds. This doesn't mean that state taxpayers aren't paying more for Medicaid today than ever before. In fact, state spending on the program has increased by more than 70% since 2020. But during that time, Missouri also experienced a tremendous run of state revenue growth, which, taken together with the increased federal funding, has meant that Missouri's lawmakers have staved off addressing the long-running Medicaid cost problem. Going into next year, things are going to change drastically.

The federal government has ended its "enhanced" pandemic-era match for Medicaid funding. Typically, the federal government pays roughly 65% of Medicaid enrollee's healthcare bills, but from 2021 until very recently, Missouri has received an additional 5% for adopting Medicaid expansion, and an additional 6.2% to help cover the increased program costs from the pandemic. Missouri lawmakers will have to replace the extra federal funds with state tax dollars.

This means that, without action, state lawmakers should expect the general revenue cost of the Medicaid program to increase significantly next year, likely by at least several hundred million dollars. And given that recent reports suggest that state tax revenue growth is expected to remain relatively flat, it's possible the cost of Medicaid might even increase by more than the state's tax collections. If that were to happen, unless reforms were made to the Medicaid program, significant budget cuts to other state spending priorities such as education, roads, or public safety would be needed to finance Medicaid's cost growth.

Unlike the COVID-19 pandemic, the coming budgetary shortfall is entirely predictable. The federal government gave states more than a year's warning for when it would be reducing Medicaid payments, but Missouri's elected officials have thus far chosen not to prepare for that reality. Successfully reforming Medicaid will take months to implement, which means that time is running out if policymakers want to make the changes necessary to steer our state clear of the budgetary shortfall that's ahead. Let's hope state lawmakers realize this sobering truth before it's too late.