Medicaid Funding Pressures on State Budgets and Federal ARRA Support

Medicaid: While We Focus on Federal Government Dynamics, It’s Notable that State Government Medicaid Funding Also Faces Significant Challenges e Medicaid = Major and Growing Expense Line Item for State Governments - Medicaid funding responsibility is shared between federal & state governments. States with higher per-capita income (like New York) pay ~50% of total Medicaid cost while states with lower per-capita income (like Mississippi) pay ~22%. - Onaverage, Medicaid accounted for 21% of total state spending in F2009 (ranging from Missouri at 35% to Alaska at 8%). Enrollment growth has been accelerating, in part, owing to more people losing employer-sponsored health insurance in the recession, and thus overall Medicaid costs jumped ~11% Y/Y from October, 2009 to June, 2010. - State governments (which unlike the federal government must balance their annual budgets) cannot pay for such elevated levels of Medicaid and maintain normal spending levels for other services (like education and public safety). e Enter the Federal Government - ARRA (2009 economic stimulus) provided ~$100 billion in support for the states to pay for elevated levels of Medicaid costs and to avoid large budget cuts in education and public safety. This went a long way toward holding down the states’ contribution, but it is a one-time unsustainable fix. e Federal Support May Be Expiring by June, 2011 - Ifno action is taken, the Medicaid-related cost burden on the states will rise dramatically in coming years. As aresult, many states are on the verge of implementing Medicaid cost containment plans that include cuts in doctor payments, benefit limitations, higher patient co-payments, etc. Moreover, many states are fearful that the recently enacted healthcare reform will lead to additional Medicaid- related costs when it goes into full effect in 2014. KP Data Source: National Conference of State Legislatures, “State Budget Update: July 2009.” (@)E) www.kpcb.com USA Inc. | Income Statement Drilldown 99 Rising Debt Periodic Large , Level & Interest One-Time Spend pend Payments Charges Entitlement Note: *denotes F2010 net income / net loss of respective programs, data per White House OMB. 1) Medicare and Social Security net loss excludes Trust Fund interest income. 2) TARP net loss includes proceeds from sale of warrants. TARP is Troubled Asset Relief Program; ARRA KP is American Recovery & Reinvestment Act programs. (@E) www.kpcb.com USA Inc. | Income Statement Drilldown 100 HOUSE_OVERSIGHT_020891