Skyrocketing Medicaid Costs Will Swallow Up 40% of State Budget in Less Than 30 Years

Medicaid's growth rate is unsustainable and will swallow up 40% of the state's budget by 2040, threatening to bankrupt Texas and force huge cuts to future investments in education and public safety, according to the latest comprehensive report by the Texas Public Policy Foundation. 

At the current rate of growth, Medicaid costs will double every ten years, reaching a total of $38 billion in 2020 and $144.5 billion by the year 2040. If ObamaCare is allowed to stand, the report shows that the consequences will be even more devastating.

Medicaid has grown faster than any other government program since the 1990s. As Medicaid costs have increased, the rest of the budget has suffered. In 2000 Medicaid accounted for 17 percent of the state's general revenue budget, but by 2007 had grown to 22 percent. At the same time, education spending dropped from 62 to 57 percent and the public safety's portion from 12 percent to 11 percent. Should this trend continue, education and public safety will take the brunt of the cuts, and Texas will find it harder and harder to meet its constitutional obligations.

Without sweeping reforms, the state stands to lose $155 billion for education, $21 billion for public safety, and $26 billion for business and economic development, proving the Medicaid program is too large and comprehensive to tweak here and there.
 
One alternative is for the 82nd legislature to raise the sales tax by at least three cents. This would cover the $10 billion needed for Medicaid by 2014, without offsetting budget cuts, but fail to solve the problem long-term, essentially punting on it for four years. It would also give Texas the highest sales tax burden in the nation. This, as the TPPF report indicates, is not a viable option.

If the state can find a way to keep Medicaid costs at the same percentage of the budget as they now stand, the taxpayer would actually save money, Texas could shore up its finances, and more funds would be available for other services. If not, by 2040 Medicaid will have become the principal service to voters and taxpayers, but the majority of Texans will not see benefits from this program.

The full report, “The Big Squeeze”, can be viewed at www.TexasPolicy.com.