State Responses to the Medicaid Spending Crisis: 1988 to 1992

In recent years the growth of Medicaid spending has been a serious state budgetary problem. Between 1988 and 1992, state Medicaid expenditures increased at an average annual rate of 21 percent. Even when accounting for funds from special revenue programs, such as provider tax and donation programs, state Medicaid spending increased by 16 percent each year between 1988 and 1992, which is far higher than in previous years. This rapid expenditure growth occurred when states were having economic slowdowns and facing fiscal pressures in many other areas. Using a case study approach, we investigated the strategies used by nine states to address the recent surge in Medicaid spending. Despite fiscal pressures, the states generally avoided large-scale cutbacks in Medicaid. Instead they implemented a wide range of budgetary actions to reduce the effect of Medicaid growth, including incremental program cutbacks, constraining other budgetary sectors, shifting program costs to the federal government, and raising state taxes.