CHICAGO - States already struggling to meet Medicaid payments face spending increases next year that could outstrip their general fund growth by up to four times, according to a new report on the program released by the Centers for Medicare and Medicaid Services.

Already a top budget item for states, spending on Medicaid is expected to easily outpace economic growth at the federal and local levels over the next 10 years, according to center's first fiscal annual report on the Medicaid program. It examines current spending and makes 10-year cost projections.

Medicaid spending in fiscal 2007 totaled $333.2 billion and 57% of that came from the federal government, while 43% came from state governments. That expenditure is expected to grow at an average rate of 7.9% annually over the next 10 years - compared to a projected growth rate of 4.8% in the general economy - and reach $674 billion by 2017. That pace of spending puts a "steadily increasing burden" on federal and state budgets over the next decade, CMS officials said in the report.

In an address here yesterday outlining the report, Kerry Weems, acting administrator of CMS, said Medicaid's cost is beginning to cramp the states' ability to make public policy decisions.

"The share of states' Medicaid spending today is roughly equivalent to the amount states spend for primary and secondary education - and is growing faster than education expenditures," Weems said.

"Every budget season, governors are forced to make difficult choices between important, competing priorities. To the extent that growing Medicaid costs crowd out other state expenditures and those expenditures are supplanted by federal funds, governors lose the authority to make policy," he said.

Medicaid is a joint federal-state program that, unlike Medicare, is largely funded out of federal and state general fund revenues, without a dedicated revenue source. The federal government matches state spending based on a formula that yields subsidies between 50% and 83%, according to the CMS.

Despite the federal matches, states are increasingly reporting difficulty making their payments under the program. State spending on the program between 1995 and 2007 remained fairly stable, totaling around 20% of the average state budget. But many states spend more on the program. Maine, for example, dedicates 31% of its budget to Medicaid.

Next year, states are facing a 4.4% growth in their share of spending on Medicaid - four times the rate of growth in the average state's general fund, according to the National Association of State Budget Officers.

Many states over the last few years have tried to slow spending on the program by either limiting benefits, eligibility, or cutting or freezing provider rates.

Some states, such as Illinois, which faces a major backlog on its Medicaid bills, continue to lobby federal authorities to increase their reimbursements. In a recent letter to the U.S. senators representing Illinois, Comptroller Dan Hynes said the state's ability to administer its Medicaid program is being further hindered by the current financial crisis and tightened credit markets.

In addition to asking for increased federal reimbursements, Hynes is also asking that federal authorities pay a single advance payment to provide cash liquidity to state governments. Currently a state is reimbursed for its Medicaid outlays only after it pays for those costs.

State efforts to curtail spending could slow Medicaid's future growth rates, said CMS officials, who are also urging Congress to implement a series of reforms to the current law.

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