November 8, 2012

The myth of the exploding safety net

Richard Kogan, Off the Charts -  A new Congressional Research Service report shows that federal spending on low-income programs has risen significantly in recent years.  Does this mean that safety net programs are growing out of control and are a major cause of the nation’s long-term budget problems, as some have suggested?  No.

Virtually all of the recent growth in spending for means-tested programs is due to the recession and rising costs throughout the U.S. health care system, which affect costs for private-sector care at least as much as for Medicaid and other government health programs.

The Congressional Budget Office projects that federal spending on means-tested programs other than health care will fall substantially as a percent of gross domestic product as the economy recovers (see graph) — and fall below its 1972-2011 average.

To be sure, Medicaid is projected to rise significantly as a share of GDP, largely because of the growing cost of health care throughout society.  Medicaid, however, isn’t the cause of this systemwide cost growth.

Per-beneficiary costs have risen more slowly in Medicaid than under private insurance over the past decade and are expected to continue doing so.  Moreover, it costs Medicaid much less than private insurance to cover people with similar health status because Medicaid pays providers lower rates and has lower administrative costs.  And the health reform law is testing new methods of delivering health care, which hold the promise of cutting costs and improving the quality of care throughout the U.S. health care system.

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