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Fewer jobs means more spending on U.S. Medicaid

(Reuters) – Millions of people turned to the Medicaid health insurance program for the poor during the 2007-2009 recession as families coped with job losses and drastic drop in income, pushing Medicaid spending up by an average of 6.6 percent per year, according to a study released on Friday.

The study by the nonprofit Kaiser Foundation found that state and federal spending on the program, which states administer with partial reimbursements from the U.S. government, grew to $400 billion in 2010 from $330 billion in 2007.

That represents an average annual increase of 6.6 percent – far outstripping the 1.3 percent rate at which Medicaid spending rose from 2005 to 2006.

For medical services alone, such as acute care and prescription drugs, spending grew 6.9 percent annually on average over three years, reaching $358 billion in 2010.

The spending spike could be especially worrisome for states, which suffered the largest revenue collapse in decades from the combination of the recession, housing downturn and financial crisis. With less money coming in, almost all had to slash spending and increase taxes, along with using millions of additional dollars the federal government pumped into their Medicaid systems through the 2009 economic stimulus plan.

Now the stimulus aid is gone, and revenues have only recently begun recovering, which will make it hard for some states to cover the elevated costs. In some states, Medicaid can take up a third of the budget, and for almost all it eats up more than a fifth of spending.

Last month, Illinois Governor Pat Quinn called for saving $1.35 billion a year on his state’s Medicaid spending by reducing people’s eligibility for the program, saying that if Illinois does not act quickly its entire Medicaid system would collapse.

He is not alone in trying to cut spending through barring people from signing up for the program. Arizona has frozen enrollment.

The National Conference of State Legislatures said in a report on Thursday that 10 states are over budget o n Medicaid this year. A think tank that tracks states’ budgets, the Center on Budget and Policy Priorities, found that at least 20 states have made “identifiable, deep cuts in healthcare this year.”

The study by Kaiser’s Commission on Medicaid and the Uninsured found that the cost increase during the recession came almost entirely from enrollment growth. Eight million people joined the program from June 2007 to June 2010.

“During periods of economic downturn, people lose employment and income and are more likely to qualify for Medicaid; thus, program enrollment increases more rapidly as economic conditions worsen,” it said.

When broken down per person, annual Medicaid spending growth was smaller than the rises in national expenditures on health per capita and increases in private health insurance premiums per enrollee, the report said.

It also found that families accounted for most of the enrollment surge. Family enrollment in Medicaid increased by an average of 7.2 percent per year between 2007 and 2010. In contrast, between 2004 and 2007 “growth in family enrollees was fairly flat” at 0.4 percent.

“Once the recession began, families’ enrollment growth jumped from 3.3 percent at the early part of the period to over 9 percent as the recession deepened,” Kaiser said.

The recession officially ended in 2009, but worries about the economy remain, especially because the recovery remains slow. The Labor Department reported on Friday that U.S. employers cut back on hiring in April and more people stopped looking for work. The unemployment rate reached a three-year low of 8.1 percent due to people dropping out of the labor force.