IP-1-1993 (January 1993)
Author: Barry Poulson

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For many years virtually everyone has agreed that the current Medicaid system is broken, but instead of fixing it we simply throw more money at it. Medicaid costs rise far faster than the rate of inflation or the rate of health care cost increases. Yet few people believe that Medicaid adequately provides essential health care for the needy.

The Medicaid system was created in 1965 as an amendment to the Social Security Act of 1935. The program provides medical assistance to certain impoverished persons who are aged, blind, or disabled, or members of families with dependent children. According to the Congressional Budget Office, about 15 million nonelderly Americans are covered by Medicaid. Medicaid is funded from federal and state tax revenues.

From the outset the costs of the Medicaid program have increased more rapidly than costs for health care services in general, and each year account for a larger share of total health care dollars spent in this country. In recent years the costs of Medicaid have increased at a very rapid rate and have absorbed a larger share of both state and federal tax dollars. In Colorado, for example, during fiscal year 1990/91 the legislature spent $28.3 million in excess of the general funds appropriated, and most of that excess spending was accounted for by unanticipated higher costs of the Medicaid program.
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