Medicaid costs will consume an increasing share of state resources, making it difficult to sustain funding levels for higher education and other discretionary programs over the next decade, a study by the University of Virginia’s Miller Center concludes.
The report released Tuesday by the center’s new National Commission on Financing 21st Century Higher Education projects “a dismal outlook” for public higher education funding largely because of “the continued crowding-out of discretionary budget categories by Medicaid.”
“This is going to be a problem. We need to start working on it now,” said Ray Scheppach, the commission’s director and a senior lecturer at the Batten School of Leadership and Public Policy.
The report was the first by the commission, a nonpartisan effort launched by the Miller Center last month to study alternative funding models.
Medicaid was selected for the first study, Scheppach said, because it is required spending that is like “the Pac-Man of state government.”
“Medicaid is the driver,” he said.
The report projects slower economic growth over the next decade and rising Medicaid costs through 2024.
Nationally, Medicaid spending accounted for less than 10 percent of state-sourced funds 30 years ago. In fiscal 2013, the share grew to more than 15 percent, with a resulting squeeze on higher education, according to the study. Higher-ed funding has fallen from around 14 percent of state-sourced spending in the late 1980s to just under 13 percent today.
The analysis, which was conducted for the commission by Moody’s Analytics, found state-by-state results vary significantly.
In Virginia, Medicaid’s share of total state spending was 11 percent in fiscal 2013, while higher education’s share was 14.1 percent. By 2024, higher education’s share is projected to be 13.5 percent and Medicaid would account for 14.3 percent.
The projections are based on the current number of states opting for Medicaid expansion under the Affordable Care Act — Virginia has not — although the report expects more will opt in.
If Virginia opts in, higher-ed’s share of state spending would be 13.5 percent in 2024; Medicaid’s would be 14.9 percent.
Nationally, the analysis predicts Medicaid spending will grow between 6 and 8 percent per year over most of the decade then accelerate after 2020 as the federal share of Medicaid declines.
National state Medicaid spending is projected to reach 17.9 percent by fiscal 2024.
“That equates to as much as $60 billion spent on Medicaid over the next decade that previously would have been available for discretionary items such as higher education,” the report says.
Higher-education spending will grow less than 4 percent per year. Except for a few states, the share of total state spending for higher education will decline between .25 and .50 percentage points over this period.
Peter Blake, director of the State Council of Higher Education for Virginia, said by email the report is based on “a number of assumptions — all of which will change over the next 10 years or so.”
The “crowding out” impact already has been felt in Virginia as state funding has declined over the past generation, he said.
But he added “investment in an efficient system of higher education will contribute to a stronger economy. It is one strategy that can reduce financial pressures on other public services.”
Scheppach said without greater investment the nation risks losing its competitive edge, citing estimates that 60 percent of working-age adults will need a postsecondary credential by 2025.
“If we don’t increase the number we will have a serious competitive problem in the world economy,” he said.