More on the Myth of the Exploding Safety Net

November 2, 2012 at 1:44 pm

Our recent post on false claims of an ever-expanding safety net explained that 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.

We’ve since updated the CBPP analysis that we cited in that post to incorporate the latest Congressional Budget Office (CBO) projections and some other changes.  But the basic picture remains the same.

Our paper finds:

[F]ederal spending for low-income programs outside health care (including refundable tax credits such as the Earned Income Tax Credit) averaged 2.1 percent of GDP over the past 40 years.  This spending peaked at 2.9 percent of GDP in fiscal year 2010, a substantial increase.  But it has already fallen in 2011 and 2012, and CBO projects that it will return to the prior 40-year average of 2.1 percent by 2018 and then fall further, to 1.75 percent of GDP, by 2020 — a level well below the prior 40-year average (see graph).  The above figures include expenditures for both mandatory (entitlement) and discretionary (annually appropriated) programs. . . .

To be sure, Medicaid is projected to rise significantly in cost, relative to GDP, for several reasons.  To begin with, costs throughout the U.S. health care system — in both the public and private sectors — have been growing faster than GDP for several decades.  Medicaid isn’t the cause of this systemwide cost growth; over the past decade, in fact, per-beneficiary costs have risen more slowly in Medicaid than under private insurance, a trend expected to continue over the next ten years.

Moreover, Medicaid costs per beneficiary are substantially lower than those under private insurance (after adjusting for differences in beneficiaries’ health status), because Medicaid pays providers much lower rates and has lower administrative costs.

As we conclude, policymakers and others may hold different views about whether programs for the poor should stay at current levels, grow, or shrink.  But, the assumption that the universe of safety-net programs is experiencing ever-increasing costs is fundamentally wrong.

Click here for the full analysis.

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