Trends Since 1980
Over the past three decades, federal expenditures on intergovernmental grants have fluctuated as a share of total federal outlays and GDP (see Figure 1). Spending declined by those measures in the 1980s, a period that also saw the combination of many grants into block grants, which provide state and local governments a specified amount of money and broad flexibility over spending decisions. [See General Accounting Office, Block Grants: Characteristics, Experience, and Lessons Learned, GAO/HEHS-95-74 (February 1995), www.gao.gov/products/HEHS-95-74.] For instance, block grants replaced existing grant programs that focused on mental health and alcohol and drug abuse; maternal and child health; low-income energy assistance; and community development. Subsequently, spending on intergovernmental grants grew as a share both of federal outlays and of GDP. That increase was largely the result of expansions in grants for health programs, although spending for grants not related to health also grew.
Much of the increase in outlays as a share of GDP over the past several years can be attributed, in part, to grants provided to state and local governments under the American Recovery and Reinvestment Act of 2009 (ARRA) and subsequent extensions of some provisions of that legislation. The slower pace of economic activity in general also played a role. State and local governments received additional grants in 2009 and 2010 to support and expand their spending for education, health, transportation infrastructure, and other programs. The increase in outlays for many of those programs started to abate in 2011. By one accounting, $264 billion in ARRA funds was paid out to states and localities as of January 18, 2013. [See Government Accountability Office, “Following the Money: GAO’s Oversight of the Recovery Act” (accessed March 1, 2013), www.gao.gov/recovery.] Most of the growth in federal grants to state and local governments since the early 1980s has been for programs that benefit individuals, through payments that state and local governments have made directly to those beneficiaries or through payments to service providers on their behalf. Such programs include Medicaid, the Children’s Health Insurance Program (CHIP), housing assistance, and TANF. [The federal government also provides assistance directly to individuals through a number of programs that are not classified as grant programs. See, for example, Congressional Budget Office, Policy Options for the Social Security Disability Insurance Program (July 2012), www.cbo.gov/publication/43421; and The Supplemental Nutrition Assistance Program (April 2012), www.cbo.gov/publication/43173.]
Health and Nonhealth Grants. In 2011, federal grants to state and local governments were $607 billion, of which $293 billion (roughly 48 percent) was for health programs and $314 billion (roughly 52 percent) was for other programs.
Adjusted for inflation, the amount of federal grants for health programs in 2011 was about seven times the amount in 1980 (see Figure 2). Over that period, such grants more than tripled as a share of GDP, rising from 0.6 percent in 1980 to 1.9 percent in 2011. In particular, the share of federal health grants in the national economy has increased significantly, primarily because of rising federal spending on Medicaid. (For additional information about Medicaid and the related Children’s Health Insurance Program, see Box 1).
A number of factors have contributed to the growth in federal grants for Medicaid. [For more discussion of the growth of Medicaid spending, see Congressional Budget Office, Growth in Means-Tested Programs and Tax Credits for Low-Income Households (February 2013), www.cbo.gov/publication/43934.] Over the past three decades, enrollment in Medicaid has nearly tripled, rising from about 20 million enrollees in 1980 to about 53 million in 2011. [See Centers for Medicare & Medicaid Services, Medicaid Financial Management Reports (CMS-64 and predecessors) and Medicaid statistical data (MSIS, HCFA-2082, and earlier statistical reports).] The amount that the federal government spent on benefits per enrollee grew rapidly as well, from about $1,700 in 1980 to about $5,200 in 2011 in real terms (that is, after adjusting the 1980 figure to 2011 dollars to remove the effects of overall inflation). Changes in enrollment were driven by population growth, by changes in the laws governing eligibility, by states’ choices about the groups of people eligible for the program, and by the effect of the economy on the size of the eligible population. Changes in spending per enrollee were driven by federal and state choices regarding covered health care services as well as by medical price inflation and technological changes. In addition, over the past 30 years, states implemented a number of financing arrangements that effectively shifted some program costs to the federal government.
Box 1.
Medicaid and the Children’s Health Insurance Program
Medicaid, enacted under title XIX of the Social Security Amendments of 1965, offers health insurance coverage to eligible low-income individuals and families, including children and their parents, pregnant women, the disabled, and the elderly. Funded jointly by the federal government and the states, the program is administered at the state level. In fiscal year 2011, an estimated 53 million people were enrolled in Medicaid on average each month, accounting for $275 billion in federal expenditures. According to the Centers for Medicare & Medicaid Services, states spent $157 billion on Medicaid in 2011.
The federal government’s share of spending for Medicaid benefits varies from state to state. Historically, that share has averaged about 57 percent; but from fiscal year 2009 through June 2011, legislation temporarily boosted the federal share in response to the economic downturn. In 2011, the federal share averaged about 64 percent. Under the Affordable Care Act, starting in 2014, states may expand eligibility for Medicaid to most nonelderly adults whose income is below 138 percent of the federal poverty level. [The Affordable Care Act encompasses the Patient Protection and Affordable Care Act and the health care provisions of the Health Care and Education Reconciliation Act of 2010 as well as, in the case of this document, the effects of subsequent related judicial decisions, statutory changes, and administrative actions.] From 2014 to 2016, in states that choose to participate in the expansion, the federal government will pay 100 percent of the costs of covering enrollees who are newly eligible for the program. From 2017 to 2020, the federal share of that spending will decline gradually to 90 percent, where it will remain thereafter.
States administer their Medicaid programs under federal guidelines that specify a minimum set of services that must be provided to designated categories of low-income individuals. Required services include inpatient and outpatient hospital services, services provided by physicians and laboratories, and nursing home and home health care. Eligibility is mandatory for certain groups, including low-income children and families who would have qualified
for the Aid to Families with Dependent Children program, certain other low-income children and pregnant women, and most elderly and disabled individuals who qualify for the Supplemental Security Income program. Subject to those requirements and other statutory limits, states have flexibility in administering the Medicaid program and determining its scope. States may choose to make additional groups of people eligible or to provide additional benefits, and they have exercised those options to varying degrees. Moreover, many states seek and receive federal waivers that allow them to provide benefits and cover groups that would not otherwise be covered under Medicaid. Partly as a result, the program’s rules are complex, and it is difficult to generalize about the types of enrollees covered, the benefits offered, and the cost sharing required of enrollees.
The Children’s Health Insurance Program (CHIP) is a jointly funded federal-and-state program that provides health insurance coverage to uninsured children living in families with modest income that is too high for them to qualify for Medicaid. Like Medicaid, CHIP is administered by the states within broad federal guidelines. Unlike Medicaid, however, CHIP is a matching-grant program with a fixed nationwide cap on federal spending. In 2011, federal spending on CHIP was $8.6 billion, and about
8 million people were enrolled in the program at some point during the year. The federal share of CHIP spending varies among the states but averages about 70 percent.
Grants provided to state and local governments for purposes other than health have grown at a slower rate (see Figure 2). Even so, in real terms, spending on grants for income security programs has more than doubled since 1980. (Income security programs provide cash or in-kind benefits for assistance with housing, the purchase of food, and other services.) As of 2011, income security constituted the second largest budget function for federal intergovernmental grant outlays after health. (For the purposes of organizing the budget, federal
resources are grouped into 20 general-subject categories—referred to as budget functions—that represent the national interests being addressed.) Expressed as a share of GDP, intergovernmental grants provided for purposes other than health declined in the 1980s and since then have been roughly stable.