Last year the American Recovery and Reinvestment Act authorized a temporary increase in the funding the federal government sends to states for Medicaid, easing the burden on imperiled state budgets. This additional funding will expire at the end of 2010, and despite considerable debate, Congress has taken no action to extend it through the first six months of 2011. Nevertheless, many states anticipated an extension in federal assistance and incorporated that assumption into their budgets for fiscal 2011, which began on July 1, 2010.

A new policy brief from Health Affairs and the Robert Wood Johnson Foundation examines the ramifications of extending this increase. According to the brief, Medicaid spending is estimated to grow by 10.5 percent in 2010, due to the huge increase in the number of people who are newly eligible for Medicaid. However, this increased demand for Medicaid coverage coincides with dramatically reduced state tax revenues, which in 2010 are down 12 percent from 2008 levels.

Without the extension, states may have to take drastic measures to balance state budgets. Proponents of the extension say it is essential to support the safety net and that it stimulates economic growth. Others argue the extension should only be approved if the additional federal spending is fully offset by federal budget cuts or increased federal revenues.