CMS’s latest annual report states that under current law, Medicaid spending will “substantially” outpace U.S. economic growth over the next decade.

Specifically, the report projects that 2008 Medicaid benefits will increase 7.3 percent from 2007, reaching $339 billion. It adds that increases will grow at 7.9 percent over the next 10 years, reaching $764 billion by 2017. In comparison, the U.S. economy is projected to grow by 4.8 percent.

“This report should serve as an urgent reminder that the current path of Medicaid spending is unsustainable for both federal and state governments,” said HHS Secretary Mike Leavitt during a presentation of the report at last week’s fall meeting of the National Association of State Budget Officers (NASBO). “We must act quickly to keep state Medicaid programs fiscally sound. If nothing is done to rein in these costs, access to health care for the nation’s most vulnerable citizens could be threatened.”

The Medicaid growth rate compares to Medicare spending projections of 7.4 percent per year through 2017. Medicaid benefits spending over the next 10 years is projected to be $4.9 trillion. These amounts are in addition to that spent by federal and state governments on the State Children’s Health Insurance Program (SCHIP).

Both states and the federal government pay for services to Medicaid beneficiaries, with the fed matching state expenditures with subsidies that on average cover 57 percent of the cost. Even with federal support, states report they are struggling to meet their share of the expanding costs. Some states, such as Maine, are already spending as much as 31 percent of their budgets on Medicaid, according to NASBO.

“High and increasing Medicaid spending clearly leaves states less able to fund other state priorities,” said Acting CMS Administrator Kerry Weems. “This new financial report confirms that America’s health care system faces significant fiscal challenges.”

The full report can be viewed at: cms.hhs.gov.