Implications of the New Medicare Prescription Drug Benefit for State Medicaid Budgets

For a number of years, Governors and other state policymakers have maintained that Medicare – rather than state Medicaid programs – should play the key role in providing prescription drug coverage to Medicare beneficiaries, including those who also qualify for Medicaid because they are impoverished and/or have extensive health care needs (i.e, the “dual eligibles”). Although the new Medicare prescription drug benefit law shifts drug coverage for dual eligibles from Medicaid to Medicare, it does not provide all of the fiscal relief that states had expected would accompany this shift, nor does it guarantee equivalent coverage to dual eligibles.

This issue brief describes the key provisions of the new law with implications for state Medicaid budgets and dual eligibles, reviews the estimates available at this time on the effect of these provisions on state Medicaid expenditures; and discusses why the fiscal impact of the new law can be expected to vary widely across states.

Issue Paper (.pdf)