The bursting state fiscal bubble and state Medicaid budgets

States make policy choices about Medicaid eligibility, benefits, and reimbursement rates in the context of the larger state fiscal environment. This paper reviews the factors that made this environment so favorable in the 1990s and examines the state budget outlook. State tax revenue is likely to grow more slowly in this decade than in the last, states will face continued substantial pressures to finance K-12 and higher education, and Medicaid spending has accelerated. States will have to curtail the growth of Medicaid, raise revenue, or constrain growth in education spending to maintain balanced budgets.