WASHINGTON (Reuters) – Fueled by the needs of a growing elderly population, U.S. spending on long-term health care under the Medicaid program will soar in the next 20 years, a report released Monday predicted.

Spending for long-term care for elderly and disabled people under the Medicaid health insurance program for the poor will total $3.7 trillion in the next two decades, according to the report by America’s Health Insurance Plans, an industry group.

That includes $1.6 trillion projected to be spent by individual U.S. states and $2.1 trillion in federal money, according to the report. Long-term care includes nursing homes and in-home care for people unable to live independently.

“Medicaid’s position as the payer of last resort for long-term care — despite the presence of long-term care insurance available in the marketplace today — will continue to create budgetary difficulties for states and the federal government over the next two decades,” the report read.

With members of the post-World War II baby boom generation quickly reaching retirement age, experts have warned of growing medical costs. The Medicare federal health insurance program for the elderly does not pay for long-term care.

Medicaid covers long-term care expenses for low-income people and people who previously were not classified as low income but have spent down their assets to the point of reaching Medicaid eligibility.

Medicaid spending for long-term care will expand at a faster rate than overall U.S. health care spending, Medicare expenditures and the overall economy, according to the report.

It forecast that under current trends, annual Medicaid expenditures for long-term care would grow from $51.5 billion in 2008 to $115.6 billion in 2027. In 2008, 15 U.S. states are projected to spend $1 billion on long-term care services under Medicaid. By 2027, the number is forecast to reach 25.

Economist Paul London, a former U.S. Commerce Department official who prepared the report along with Daniel Shostak of Maryland-based Strategic Affairs Forecasting, called the projected spending “stunningly large.”

Shostak added, “This means that states will have a difficult time paying for both Medicaid and other priority areas such as education, criminal justice and transportation.”

The report said New York, California and Pennsylvania would have the highest expenditures. Long-term care currently accounts for about 30 percent of total Medicaid expenditures.

Under Medicaid, states determine who is eligible and which services are covered, and the federal government reimburses a portion of state spending. States generally cover about 43 percent and the federal government 57 percent.

The report is available on the Internet at http://www.ahip.org/content/default.aspx?docid=24597.

(Editing by Julie Steenhuysen and David Wiessler)