growth in Medicaid

Medicaid spending more than doubled from 1958 to 1992, reversing a long trend of cost containment in the program. Reasons for the cost explosion are severalfold. (1) Congress expanded eligibility to more children, pregnant women, and low-income elderly persons. (2) The recession has added more people to the Medicaid rolls. (3) Growing numbers of disabled cash assistance recipients have increased Medicaid enrollment, (4) States have increased their use of federal Medicaid funds to supplement previously state-funded programs and have become more skillful in leveraging federal funds to defray the cost of their Medicaid programs. This DataWatch explores the relative impact of enrollment changes, inflation, and increased reimbursement on the increase in Medicaid spending. Federal and state Medicaid spending has more than doubled in the past four years, increasing from $54.1 billion in 1988 to an estimated $119.8 billion in 1992 (including costs of administration). Current projections indicate that total Medicaid spending will exceed $140 billion in 1993 and could soon overtake total Medicare spending. This recent growth is a sharp change from Medicaid’s historical record of considerable cost containment-with costs growing no more quickly than general medical cost inflation and more slowly than either private health spending or Medicare spending. It is important to understand the reasons for the recent growth to determine whether Medicaid spending has somehow spun out of the control of federal and state policymakers or whether the rapid rise simply reflects growth in the size of and legitimate costs of serving a vulnerable population. One of the most frequent explanations blames the large number of congressional mandates that required states to expand their Medicaid programs to cover children and pregnant women. Other potentially important mandates include expansions to cover low-income elderly, new financial protections for spouses of nursing home residents, toughening of nursing home quality standards, and expansion of prevention and screening proJohn Holahan is director of the Health Policy Center at The Urban Institute. Diane Rowland is senior vice-president of The Henry J. Kaiser Family Foundation and executive director of The Kaiser Commission on the Future of Medicaid. Judith Feder was associate director of the Kaiser commission and currently is principal deputy assistant secretary for planning and evaluation, U.S. Department of Health and Human Services. David Heslam is a research assistant at The Urban Institute’s Health Policy Center. on S etem er 6, 2017 by H W T am H ealth A fairs by http://conealthaffairs.org/ D ow nladed fom 178 HEALTH AFFAIRS | Fall 1993 grams for children. Second, the recession added a sizable number of people to Medicaid rolls. Third, the growth in the number of disabled Supplementary Security Income (SSI) recipients and expanded efforts to increase participation of low-income people in Medicaid have increased Medicaid enrollment. In addition, it is hypothesized that states have become increasingly aggressive at shifting previously state-funded programs onto Medicaid. Finally, states have used provider taxes and donations to leverage federal funds to help defray much of the cost of Medicaid benefits as well as to increase payments to hospitals for indigent care. In this DataWatch we explore the relative importance of these factors. This analysis uses two sources of Medicaid program data collected by the Health Care Financing Administration (HCFA): the HCFA 2082 report, which provides expenditure and recipient data by eligibility group; and the HCFA 64 report, which is used by HCFA to determine federal matching contributions. Expenditure totals from the HCFA 2082 data have been adjusted to agree with the HCFA 64 data, which is regarded as the more dependable source. Edits also were made to the HCFA 2082 data at the state level in the case of obvious errors. Here we first examine growth in Medicaid expenditures by type of service and by eligibility group. (Expenditures in Arizona and the U.S. territories are excluded from the analysis, as are administrative expenditures for all states.) We then decompose Medicaid spending growth into shares due to enrollment increases, inflation, and use and payment increases above inflation over this period. Overview Of Medicaid Spending Growth Exhibits 1 and 2 show the growth in Medicaid spending across services and eligibility groups and medical price inflation during 1988-1992. A comparison of the last two columns of each exhibit illustrates that the contribution to total expenditure growth of a particular enrollment group or service depends not only on the growth rate of that component but also on its relative importance for total Medicaid spending. For instance, spending on inpatient hospital care grew nearly the most rapidly, increasing by 32.1 percent a year; it accounted for 40.6 percent of the expenditure growth, the largest share by far (Exhibit 1). Conversely, spending on home health care, payments to Medicare, and payments to health maintenance organizations (HMOs) grew by 23.9 percent, 25.5 percent, and 23.9 percent, respectively, but contributed far less to total expenditure growth (10.0 percent altogether) because even taken together they are a much less important share of the Medicaid program. Spending on nursing home care increased by only 13.6 percent per year-relatively low by recent Medicaid standards-but accounted for nearly 16 percent of total on S etem er 6, 2017 by H W T am H ealth A fairs by http://conealthaffairs.org/ D ow nladed fom