Medicaid Growth Slows, For a Bit

Medicaid spending increases slowed to one of the lowest levels ever last year, giving states a quick breather after a decade when the growth rate of the taxpayer-funded health program constantly outstripped growth in state revenues.

In a report released Tuesday (Oct. 10), the Kaiser Commission on Medicaid and the Uninsured found that Medicaid spending rose by 2.8 percent in the year ending June 30, down from a peak at 12.4 percent four years ago. Last year, state revenues increased 3.7 percent.

The combination of healthy revenue increases and slower Medicaid spending has “fundamentally changed the atmosphere in which Medicaid policy-making has occurred,” said the report’s chief author, Vernon Smith of Health Management Associates.

“For the past four or five years during the economic downturn, states could only play defense. Now states can also play some offense,” he said.

The better conditions made it easier for Illinois this year to start offering health insurance for all children, primarily through Medicaid, and for Massachusetts to pass a new law requiring all adults to obtain health insurance, Smith said.

It also means good news for businesses and the patients they treat.

Only three states plan to hike co-payments for services next year, and only nine plan to reduce benefits – substantially fewer than in recent years. And, for the first time in at least six years, no states plan to cut the rates they pay hospitals, doctors, nursing homes or managed-care organizations, Smith noted.

Several factors were at work in putting the brakes on Medicaid spending, according to the report.

First, the number of people on Medicaid leveled out. Medicaid rolls have swollen by 40 percent since 2000, but an improving economy helped slow the increase last year to just 1.6 percent.

Medicaid covers poor children and their parents, plus low-income seniors and the disabled. Because eligibility is based on income, fewer people qualify for Medicaid when the economy improves.

The second factor is a major change in who pays for prescription drugs for poor seniors. Until January, Medicaid footed the bill for those medicines, accounting for 6 percent of the total cost of the program. This year, though, Medicare, the federal health-insurance program for senior citizens, started paying for most of those prescriptions.

There is a catch for states, though. Instead of pocketing the money they saved from senior citizens’ drug bills, states must give most of it back to the federal government in “clawback” payments. If the states were allowed to keep that money instead, the increase in Medicaid expenses would have been even lower – 1.7 percent instead of 2.8 percent, according to the Kaiser report.

The third major reason for the slowdown of Medicaid costs is the cumulative effect of cost-cutting measures states took over the past five years, when Medicaid expenses ran rampant.

For example, some states made it more difficult for patients to get brand-name drugs, and others rolled out programs to coordinate care for patients with chronic health problems.

There is some bad news for states in the report, too. State officials are girding for another surge in Medicaid costs, budgeting for 5 percent increases in the program’s expenses this year.

Also, the amount of money states are paying for Medicaid is increasing at a faster pace than the cost of Medicaid overall.

Medicaid is a program run jointly by state and federal governments. The federal government pays for roughly 55 percent of the bills. The exact amount varies by state and is determined by a law that weighs a state’s economy against the nation’s.

But in the last two years, 37 states have received a smaller matching rate from the feds. Of the 13 that saw no reduction, 12 were already receiving the minimum 50-50 rate. Only Georgia saw its matching grants increase both years.

Medicaid reimbursements are the largest source of federal funds for states, accounting for 44 percent of the money the states receive from Washington, D.C. – more than transportation, education and welfare combined.

The Kaiser report is based on interviews and data obtained from the Medicaid directors of all 50 states and the District of Columbia.