Study Links Medicaid Costs to Enrollment Jump

State and federal spending on Medicaid grew by almost one-third over three years, from $205.7 billion in 2000 to $275.5 billion in 2003, according to the analysis released Jan. 26 by John Holahan, director of the Health Policy Center at the Urban Institute, a Washington think tank.

The study found the chief reason for the growth spurt was that 8.4 million more people turned to Medicaid, which now serves 52 million people nationwide. Medicaid’s ranks swelled as the economy went into a tailspin and people lost their jobs and employer-sponsored health insurance, or their incomes fell within Medicaid eligibility limits, the paper said.

States had been expanding Medicaid eligibility to cover more people during the mid-to-late 1990s when the economy was booming.

The Medicaid safety net prevented the number of uninsured, which recently hit a record 45 million people, from growing substantially higher, Holahan said. He added that if the government had imposed limits on Medicaid spending during that time, as proposed by the Bush administration in 2003, Medicaid would have been unable to pick up the newly uninsured.

“It would have been hard for states to respond to an increasing demand for enrollment under a regime of tight caps on spending growth,” Holahan said at a Washington, D.C., press conference hosted by the nonprofit

Kaiser Commission on Medicaid and the Uninsured.

Holahan’s conclusions come on the brink of an impending debate on Capitol Hill over how to trim the ballooning federal deficit, a discussion that could lead to efforts to rein in runaway Medicaid costs. States are concerned that President Bush might call for cuts or other policies to curb Medicaid outlays in his upcoming budget proposal. The nations’ governors and state Medicaid directors strongly oppose cuts in federal Medicaid spending.

In 2003, the Bush administration proposed giving states the federal portion of Medicaid dollars in lump sum payments, ending a system in which the federal government currently matches states’ expenditures even as costs escalate. In exchange, Bush offered greater flexibility in how states run their Medicaid programs, but states rejected the plan.

In testimony before Congress this month, newly confirmed Health and Human Services Secretary Mike Leavitt, a former Utah governor and head of the Environmental Protection Agency, refused to rule out budget cuts in Medicaid.

The nation’s governors sent

a letter

to Congress Dec. 22, 2004, arguing against drastic program cuts in Medicaid or shifts of additional costs to the states. A bipartisan group, lead by Virginia Gov. Mark Warner (D) and Arkansas Gov. Mike Huckabee (R), is holding weekly talks on Medicaid behind closed doors to hammer out its own reform plan.

The governors’ next private discussion will be held during a conference call Jan. 27, according to Christine LaPaille, spokeswoman for the National Governors Association.

“It will be a battle between the federal government and the states in the coming months over who pays what in this program,” said Diane Rowland, executive director of the Kaiser Commission, the nonpartisan research organization that funded Holahan’s study.

The paper noted that states imposed a number of cost-saving measures in the face of rising Medicaid costs, such as cutting eligibility, reducing optional benefits such as vision and dental care and slashing payments to health care providers such as hospitals and nursing homes.

In part because of these actions, Medicaid was fairly successful at controlling costs when compared to the private market, the study found. During the three-year period, spending on services such as hospital care and prescription drugs for each individual Medicaid recipient went up 6.9 percent, while per-person spending in the private market increased 9 percent, the paper found.

While the economy is slowly improving and enrollment growth is tapering off, state officials fear budget pressures are not likely to subside. Spending in Medicaid is still outpacing the upward tick in state revenues, and health care costs continue to climb.

In January 2006, when the new federal Medicare prescription drug benefit begins, the poorest elderly people will be eligible for an additional low-income subsidy from the federal government. As these seniors sign up for Medicare, many of them may discover they also are eligible for the state Medicaid program, causing enrollment to swell, said Nancy Atkins, chairwoman of the National Association of State Medicaid Directors and commissioner for West Virginia’s Bureau for Medical Services.

In addition, Atkins said, states also will get hit with the so-called “clawback” provision that requires states to finance a large chunk of the Medicare drug benefit by making monthly payments to the U.S. government based on a formula.

Click here to read Holahan’s full analysis, which is available online in the academic journal Health Affairs.