Survey: States Counting on Lower Costs as Medicaid Enrollment Slows

As states were drafting their 2012 Medicaid budgets this summer, they faced the biggest leap in general fund spending since the program began — a whopping 29 percent increase. That’s mainly because federal stimulus dollars for the program dried up, leaving states to shoulder their traditional share of the bill — about 50 percent.

As a result, state lawmakers authorized only a 2 percent increase in overall spending for the federal-state health insurance program for low-income people — one of the lowest growth rates on record. That’s according to a 50-state survey released Thursday (October 27) by the Kaiser Family Foundation.

“The big question is whether states will actually be able to keep to that low rate of growth,” said Vernon Smith, director of Health Management Associates, and co-author of Kaiser’s 11th annual Medicaid survey.

States’ low spending growth projections are largely a function of tapering enrollment as the national economy slowly recovers. Cost containment measures adopted in nearly every state over the last decade are also paying off. But the projections likely reflect an element of wishful thinking, as states continue to face severe revenue shortfalls.

According to the survey, respondents in more than half of all states reported a 50-50 chance of a Medicaid budget shortfall. Officials in nearly one-quarter of states said a shortfall was almost certain.

In spite of increasing budget pressures on state Medicaid programs — and pressing deadlines for implementing the federal health law — survey respondents reported efforts to improve their services. “One of the things that has become increasingly evident is the focus on quality improvement,” Smith said in a press briefing following release of the report.

According to the survey, states are taking a broad range of approaches to quality improvement, including:

• expanding the use of managed care;

• adopting initiatives to coordinate care for seniors and adults with disabilities who are eligible for both Medicaid and Medicare;

• offering more elders the choice of receiving services in their homes and communities, rather than in nursing homes; and

• implementing health information technology initiatives such as improved claims management systems, increased use of electronic health records, and streamlined enrollment procedures.

The survey, conducted in July and August of this year, also looked at Medicaid budget actions implemented in fiscal year 2011, and those adopted for fiscal year 2011. The most commonly reported cost-cutting strategy in both years was reducing fees paid to hospitals and other health care providers. Thirty-nine states lowered fees in 2011, and 46 reported plans to do so in 2012.

States also reduced services, such as dental, providing medical supplies and durable medical equipment and personal care. In addition, nearly every state made substantial changes in their pharmacy programs, including limits on the number of drugs and the number of refills the program will pay for and reductions in the price paid for certain specialty drugs.

Among the most controversial cost-reduction measures were higher co-payments for beneficiaries. Five states raised co-payments in fiscal year 2011, and 14 states did so in fiscal year 2012. Most co-payment hikes were for pharmacy and emergency room care, although Arizona, California and Florida have requested federal permission to go farther.

As for enrollment, Kaiser’s survey showed a 5.5 percent average growth rate in 2011 and a 4.1 percent growth expectation for 2012. Medicaid enrollment grew at its fastest pace in 15 years when it hit a 12.7 percent growth rate in 2003. Since the recession began in 2008, the highest annual growth rate has been 7.8 percent in 2009.