Medicaid Spending Grew One-Third in Fiscal Years 2000-2003, Study Finds

Medicaid spending increased by one-third between fiscal years 2000 and 2003 to $276 billion, driven largely by significant increases in enrollment during the economic downturn, according to a report commissioned by the Kaiser Commission on Medicaid and the Uninsured and published on the Health Affairs Web site, Reuters reports. The study, conducted by researchers John Holahan and Arunabh Ghosh of the Urban Institute, analyzed data from all 50 states and Washington, D.C. (Heavey, Reuters, 1/26).

During the study period, Medicaid spending grew an average of 10.2% annually, with spending growth increases slowing to 7.1% in fiscal year 2003 because of slower enrollment growth and cost-containment strategies -- including lower provider reimbursements and reduced benefits -- enacted by states, the report says (CQ HealthBeat, 1/26). The growth rate in FY 2003 is comparable to those in the late 1990s, according to the report.

According to the report, spending on acute care services accounted for 68% of the growth in Medicaid spending during the study period, while long-term care accounted for 30% of the growth. The higher percentage of spending growth attributable to acute care services was the result of a faster rate of increase in enrollment of children and nondisabled adults.

Between FY 2000 and FY 2003, 90% of Medicaid's total enrollment increase of 8.4 million was from families, the report says. Only 10% of the enrollment growth was from the elderly and individuals with disabilities (CQ HealthBeat, 1/26). Families accounted for only 44% of Medicaid spending growth, while the elderly and those with disabilities accounted for 56% of the spending growth, the report finds. Although the elderly and disabled represent a minority of Medicaid beneficiaries, they are responsible for most of the program costs because of their intensive use of services, according to the report.

The report says that Medicaid's spending growth increases were lower than those of private insurance. Average cost growth per Medicaid beneficiary between FY 2000 and FY 2003 was 6.9%, compared with 9% for those with private insurance and 12.6% for those with employer-sponsored insurance (KCMU release, 1/26).

The researchers also noted that the number of people who are seniors or have disabilities also increased during the study period because of the aging population and because new medical technologies boosted lifespans. They added, "That growth is likely to continue during most of the decade" (Reuters, 1/26).

Holahan said, "Medicaid played its role as a safety net, providing coverage to those facing economic declines and loss of employer-sponsored insurance, but the result was a sharp increase in program costs." He added, "Medicaid enrollment growth undoubtedly kept the uninsurance rate from increasing more than it otherwise would have during this period" (KCMU release, 1/26). Holahan said the overall increase in enrollment during the study period also might have resulted from rising prescription drug prices, which likely drove more eligible people to enroll in Medicaid to cover costs (Reuters, 1/26).

Diane Rowland, executive director of KCMU, said, "We know states are struggling with Medicaid spending and the pressure it puts on other state priorities, but this study shows that Medicaid costs actually grew at a slower rate than private insurance costs" (KCMU release, 1/26). She added, "The real problem is rising health care costs and the states' ability to pay the bill, and not that Medicaid spending is out of control."

Nancy Atkins, chair of the National Association of Medicaid Directors, said that any efforts to reform the Medicaid program "need to be balanced against the role Medicaid plays in health care spending" (CQ HealthBeat, 1/26). The report is available online.