MEDICAID SPENDING GROWTH HITS NEAR RECORD LOW
STATE REVENUES REBOUND

States Continue to Focus on Policies to Control Costs But Are Able to Focus on More Program Investments Than in Previous Years

WASHINGTON, DC – State revenues increased faster than Medicaid spending for the first time since 1998, according to a new 50-state survey released today by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured (KCMU).

The survey finds that an improved economy combined with the implementation of the new Medicare prescription drug benefit has contributed to a 2.8 percent growth rate in Medicaid spending for state fiscal year (FY) 2006 – the lowest rate of growth in a decade and the fourth consecutive year in which Medicaid spending growth has slowed. (See Figure 1 below.)

“When the economy improves, it is natural for Medicaid spending and enrollment growth to subside because fewer people turn to the program for assistance,” said Diane Rowland, executive vice president of the Kaiser Family Foundation and executive director of KCMU. “But with the continued growth in the uninsured population, Medicaid remains on the frontlines for coverage for low-income children and adults.”

Looking forward to FY 2007, the survey finds a handful of states (5) plan to restrict eligibility while over half (26) plan to restore cuts from previous years, expand to new populations, or make positive changes to Medicaid’s application and enrollment process. Additionally, states are contemplating new options and implementing new requirements created by the passage of the Deficit Reduction Act (DRA) this year, although few have used the flexibility to change benefits and cost sharing requirements for FY 2007.

The budget survey of state officials, conducted by KCMU and Health Management Associates for the sixth consecutive year, found that the spending growth of 2.8 percent would have been even lower (1.7 percent) had states not been required to finance a portion of the new Medicare prescription drug benefit via what is known as a clawback payment.

Despite the slowed growth, state Medicaid officials indicate that growing health care costs and the erosion of employer-sponsored health coverage are two reasons that overall pressure to constrain Medicaid spending has not subsided. In fact, based on budgets states adopted for FY 2007, Medicaid spending growth is projected to increase to 5 percent next year.

Medicaid Policy Initiatives for FY 2006 and FY 2007

While cost control remains a priority, state Medicaid officials appear to have moved away from a primary focus on cost containment to a range of priorities including expansions or restorations of eligibility and benefits, improving quality, and changing the delivery of long-term care services. All states implemented at least one cost containment strategy in FY 2006 and 49 states plan at least one for FY 2007. As in previous years, most cost containment strategies targeted provider rates and prescription drug spending. Balancing the cost control strategies, 49 states implemented in FY 2006 or planned for FY 2007 strategies to enhance provider rates or expand or restore benefits or eligibility. (See Figure 2.)

State Reactions to the DRA

With several new Medicaid changes included in the DRA, states are also adjusting their programs to accommodate required changes and contemplating options available via the new law. Over half the states expect the new citizenship documentation requirements effective July of this year to cause a decline in Medicaid enrollment. Most states also expect that the impact on beneficiaries of more stringent asset transfer provisions for Medicaid nursing home eligibility will be “moderate” or “significant,” but will have a limited fiscal impact on the Medicaid program.

States have plans to take advantage of new flexibility in the DRA to change their delivery of long-term care services. Two-thirds (34) of all states are moving forward with a long-term care partnership policy to encourage the purchase of private long-term care insurance, applying for a “Money Follows the Person” demonstration grant to increase the use of community versus institutional services, or adopting the cash and counseling option that allows for self-direction of personal assistance services. Several states are utilizing more than one of the approaches.

Few states have yet to take advantage of new flexibility provided in the DRA to change benefits or impose cost sharing in FY 2007. Nine states reported that their plans to pursue a Medicaid waiver were changed after the passage of the DRA. Kentucky, West Virginia, and Idaho (all states that had been seeking Medicaid waivers to change their programs) have used the DRA to change benefits. Kentucky also utilized new cost sharing options. Other states are considering the new options for the future.

Today’s released report, Low Medicaid Spending Growth Amid Rebounding State Revenues: Results from a 50-State Medicaid Budget Survey State Fiscal Years 2006 and 2007, and related materials are available online. In addition, an audio press briefing on the release will be available after 6 pm EDT today.

The Kaiser Commission on Medicaid and the Uninsured provides information and analysis on health care coverage and access for the low-income population, with a special focus on Medicaid's role and coverage of the uninsured. Begun in 1991 and based in the Kaiser Family Foundation's Washington, DC office, the Commission is the largest operating program of the Foundation. The Commission's work is conducted by Foundation staff under the guidance of a bipartisan group of national leaders and experts in health care and public policy.

The Kaiser Family Foundation is a non-profit, private operating foundation dedicated to providing information and analysis on health care issues to policymakers, the media, the health care community, and the general public. The Foundation is not associated with Kaiser Permanente or Kaiser Industries.

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