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Improved Economy Eases Pressure on Medicaid

By Rebecca Adams, CQ HealthBeat Associate Editor

October 25, 2012 -- Lower-than-expected Medicaid enrollment growth led to an almost-record low in annual spending growth in the program in fiscal 2012, according to an annual Kaiser Family Foundation survey of 50 states released last week.

Medicaid spending in fiscal 2012, which ended June 30 in many states, grew by only 2 percent on average, which was slightly less than legislators expected. The main reason for the better-than-anticipated growth rates is that the economy improved and fewer people enrolled in the federal-state program. Enrollment grew by 3.2 percent, which the report noted was the lowest growth rate since the early days of the recession in 2008.

For fiscal 2013, legislators are planning for an average 3.8 percent total spending growth—a higher level than in fiscal 2012, but still one of the three lowest Medicaid growth rates in the past 15 years, according to the Kaiser analysis.

The reason for the higher growth expectation is that the economy is showing signs of recovery, which would bring in additional tax revenues and reduce demand for Medicaid services. About one-third of state officials said that they could face a Medicaid shortfall in fiscal 2013, compared to more than half of states that said so at the start of 2012, the report said.

Medicaid is a program with cyclical growth. When the economy is poor and people lose their jobs and insurance, more people become eligible, so enrollment increases and strains the system. A decade ago, spending growth was much higher than it currently is, reaching a rate of 12.7 percent in 2002 as rising enrollment produced greater demands for services. Then, in the middle of the decade, enrollment growth fell as the economy improved. In 2007, enrollment actually declined. But as people’s incomes fell during the recession and they lost insurance, enrollment growth picked up again. During the recession, Congress stepped in temporarily to provide additional funding for Medicaid and ultimately provided about $100 billion in higher federal payments from October 2008 through June 2011.

“While still a key priority, the singular focus on budget shortfalls and cost containment eased somewhat compared to prior years,” the report said.

Even though economic conditions are improving now, several states still cited concerns about Medicaid growth. The aging of the population was listed as a source of spending growth for 15 states as more people faced disabilities and health problems requiring long-term care needs.

State officials also reported continued action to lower costs, with 48 states in fiscal 2012 and 47 states in fiscal 2013 planning some type of change intended to lower costs. The most common strategy was lowering payments to medical providers. A total of 45 states cut provider payments last year, and 42 states said they plan to cut rates this year.

States also are considering trimming benefits. In fiscal 2012, 18 states eliminated or restricted benefits, while eight states in 2013 have plans to do so. The most common services that were targeted were dental, vision care, personal care services for the disabled, therapy and medical supplies.

Many states looked to trim benefits to save money because the 2010 health care law (PL 111-148, PL 111-152) restricts states from making major changes to eligibility or enrollment procedures through the law’s maintenance-of-effort provisions. Those restrictions will last until 2014 for adults and 2019 for children.

The use of managed care also continues to grow, the report said. In fiscal 2012, 20 states said they were expanding the use of managed care. In fiscal 2013, 35 states are expanding managed care—with 10 states saying that they use managed care to handle beneficiaries’ long-term-care needs.

State officials also are grappling with decisions about whether to expand their Medicaid programs starting in 2014 as the health care law allows. The law also requires states to streamline their enrollment procedures by 2014. The law offers a high federal payment matching rate of 90 percent if states put up 10 percent of the costs to upgrade or replace their Medicaid eligibility systems.

And almost all states said that they were taking advantage of that higher rate. (Currently, the federal matching rate for other services the federal government covers averages about 57 percent of costs).

The 130-page Kaiser report details Medicaid decisions in the states, including cost containment and enrollment changes to the use of managed care, based on a 20-question survey sent to all states. State policy makers have been known to turn to the report and its charts of state actions to track trends or find out what changes other states are making with their Medicaid programs. The analysis also includes a more detailed look at activities in Massachusetts, Ohio, Oregon and Texas.

Kaiser report (pdf)

Rebecca Adams can be reached at [email protected].

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