Medicaid Spending Rises Only Slightly

Medicaid Spending Rises Only Slightly
Some States Will Expand Program
By Christopher Lee
Washington Post Staff Writer
Wednesday, October 11, 2006; A03

Medicaid spending rose by 2.8 percent in fiscal 2006, the smallest increase in a decade, according to a study released yesterday by the nonprofit Kaiser Family Foundation.

At the same time, state tax revenue grew by 3.7 percent as the economy continued to improve, the survey of 50 states and their Medicaid directors found.

Together those trends signal that the state-federal program that pays for health care for the poor and disabled is emerging -- at least temporarily -- from a period in which many states limited eligibility, benefits and reimbursement rates for health-care services in a drive to corral costs. For 2007, only five states plan to restrict eligibility, while 26 indicated they will restore benefits, relax application and enrollment restrictions and undertake new outreach efforts.

"The program continues to grow, but it is not out of control," said Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured.

"We now see that as the economy is improving that the states are looking at how they can best meet the needs of their citizens using the tools they have available to them."

With total annual costs of more than $300 billion, Medicaid serves more than 50 million people and its fortunes rise and fall with the economy. In tough economic times, when more people are out of work and hurting financially, Medicaid rolls swell. But that is when it is hardest for states to pick up their 40 percent of overall Medicaid costs, because a slumping economy also sends state tax revenues plummeting. (The federal government pays the balance of the costs.) The crunch typically leads Medicaid officials to scramble to impose cost-containment measures as part of broader efforts to rein in overall state spending.

Everything tends to turn around when the economy improves, with state coffers more flush and fewer people eligible for Medicaid. While 2002 and 2003 were lean years for states, the past two were better.

The slower growth in Medicaid spending documented by the Kaiser report was a product of both the improving economy and continued cost-containment efforts, Rowland said. Spending growth would have been even slower, but states had to fork over billions of dollars to help pay for the new Medicare drug benefit, which covers about 6 million low-income people who used to get prescriptions through Medicaid, the report found.

Even in good times, there is upward pressure on enrollment as the population ages and an increasing number of people lack health insurance. Medicaid enrollment grew by 1.6 percent in fiscal 2006, the lowest rate since 1999, the survey found. It does not take many people to drive up costs, however. About 4 percent of the Medicaid population, generally the elderly and disabled, accounted for 48 percent of the program's expenditures in 2001, the survey showed.

Anne Marie Murphy, Medicaid director for Illinois, said officials there have combined expansion and outreach in recent years with a new emphasis on prevention and managing health-care services.

"We have been very focused on controlling utilization," she said. "We want people to get health care, but to get necessary health care. We want to spend our money wisely and be a prudent purchaser of care."

Although pressure to hold down costs continues, many states plan to expand coverage in 2007.

In California, about 95 percent of Medicaid-eligible children are already enrolled -- but officials will go after the uninsured 5 percent, said Stan Rosenstein, the state's deputy director of medical care services. "The governor has put in major funding for outreach, and we are making major simplifications to our application and redetermination process," he said.

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