Medicaid Spending Sees First Decline

Medicaid spending sees first decline

Posted 11/26/2006 11:09 PM ET

By Dennis Cauchon, USA TODAY

Medicaid spending has declined unexpectedly this year, the first drop since the health program for the poor was created in 1965.

The historic reversal will free up billions of dollars in state budgets. Medicaid has been the fastest-growing expense for states over the past 10 years.

Medicaid spending fell 1.4% in the first nine months of the year compared with the same period a year ago, according to the Bureau of Economic Analysis. The drop was even greater — an unprecedented a 5.4% decline — after adjusting for the rate of health care inflation.

The spending has been reduced by cost-controlling efforts and a shift of some prescription-drug expenses to Medicare, the federal health program for the elderly.

"States have made really aggressive changes in how care is managed in Medicaid," Arizona Medicaid Director Anthony Rodgers said. "Every state has taken a different approach, but the success can be seen almost everywhere."

Medicaid provides health care to 56 million poor Americans. The federal government sets broad rules for the program and pays 57% of the expense. States run the program and pay 43% of the cost.

The program is on track to spend $300 billion in federal and state money in 2006, the Bureau of Economic Analysis reports.

Medicaid is separate from Medicare, which insures 42.5 million elderly and disabled. That program — run entirely by the federal government — will spend about $384 billion this year, up 15.6%.

Some Medicaid savings are the result of shifting costs to the federal government's Medicare program. The new Medicare prescription-drug benefit pays most pharmaceutical costs for 6 million elderly poor who used to have their bills paid by Medicaid. Under the new drug plan, states reimburse Medicare for some money saved, but not all.

This complicated cost shifting between the two programs makes it impossible to know precisely how much Medicaid cost cutting is simply shifting expenses to the federal program. A USA TODAY analysis estimates that Medicaid spending would have been about flat — or down 4% after adjusting for inflation — without the new federal drug benefit.

Substantial Medicaid savings resulted from many small cost-containment policies adopted in recent years. The changes include shifting the elderly from nursing homes to less-costly home health care, cracking down on fraud, refining the management of high-cost patients (such as those with AIDS or hemophilia) and cutting some payments to hospitals and doctors.

"This is a unique event. No doubt about it. And there are lot of reasons for it," said Vic Miller, senior fellow at the Federal Funds Information for States, a research group sponsored by states.

Key examples:

•Ohio spent about 10% less on Medicaid from July through October than a year earlier. The $310 million reduction includes $37 million less paid to nursing homes and $32 million less to hospitals. "It's many things, not one sea change," Ohio Medicaid spokesman Jon Allen said.

•Michigan spent $1 billion less than budgeted and $311 million less than it spent a year earlier.

•New York planned for a 7% spending increase this year but now predicts a 3.8% increase.

Posted 11/26/2006 11:09 PM ET