New study confirms slowdown in Medicaid growth, reduces pressure on Congress to pass reforms
Medicaid Growth / Congress
December 31, 1996
A slowdown in spending will likely spare Medicaid from major reforms when a new Congress convenes in January, according to a growing number of analysts and policymakers in Washington DC.
After rising at double digit rates in the early 1990s, a new study shows that Medicaid outlays are rising at considerably lower levels, a pace analysts predict will likely continue through the early part of the 21st century.
A report prepared by the Urban Institute for the Kaiser Commission on the Future of Medicaid projects that Medicaid spending will climb an average of 7.4% a year through 2002, lower than the 9.5% growth rates logged between 1992 and 1995, and about one third the 22.4% annual growth rates recorded between 1988 and 1992.
The Urban Institute findings come amid federal reports that Medicaid spending growth between 1995 and 1996 alone reached a record 3.2% rate, the lowest level ever for the program.
While most observers say this year’s rate is a one-time anomaly triggered by states’ anticipation of block grants, it is contributing to a growing perception of a moderating Medicaid program.
"Much of the policy debate in the last Congress was fueled by concern that Medicaid spending was out of control and needed to be reined in," says Kaiser Commission Chairman James Tallon. It appears "this goal can be achieved without major program restructuring," he adds.
There are many factors contributing to the slowdown in Medicaid spending, including an improved economy, which has enabled recipients to leave Medicaid rolls (although not necessarily get employer-sponsored health coverage), lower medical price inflation, widespread adoption by states of managed care, and the effects of a three-year-old law that limits the level of disproportionate share hospital dollars states can recoup.
Although the Congressional Budget Office (CBO) won’t be releasing its baseline estimates for Medicaid spending until January, the Urban Institute projects that Medicaid spending will grow to $147 billion by 2002, $59 billion lower than what CBO had estimated last April when it predicted federal spending would grow from $95.7 billion to $166.4 billion and enrollment would swell to 43.1 million from 36.8 million.
If CBO’s estimates for 1996 spending are as low as other federal analysts say, Medicaid’s contribution to the federal deficit would be significantly smaller than what had been expected. The Urban Institute estimates the federal government would save $94 billion between 1996 and 2002. "There would be much less money to be gotten out of Medicaid," acknowledges a House health staffer who works on Medicaid issues.
National Governors’ Association Executive Director Raymond Scheppach predicts that the Medicaid spending trends will dampen widespread enthusiasm among lawmakers for block grants or any other controversial Medicaid reforms, such as capping spending.
"We have a different political climate" than what existed in 1995 and 1996, he says. Although the 105th Congress remains in Republican hands, President Clinton has made clear that block grants won’t fly. Mr. Scheppach doubts that the new Congress will have the appetite to challenge Clinton amid indications of a downturn in spending, particularly since Medicare reform is likely where the health care battle will be focused next year.
Medicaid isn’t totally in the clear, however. Balancing the budget remains a top priority for the Clinton Administration and the Congress. Mr. Scheppach acknowledges that "it is going to be hard to get from here to there without looking at Medicaid."
If CBO estimates that Medicaid spending will grow in the 8-9% range, Mr. Scheppach warns the program will fall under the budget knife. Even a 7% growth rate, while low, is still twice the rate of medical inflation and much higher than general inflation. "The lower it gets, the greater the odds are that we’ll get through this without significant hits."
Bruce Bullen, who directs Massachusetts’ $3.4 billion Medicaid program and chairs the National Association of State Medicaid Directors, says states have known for some time that many of the specific causes of the increases in Medicaid are no longer present. But he warns of a
danger in assuming that the program is under control. "There has been no fundamental or structural change in Medicaid," he says. Many of the changes affecting spending growth "are outside the program’s control," Mr. Bullen says, adding that a slight downturn in the economy could cause rolls to swell and spending to soar once again.
Mr. Scheppach says in the meantime states plan to work with Congress and the Administration to institute incremental changes to Medicaid to make it more efficient, including improving the waiver approval process and reducing administrative hurdles.
He doubts that the slowdown in growth projected for the next several years will spur states to expand benefits or widen enrollment to more uninsured, however. Governors "are keeping a tight grip on spending," Mr. Scheppach says. They are committed to cutting taxes, making their programs more efficient, and "building huge balances." — Janet Firshein
Contact Mr. Scheppach at 202-624-5320, Mr. Bullen at 617-348-5500 , Mr. Tallon at 202-347-5270. For a copy of the Urban Institute/Kaiser Commission report "Where is Medicaid Spending Headed?" call 202-347-5270.
New study confirms slowdown in Medicaid growth, reduces pressure on Congress to pass reforms
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