Record Increase in State Medicaid Spending Projected

Continuing economic woes at the state and federal levels, increased Medicaid enrollment, and the end of the federal stimulus program will contribute to a projected 29% increase in states’ spending for the Medicaid program in fiscal year 2012, according to a survey of Medicaid officials in all 50 states, released Thursday from the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured. That would be the largest increase in Medicaid history.

The American Recovery and Reinvestment Act was a double-edged sword for the Medicaid program. While it pumped more than $100 billion into state coffers to help hold down program costs, it was short-lived, lasting only three years, and it restricted states from cutting Medicaid beneficiaries. The program ended in June 2011, leaving states with fewer dollars to cover more enrollees.

"Unemployment remains high with increasing numbers of poor and uninsured keeping pressure on state budgets and Medicaid programs to meet growing needs," said Diane Rowland, executive vice president of the Kaiser Family Foundation, in a statement. “The cumulative effect of two recessions since 2001 and a decade of constrained spending has left no cushion and many of the latest cuts will hit at the core of the Medicaid program."

The joint state-federal Medicaid program provides healthcare coverage for 59 million beneficiaries and accounts for 16% of national health spending. Almost 75% of the enrollees are adults and children; the elderly and disabled account for the remaining beneficiaries.

States are taking multiple steps to tighten their Medicaid belts. The most common strategy has been to reduce provider payments. Some 39 states already take that step and seven more report plans to implement payment reductions in 2012. Other steps include:

• New and increased copayments. Six states have already made copayment changes and 14 more expect to follow suit in 2012. Pharmacy benefits and emergency rooms account for most of the copayment changes.
• Reduced or limited benefits. States are trimming benefits and imposing utilization limits on optional benefits such as dental services, therapies, medical supplies, durable medical equipment, and personal care services. Almost all states have added preferred drugs lists to their pharmacy benefit package and many are looking at implementing cost controls on specialty drugs, as well as introducing competitive bidding for pharmacy contracts.

States are also trying to make their Medicaid programs more efficient by making changes in how qualifying services are delivered. According to the Kaiser Foundation survey, these efforts are focused in three areas:

• Managed care. An estimated 66% of Medicaid beneficiaries are enrolled in some form of managed care. At least 17 states expanded their Medicaid managed care programs in FY 2011 by adding geographic areas and expanding the eligible populations. Another 24 states are poised for expansion in FY 2012.
• Disease and care management. States are expanding their disease and care management programs to help coordinate care for dual Medicare-Medicaid eligibles and beneficiaries with chronic conditions. According to the survey, 37 states have submitted letters of intent to expand their efforts to coordinate care for “dual eligibles”—people qualifying for both programs.
• Long-term care. More than 33 states are shifting Medicaid long-term care away from institutions and into community-based settings.

Despite these efforts, Medicaid officials in more than half the states said in the survey that there is a 50-50 chance that they will see a budget shortfall in FY 2012 as Medicaid enrollment continues to grow. But there is also some good news for Medicaid in the survey—the rate of enrollment growth has steadily declined since 2009. States project a 4.1% enrollment increase in 2012. That’s down from a 7.8% increase in 2009.