Historical and Projected Trends in Medicaid. VII. Projections of Enrollment and Spending <sup>13<sup>

10/30/2006

a. Enrollment Trends and Projections

Enrollment growth in the Medicaid program will play a large part in determining future spending. According to figures presented by OACT in the President’s FY 2007 Budget, Medicaid enrollment is expected to increase from 47.2 million enrollees in 2004 to 58.6 million in 2016, a 24 percent increase (see Figure 10).

The growth in enrollment will vary by eligibility category, affecting the share of total enrollees in each of the four general categories. The number of children enrolled in Medicaid is projected to increase from 29.2 million in 2004 to 35.9 million in 2016, an increase of 6.7 million children (23 percent). However, the percent of total enrollees that children represent will have slightly declined from 49.8 percent to 49.3 percent. Conversely, while the number of aged enrollees will have increased by only 1.7 million (5.3 million to 7.0 million), this is a 32 percent increase in the number of aged in Medicaid. The aged’s share of total Medicaid enrollment will have increased from 9.0 percent to 9.7 percent.

This uneven growth by eligibility category will affect spending trends. The increase in enrollment is estimated to be disproportionately larger for categories of enrollees that have higher per capita spending.

Figure 10

Figure 10: Historical and Projected Trend in Medicaid Enrollment by Eligibility Category

Source: President's FY 2007 Budget and CMS Office of the Actuary historical data.


Figure 11

Figure 11: Percent Distribution and Change in Medicaid Enrollment by Eligibility Category, 2004-2016

Source: President's FY 2007 Budget Baseline for Medicaid, CMS


b. Medicaid Trends in Comparison to General Health Care Spending Trends

Spending on health care under public programs increased at rates greater than spending from private sources from the late 1990s to early 2000s. According to earlier estimates from OACT, the federal share of Medicaid spending had increased from $76.8 billion to $162.5 billion from 1993 to 2003, a 112 percent increase in total spending, or an average annual rate of increase of 10.3 percent; higher than the total expenditure rate of 8.2 percent (see Table 4).

Table 4. Current and Projected Health Care Spending Billions of Dollars

  Average Annual Percent Change
Source of Funds 1993 2003 2004 2015 1993-2003 2003-2004 2004-2015
Total Expenditures $916.5 $1740.6 $1877.6 $4031.7 8.2 7.9 7.0

Private

514.2 957.2 1030.3 2116.4 8.6 7.6 6.5

Public

402.3 783.4 847.3 1915.3 7.8 8.2 7.5

Total Medicaid

122.4 271.2 292.7 669.7 8.6 8.3 8.3

Federal

76.8 162.5 173.1 384.4 10.3 6.6 8.2

State

45.6 108.7 119.6 285.3 6.9 10.0 8.3

Source: “Health Spending Projections Through 2015: Changes on the Horizon,” OACT, Health Affairs, February 22, 2006


IN 2004, the rate of increase in public spending was 8.2 percent, compared to an overall increase of 7.9 percent and a private spending increase of 7.6 percent. Medicaid, in particular, among other public programs, increased spending by 8.3 percent between 2003 and 2004. The federal share of Medicaid spending increased by 6.6 percent while the state share increased by 10 percent.

Beginning in 2004 it is projected that the rate of increase in Medicaid spending will again exceed the rate of increase in overall health care spending. Projections by OACT indicate that total health care spending will continue to increase at over seven percent per year for the next ten years while Medicaid spending is expected to increase at a rate of nearly eight percent per year.

More recent estimates from OACT indicate that total Medicaid spending will increase from $298 billion in 2004 to $690 billion in 2016 (see Figure 12), an overall increase of almost 131 percent (10.1 percent per year). Federal spending will have increased from $176 billion to $387 billion and state spending from $122 billion to $303 billion, increases of approximately 9.2 percent per year and 11.4 percent per year respectively.

Figure 12

Figure 12: Current and Projected Medicaid Spending: Federal, State, and Total, 2004-2016

Source: President's FY 2007 Budget Baseline for Medicaid, CMS


c. Spending Trends by Service Type

While overall Medicaid spending is expected to increase by 132 percent between 2004 and 2016, spending for different services will experience strikingly different rates. With rates of spending similar between state and federal expenditures, Table 5 uses federal spending as an example of variation in rates of spending by type of service.

The most visible variance from the overall rate of increase is the much smaller spending increase for prescription drugs due almost entirely to the shifting of coverage of low-income elderly prescription drug spending from Medicaid to Medicare. Between 2005 and 2007 federal Medicaid spending on drugs is expected to decrease from $20 billion to $9 billion. After 2007, the increase in spending on drugs will continue at an annual rate near the overall rate of increase. Because of this shift in coverage from Medicaid to Medicare, federal Medicaid spending on drugs will comprise about 5.9 percent of total spending in 2016, down from 11.4 percent in 2004.

Spending on nursing facilities comprises the largest dollar category of spending in 2004 with $33.5 billion and 20.8 percent of total spending. Its growth rate at 8.3 percent annually will cause spending on nursing facilities to remain the largest spending category of Medicaid at 23.5 percent of total spending in 2016. Home health spending will also increase at a larger rate than other categories, increasing its total share of spending to 18 percent in 2016.

Federal Medicaid spending on home health services will experience the fastest rise in expenditures at 63.2 percent in this time period. Its share of total spending will increase from 11.0 percent in 2004 to 18 percent in 2016.

Table 5. Change in Amount and Distribution of Federal Medicaid Expenditures By Type

  2004 2016 Percent Change*
$$ Bil % $$ Bil % % $$ %
Total 160.8 100 370.4 100    
Nursing facility 33.5 20.8% 86.9 23.5% 159.4 12.8%
Health Ins Payments 27.7 17.2% 61.6 16.6% 122.4 -3.3%
Hospital 31.6 19.7% 66.6 18.0% 110.8 -8.7%
Drugs 18.3 11.4% 21.7 5.9% 18.6 -48.6%
Home Health 17.7 11.0% 66.5 18.0% 275.7 63.2%
Other 8.3 5.2% 22.5 6.1% 171.1 16.8%
Medical Prof 9.1 5.7% 18.3 4.9% 101.1 -13.3%
DSH 8.7 5.4% 11.6 3.1% 33.3 -42.0%
Other Acute 5.9 3.7% 14.7 4.0% 149.2 7.3%

Source: President's FY 2007 Budget Baseline for Medicaid, CMS


d. Medicaid and GDP

Medicaid spending will exceed the rate of growth of other economic indicators. GDP is expected to rise by about five percent per year toward the latter half of the next decade, while Medicaid spending is predicted to rise by 8.5 percent. As a result, Medicaid is predicted to consume a greater percent of GDP by 2015, rising from 2.5 percent in 2003 to 3.3 percent in 2015 (see Figure 13).

Figure 13

Figure 13:Medicaid Spending as Percent of GDP

Source: CMS, OACT (http://www.cms.hhs.gov/NationalHealthExpendData) and “Health Spending Growth Slows in 2003,” Cynthia Smith et al, CMS, Health Affairs, January/February 2005.


e. Per Capita Spending Trends

Because of the increasing cost of care covered by the Medicaid program, per capita spending will increase over the next decade. Per capita spending by Medicaid will continue to rise, doubling from $3,500 per person in 2004 to $6,300 in 2016 (see Figure 14).

Figure 14

Figure 14: Projected Federal Medicaid Per Capita Spending

Source: President's FY 2007 Budget Baseline for Medicaid, CMS


13 OACT projections use OMB pricing assumptions, SSA wages and market basket trends, and state budget projections, among other factors, to adjust trends from historical bases.

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