Spending on Social Welfare Programs in Rich and Poor States. Final Report.. 2. Recent Changes in Spending on Health Care: Medicaid

07/01/2004

The site visits largely indicated that the spending trends and state differences found before 2000 continued even through the recession. Perhaps the clearest example was the continued growth of Medicaid in these states. In most of the six poor states, the growth in spending on Medicaid before 2000-indicated by increases in the Census Bureau's Vendor Payments for Medical Care category-continued through 2003, despite budget pressures in the states.

Exhibit IV-5 illustrates changes in per capita spending on Medicaid, including federal as well as state expenditures, from federal FYs 1997 to 2003. These data come not from the Census Bureau but from Medicaid administrative data on program spending. The data series include the six case study states plus the mean of all states in the U.S. as well as the mean of the six poor states.

Exhibit IV-5.
Per Capita Spending on Medicaid in Six Poor States, 1997-2003 (federal and state)

Per Capita Spending on Medicaid in Six Poor States, 1997-2003 (federal and state)

As the graph shows, spending on Medicaid among the six poor states typically grew faster than the average per capita spending among all states in the U.S. Although not shown in the graph, the average per capita spending among the six poor states was slightly below the national state average from 1997 through 2000. By 2001, however, the poor state per capita average was higher than the national average and remained so through 2003.

Four of the states (i.e., South Carolina, Arizona, New Mexico, and West Virginia) showed continued or even accelerated growth in nominal spending after 2000. Growth was especially strong in New Mexico and Arizona. Only Louisiana, which had spent the most per capita on its Medicaid program in 2002, substantially reduced its spending in 2003, while Mississippi showed little change.

Spending growth in Medicaid in recent years was especially high among the two western states, Arizona and New Mexico. Although Arizona's per capita spending remained well below that of other states throughout this period, New Mexico's per capita spending on Medicaid exceeded that of the other five states and was well above the national average by 2003. The large regional differences among these states in their per capita expenditures on Medicaid thus declined in recent years.

The reasons for this continued growth in spending and growing convergence among the poor states were many, but some factors were widespread. The economic cycle and the growing costs of pharmaceutical drugs and home/personal care services were widely cited in site visits as forcing up spending. Another major force was the expansion of Medicaid enrollments in recent years as a byproduct of child health insurance program (CHIP) outreach activities in the late 1990s and early 2000s. In one state, for example, administrators thought that two Medicaid participants were found and added for every new CHIP enrollee.

Respondents also indicated that Medicaid programs in their states were limited to begin with. Large parts of their budgets were driven by mandatory services rather than optional services or optional groups. Major cutbacks in eligibility were, thus, often impossible without federal cutbacks.

Yet some of the growth resulted from major program expansions since 2000. The most striking change occurred in Arizona. State voters overrode years of legislative opposition to Medicaid expansion in 2000 by enacting a citizen's initiative, Proposition 204 that greatly expanded Medicaid coverage to include households up to 100 percent of the federal poverty level. Enrollment grew from 575,000 in January 2001 to 902,500 in January 2003. The state also took advantage of the Health Insurance Flexibility and Accountability (HIFA) initiative, which allowed eligible working parents of children enrolled in the SCHIP program to qualify for coverage. Louisiana expanded eligibility, as well, for children, aged, and disabled in FY 2003, and it increased eligibility among pregnant women to include all those under 200 percent of the federal poverty level.

Some of the growth in Medicaid spending seemed attributable to a lack of fiscal pressures in some states. New Mexico, as noted already, was little affected by the recession and was able to cover its substantial increases in Medicaid costs with its large operating reserves. Officials attributed some of the program growth in recent years to delayed efforts to institute cost-saving measures, such as preferred drug lists.

When cuts were made, they were generally reductions in services or reimbursements, not new restrictions on eligibility. In Louisiana, Medicaid prescriptions were limited to eight per month; upfront payments to hospitals for outpatient services were reduced; and subsidies for the state's charity hospitals were cut. South Carolina lowered ceilings on the number of office visits, prescription drugs, and home health visits, and it reduced reimbursement rates for physicians, though not for hospitals and nursing homes. In general, however, these cuts were marginal and were not expected to greatly slow Medicaid spending.30

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