Report studies sources of Medicare spending boost

Elderly and disabled account for majority of costs

Recent increases in Medicaid spending have been due largely to rapid increases in the enrollment of low-income families, according to a recent report released by the Kaiser Family Foundation and published in the journal Health Affairs.

The findings may be unusually pertinent at this time as Congress begins to debate the proposed White House budget for the 2006 fiscal year and as Mike Leavitt, the new Department of Health and Human Services secretary, lays out plans for Medicaid reform.

The report, which was sponsored by the Kaiser foundation’s Commission on Medicaid and the Uninsured, found that Medicaid spending increased in fiscal year 2003 to $276 billion, up a rather massive one-third from 2000.

From 2000 to 2003, Medicaid spending grew at an average of 10.2% annually, the report says.

However, state Medicaid cost-containment actions — ranging from curbing provider payment rates to reducing benefits — and a slowing of enrollment growth did serve to moderate Medicaid growth spending in 2003.

"Medicaid played its role as a safety net, providing coverage to those facing economic declines and loss of employer-sponsored insurance, but the result was a sharp increase in program costs," says John Holahan, study author and researcher at the Urban Institute.

"Medicaid enrollment growth undoubtedly kept the uninsurance rate from increasing more than it otherwise would have during this period," he explains.

Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured, says the real problems are rising health care costs and the ability of states to pay the bill, rather than out-of-control Medicaid spending.

"We know states are struggling with Medicaid spending and the pressure it puts on other state priorities, but this study shows that Medicaid costs actually grew at a slower rate than private insurance costs," she explains.

Comparing Medicaid’s purchase of acute-care services to private insurance costs shows the program’s cost increases are lower than those of private insurance.

The average growth rate of per-enrollee Medicaid costs for acute care from 2000 to 2003 was 6.9%, which is lower than the 9% increase in per-enrollee costs of the privately insured, and substantially lower than the growth in employer-sponsored insurance premiums (12.6 %), the report says.

Bulk of funds go to 25% of beneficiaries

Although Medicaid purchases health care services in the marketplace for 75% of its beneficiaries, the bulk of Medicaid spending — roughly 70% — finances health and long-term care for the 25% of beneficiaries who are elderly or individuals with disabilities. Federal and state governments share joint responsibility for funding the program, according to the report.

During the period of time studied, 68% of the growth in Medicaid spending was attributable to acute care, and 30% to long-term care due to the faster growth in enrollment of children and nondisabled adults into the program.

At that time, 90% of Medicaid’s total enrollment growth (8.4 million) was from families, with only 10% from the elderly and individuals with disabilities.

Although families dominated Medicaid enrollment growth from fiscal year 2000 through 2003, they only accounted for 44% of Medicaid spending growth. The elderly and individuals with disabilities accounted for 56% of spending growth.

The report also notes that, even though the elderly and the disabled are a minority of the Medicaid population, they are responsible for the majority of program costs due to their intensive use of services.