what percentage of governmental spending goes to medicaid

Wellness Care Financ Rev. 2000 Autumn; 22(1): 105–112.

Medicaid Spending: A Brief History

Abstract

Medicaid spending growth has varied profoundly over fourth dimension. This commodity uses financial and statistical data to trace the history of Medicaid spending in relation to some of the major factors that take influenced its growth over the years. Periods of varying growth are divided into eight "eras," ranging from program startup in 1966 through the mail-welfare reform period. Boilerplate expenditure and enrollee growth for each era are presented and briefly discussed. Finally, some factors are mentioned that are likely to affect future growth in the Medicaid program.

Introduction

From less than $one billion in 1966, Medicaid has grown to a program whose expenditures are expected to top $200 billion in financial year (FY) 2000 (Health Care Financing Administration, 2000). During the same period, enrollmentⁱ has increased from 4 million to 33 million, and per-enrollee spending from less than $200 to more than $6,000. Medicaid spent about $4 per U.Due south. resident in 1966 and will spend nearly $750 per resident this year. This article reviews the history of Medicaid spending in relation to major events that have driven its growth in various "eras." The approach used is adapted from that found in Muse et al. (1985). The need for brevity necessitates omitting mention of many important aspects of Medicaid's history, some of which are discussed elsewhere in this upshot of the Review. Two excellent sources of pertinent information on factors affecting Medicaid spending over the years are Congressional Research Service (1993) and Coughlin et al. (1994).

Data Sources

Expenditures in this article take been derived from Medicaid Financial Management Reports (Form HCFA-64 and its predecessors). These forms have been in use since the inception of the Medicaid programme and correspond the most consummate and accurate source of information on Medicaid spending. Expenditures are on a total computable cost basis, (i.due east., both Federal and State shares are included) and include benefits and administrative costs.

Enrollment information presented here are taken from annual Medicaid Statistical Reports (Form HCFA-2082) for the period 1975-1998. Earlier data on Medicaid enrollment are derived from information constitute in Found for Medicaid Management, (1978) and internal HCFA documents. Enrollee data have been adjusted to a total-year-equivalent (person-year) basis, which takes into business relationship the number of months a person is enrolled during the yr (e.g., one person enrolled for 6 months is counted as i-one-half a person-year.) Since many persons are enrolled for less than the full year, the person-yr measure out is smaller than measures based on unduplicated counts of individuals ever enrolled during the yr (called "eligibles" in Grade HCFA-2082).

All years cited refer to the Federal FY as currently defined (October 1 – September 30), and all information have been converted to this basis.

Eras of Medicaid Spending History

As Figure ane demonstrates, Medicaid spending over the years has followed a typical "exponential" growth design, with periods of both faster and slower growth relative to the long-term tendency. Post-obit Muse et al. (1985) these periods of varying growth have been divided into "eras," which are briefly discussed. Components of growth rates during these eras are summarized in Tabular array 1.

An external file that holds a picture, illustration, etc. Object name is hcfr-22-1-105-g001.jpg

Medicaid Expenditures and Enrollment 1966-1999

Table 1

Medicaid Expenditure Growth, by Era

Era	Description	Annual Compound Rate of Growth

		Total Expenditures	Enrollees	Price Aggrandizement¹	Growth in Expenditures per Enrollee in Excess of Price Inflation

		Percent
1966-1971	Plan Startup	52.3	32.2	four.0	10.7
1972-1976	Early Amendments	17.nine	4.ix	half dozen.v	5.v
1977-1981	Medical Inflation	xiv.8	-0.vii	8.four	six.7
1982-1984	Retrenchment	7.viii	-0.3	four.5	iii.iv
1985-1990	Program Expansion	xi.viii	2.v	three.viii	5.ii
1991-1992	Taxes and Donations, DSH	27.3	12.2	3.four	9.7
1993-1996	Experimentation	7.9	3.half-dozen	ii.2	1.9
1997-1999ⁱⁱ	PRWORA, BBA	5.vi	-0.4	i.half-dozen	iv.4

Program Startup (1966-1971)

The growth of Medicaid during the first 6 years of its beingness is typical of most State-based programs at their inception. A number of States implemented programs immediately while others needed several years to get underway. By 1971, almanac spending had reached $six.5 billion, and enrollment had topped 16 1000000. Initial projections of Medicaid forecast less than one-half of this spending level, primarily because analysts profoundly underestimated the extent to which States would offer coverage of optional eligibility groups—specially the medically needy—and optional services. Enrollment growth also greatly exceeded original expectations.

As shown in Table 1, expenditures increased by more one-half, on boilerplate, each year during the startup period, while enrollment grew at an average almanac rate of almost one-3rd, reaching past 1971 almost half of what information technology would exist at the end of the century. Moreover, the rapid growth in covered services resulted in per-enrollee growth that exceeded economywide inflationⁱⁱ by virtually 11 percentage points.

Early Amendments (1972-1976)

The adjacent five years of Medicaid's history were heavily influenced by major amendments to the Social Security Act (SSA) that were passed by Congress in tardily 1971 and 1972. The 1972 amendments created the Supplemental Security Income (SSI) program, which federalized existing State cash aid programs for aged and disabled persons. Nearly all beneficiaries of SSI also receive Medicaid coverage, and the outreach efforts undertaken with the implementation of SSI resulted in meaning increases in enrollment amongst the anile and disabled in Medicaid, averaging nearly viii percent per year during the catamenia.

The 1971-1972 amendments also added as optional Medicaid covered services intermediate care facilities for the mentally retarded (ICF/MR) and inpatient psychiatric services for beneficiaries under age 22. Residents of these facilities, and the disabled in general, are among the most expensive groups in Medicaid.

Taken together, the 1971-1972 amendments contributed to total expenditure growth averaging 18 per centum per year during the 1972-1976 period. Driven by the growth in enrollment of persons with disabilities, total Medicaid enrollment grew at an average rate of about five percent per year, and past 1976 it had reached 20.7 1000000, a level from which it would non vary by more than than a few percent for the next decade.

Medical Inflation (1977-1981)

The period of the belatedly 1970s was marked past abrupt increases in economywide aggrandizement and fifty-fifty college increases in medical prices. General inflation rose at an annual average of eight.iv percent during the 1977-1981 menstruation, peaking at near eleven pct in 1980. At the same time, in that location were no significant legislative expansions of Medicaid eligibility or services during this period, and welfare caseloads were stable or failing. Although Medicaid enrollment actually declined past an average of 0.7 percent per year between 1976 and 1981, annual Medicaid expenditure growth averaged nearly 15 percent.

Retrenchment (1982-1984)

The tremendous growth of the previous decade led Congress and the Reagan Administration to consider means to reign in Medicaid spending. Administration attempts to place caps on the programme failed to pass Congress. However, in the Motorcoach Upkeep Reconciliation Human action of 1981 (OBRA-81), Congress did institute a 3-year reduction in Federal financial participation, cutting Federal matching rates by 3.0, iv.0, and 4.5 pct points in FYs 1982, 1983, and 1984, respectively, for States whose growth exceeded certain targets. OBRA-81 also reduced eligibility for welfare benefits, thus making it harder for poor families to qualify for Medicaid.

To assist States cope with reductions in Federal support, Congress enacted a number of flexibility provisions, which broadened State options for providing and reimbursing Medicaid benefits, as well as Country authority to limit coverage nether medically needy programs. In response, many States began to experiment with culling delivery and reimbursement systems, such as health maintenance organizations (HMOs) and other capitated programs, habitation-and-community-based waiver programs, and prospective hospital payment. The focus in Medicaid began to change from merely paying claims to managing services and the cost of intendance equally well. As a result of these changes and a drop in inflation pressures (full general price increases averaged about 4.5 percent annually, most one-half the rate of the previous era) Medicaid expenditures grew at an almanac average rate of less than 8 percentage between 1981 and 1984, while Medicaid enrollment remained stable with an annual average of just under xx million.

Program Expansion (1985-1990)

With continuing improvements in the economy and concern among policymakers that OBRA-81 may take spawned programme contractions that were too harsh, Congress embarked in 1984 on a series of Medicaid expansions that continued each yr through the terminate of the decade. The expansions affected nearly the entire spectrum of Medicaid enrollees from infants, children, and pregnant women to low-income Medicare beneficiaries, and other aged and disabled enrollees. Initially, States were offered options to expand coverage of these groups, but ultimately nearly of the options were converted by subsequent legislation into mandates, about notably in the Medicare Catastrophic Coverage Act of 1988 (MCCA). It was hoped that the increase in Medicare coverage of elderly and disabled persons under MCCA would help to offset part of the increased cost of the Medicaid mandates included in the bill. However, the Medicare provisions of the MCCA were repealed within a year, earlier whatever Medicaid savings impact could exist realized.

Historically, Medicaid eligibility for low-income families had been linked to receipt of cash help under Aid to Families with Dependent Children (AFDC). The legislation of this era began to weaken this link by specifying eligibility criteria based on income in relation to Federal poverty guidelines. For infants, children, and meaning women, this legislation introduced income-eligibility levels that were significantly higher than nearly States' AFDC payment levels and that were, different AFDC levels, indexed to the cost of living. For the depression-income aged and disabled, similar poverty-based income thresholds were put in place, with benefits ranging from the total Medicaid package (which has remained optional with States) to coverage of but Medicare premiums and/or cost sharing (mandatory).

Besides these bones eligibility expansions, the 1984-1990 period saw the enactment of many other pieces of legislation, besides numerous to mention here, that affected Medicaid eligibility, coverage, and reimbursement. A comprehensive treatment of these can be establish in Congressional Enquiry Service (1993).

Many of the expansions introduced between 1984 and 1990 were subject to delayed effective dates or phase-in provisions. (Coverage of children below the poverty level, for example, is still phasing in and volition not exist complete until 2002.) Thus, the total effect of this era's expansions was not felt during the menses. Boilerplate annual caseload growth, which turned positive over again at 2.five percent per year between 1984 and 1990, jumped to over 12 percent in the following ii years and continued to increase steadily through the mid 1990s (Figure 1). There were similar delayed impacts on Medicaid expenditure growth, which increased from the previous 3-yr catamenia to an average of eleven.8 percent per year during 1984-1990, but the stage had been set for even greater growth in the 2 years that followed.

Taxes and Donations and DSH (1991-1992)

Perhaps no era in Medicaid's history has presented more dilemmas for policymakers, budget officials, and estimators than the curt menstruum from 1991 to 1992. The mandates of the previous era, the recession, and other factors all combined to put force per unit area on already strained State budgets, almost of which were running deficits by 1991 or 1992. Increasing Medicaid caseloads (average almanac growth of 12 pct) and mounting expenditures prompted some States to plough to alternative financing mechanisms, which relied on disproportionate share infirmary (DSH) payments, combined with the employ of provider donations or provider-specific taxes as sources of the Land share of Medicaid spending.

Medicaid DSH payments, which were designed to assistance hospitals with a high proportion of low-income and Medicaid patients defray the touch of low reimbursements and uncompensated intendance, were required by law and, more than importantly, not bailiwick to the Federal limits that practical to all other types of Medicaid reimbursement. Thus a Land could, if it wished to do then, increase DSH payments to a provider to whatsoever level it might choose, recoup the increased payment through a donation from or tax on that provider, and thereby receive substantially unlimited Federal matching funds with petty or no increase in cyberspace State spending. By 1992, DSH payments had grown to more $17 billion, or more than 15 pct of total Medicaid spending, and provider tax and donation programs were accounting for about $viii billion in Land revenues (Coughlin et al., 1994). More than 30 States had or were planning to put provider tax or donation programs in place.

Concern over Land efforts to shift costs to the Federal Government, and a desire to resolve the disputes that had arisen over the Assistants's attempts to impose regulatory restrictions on tax and donation programs, led Congress in Nov 1991 to enact Public Constabulary 102-234, the Medicaid Voluntary Contribution and Provider-Specific Taxation Amendments of 1991. This legislation outlawed the use of most provider donations and restricted provider taxation programs to those that were "wide based" and did not hold providers "harmless" for their tax payments. Moreover, it placed a statutory amass cap on DSH payments at 12 percent of Medicaid spending.

Medicaid spending growth, which averaged over 27 percent per yr between 1990 and 1992, slowed considerably in the years following the enactment of Public Police 102-234, although DSH payments remain a significant share of total Medicaid spending.

Experimentation and Reforms (1993-1996)

The years that followed the cost explosion of the early 1990s saw the growth of a number of Medicaid reform efforts and experiments on the role of States. These included increased utilise of managed care and statewide health reform demonstrations under Section 1115 of the Social Security Act. By the end of 1996, more than 24 States, bookkeeping for over 60 pct of Medicaid spending, had demonstration projects that were either approved or awaiting. This menstruum also saw an improving economy, along with moderating price inflation (just 2.ii percent per year) and decelerating Medicaid caseload growth (averaging 3.6 pct, or virtually 30 percent of the previous era). Overall, Medicaid expenditure growth averaged less than 8 percent per yr.

The slowdown in spending growth, however, did non come soon enough to deter congressional proposals to convert Medicaid into a block grant program. In 1995, Congress considered establishing the "Medigrant" program, which would have ended the Federal Medicaid entitlement and capped Federal matching funds. Though this provision was not adopted, the prospect of a capped plan led States to accelerate spending in FY 1995, which was to be the base twelvemonth for calculating the cake grants (U.S. General Accounting Office, 1997). The resulting increase in 1995 expenditures contributed to a growth rate of less than two pct in 1996, the lowest one-year growth rate in Medicaid'southward history.

Welfare Reform and the Balanced Budget Act (1997-1999)

In 1996 and 1997, Congress passed 2 pieces of legislation that had meaning impact on Medicaid. The Personal Responsibility and Piece of work Opportunity Reconciliation Human action of 1996 (more informally known as "welfare reform") effectively decoupled Medicaid from greenbacks assistance for depression-income families by replacing AFDC with a cake grant program known as Temporary Aid for Needy Families. Families coming together the requirements for aid under the old AFDC rules continued to be eligible for Medicaid, although there is prove that many such families did not retain their Medicaid benefits (Garrett and Holahan, 2000).

In 1997, Congress passed the Counterbalanced Budget Deed (BBA). Along with other provisions, the BBA gave States the option of setting up Medicaid managed intendance programs without the waivers that were usually required for such programs. More than ane-half of all Medicaid enrollees are currently in some form of managed care program. The BBA as well placed farther restrictions on DSH spending. Nevertheless, the most meaning provision of the BBA from Medicaid'southward perspective established the State Children's Health Insurance Program (SCHIP), which authorized nigh $twoscore billion in Federal funding over 10 years (1998-2007) to provide health coverage to low-income children who did not qualify for Medicaid. States tin can use SCHIP monies to fund coverage of children through expansions of their Medicaid programs or through separate State programs under a new Title XXI of the Social Security Deed. At present, near twoscore percent of SCHIP funds are being spent under Medicaid. During FY 1999, more than 2 one thousand thousand children were enrolled under the combined Medicaid and separate SCHIP programs. (Notation: The statistics on Medicaid growth in this era do non include the SCHIP plan.)

The effects of welfare reform and a thriving economy resulted in iii straight years of caseload drops in Medicaid (1996-1998), averaging near 0.four percent per yr. At the same time, annual expenditure growth slowed to the lowest levels of whatever era in the program's history, averaging v.half-dozen percent in 1997-1999. However, when the decreasing caseloads and general price aggrandizement are factored out, real per capita Medicaid spending growth shows an upsurge since 1996, averaging 4.four percent compared with less than two percentage in the previous era (Table 1).

Futurity Trends

Equally this commodity shows, the factors that accept driven Medicaid spending over the years have varied profoundly from one era to the next, resulting in extreme variation in spending growth over fourth dimension. This variation can generally be expected to proceed into the time to come as new factors come into play. Factors that are probable to effigy prominently in Medicaid's future growth include the post-obit:

The cost of long-term intendance. Long-term care expenditures in Medicaid (institutional and community-based services) have steadily decreased equally a share of total spending over the last 10 years or so—from almost 45 percent in the tardily 1980s to 35 percent today—but can exist expected to increase again every bit the baby nail generation ages.
The cost of prescription drugs, which averaged fifteen per centum almanac growth during the most recent era and is budgeted 10 percent of total Medicaid spending. These costs, similar those of long-term intendance, tin can be expected to continue to be a significant factor in Medicaid spending as a result of the crumbling of baby boomers.
Managed care. The option to provide Medicaid coverage through HMOs and other types of prepaid health plans without a waiver is likely to issue in even greater use of managed care in the hereafter. Premiums for these plans currently account for nearly xv percent of Medicaid spending and could exceed 20 percent inside a few more years if present trends proceed.
Medicaid "maximization." Federal matching programs have always been popular with States; other things beingness equal, States would rather invest ane dollar where it will do two dollar's worth of good. The availability of Federal Medicaid matching has thus led States over the years to adopt innovative strategies designed to obtain the greatest possible Federal funds. This was almost noticeable during the taxes and donations and DSH era. Opportunities for maximization are probable to present themselves in the future and could again event in a sudden and unpredictable escalation of Medicaid spending.

Accounting for these and other factors volition present a claiming to policymakers and estimators of Medicaid every bit they attempt to chart the course of the program into the 21st century.

Acknowledgments

The author wishes to give thanks the many individuals in the Function of the Actuary, Office of Legislation, and Office of Strategic Planning at HCFA who offered helpful comments during the preparation of this article.

Footnotes

^oneThroughout this article, enrollment is measured by means of full-year-equivalent enrollees, or "person-years."

The author is with the Offic of the Actuary, Wellness Care Financing Administration (HCFA). The views expressed are those of the author and do not necessarily reflect the views of HCFA.

ⁱⁱThroughout this article, inflation is measured past the gross domestic product implicit price deflator.

Reprint Requests: John D. Klemm, Ph.D., Health Intendance Financing Assistants, 7500 Security Boulevard, N3-26-00, Baltimore, MD 21244-1850. Eastward-mail: vog.afch@mmelkj

References

Congressional Inquiry Service. Medicaid Source Book: Background Data and Analysis (A 1993 Update); 103rd Congress, 1st Session, Committee Print; January 1993. [Google Scholar]
Coughlin TA, Ku L, Holahan J. Medicaid Since 1980. The Urban Institute Press; Washington, DC.: 1994. [Google Scholar]
Garrett B, Holahan J. Assessing the New Federalism. The Urban Institute Press; Washington, DC.: Mar, 2000. Welfare Leavers, Medicaid Coverage, and Individual Health Insurance. [Google Scholar]
Health Intendance Financing Assistants, Office of the Actuary. Data from estimates based on President's fiscal twelvemonth 2001 budget. Jan, 2000.
Found for Medicaid Direction. Information on the Medicaid Program: Eligibility/Services/Expenditures Fiscal Years 1966-78 (revised) 1978. information from U.S. Section of Health, Education, and Welfare/Health Intendance Financing Administration, Medicaid Agency. [Google Scholar]
Muse DN, Beisel R, Klemm J, Howe C. Proceedings: 25th National Workshop on Welfare Enquiry and Statistics. U.S. Department of Health and Human Services, Family Support Administration; Jul, 1985. Medicaid Trends: Past, Nowadays and Time to come: FY 1984. [Google Scholar]
U.S. Full general Bookkeeping Office. Medicaid: Sustainability of Low 1996 Spending Growth is Uncertain. Washington, DC.: Jun, 1997. Report Number GAO/HEHS-97-128. [Google Scholar]

Articles from Wellness Care Financing Review are provided here courtesy of Centers for Medicare and Medicaid Services

edwardsnough1952.blogspot.com

Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4194698/