Medicaid

The $131 billion Medicaid program is at a crossroads. Between 1985 and 1993, Medicaid costs tripled and the number of beneficiaries rose by more than 50 percent. Medicaid costs are projected to rise to $260 billion, according to the Congressional Budget Office. Despite federal and state budgetary constraints, several states are pressuring to expand the program and enroll hundreds of thousands of new beneficiaries. The cost of expanded coverage, they believe, will be offset by the reallocation of Medicaid funds and the wholesale movement of beneficiaries into some type of managed care arrangement. This report examines (1) federal and state Medicaid spending, (2) some states' efforts to contain Medicaid costs and expand coverage through waiver of federal requirements, and (3) the potential impact of these waivers on federal spending and on Medicaid's program structure overall. The Comptroller General summarized this report in testimony before Congress; see: Medicaid: Spending Pressures Drive States Toward Program Reinvention, by Charles A. Bowsher, Comptroller General of the United States, before the House Committee on the Budget. GAO/T-HEHS-95-129, Apr. 4, 1995 (6 pages).

GAO found that: (1) Medicaid accounts for about 6 percent of all federal outlays; (2) federal Medicaid costs will increase from $131 billion to $260 billion by the year 2000, which will be more than the rate of increase for the total federal budget; (3) between 1985 and 1993, federal Medicaid spending increased 16 percent per year, while state spending increased 15 percent per year; (4) federal spending increased more than 25 percent per year in 1992 and 1993, mostly due to states collecting donations and taxes from certain hospitals and then returning them as Medicaid payments; (5) some states have sought waivers from certain program requirements to expand coverage to formerly ineligible clients; (6) it could not determine how managed care will impact patient access to services and the quality of care, since only two states have completed waiver implementation under their new systems; (7) some states will receive more Medicaid funds than others under their approved waivers than they would have under their previous programs; (8) despite negotiated spending caps, the waivers could increase federal Medicaid spending, since more low-income people will receive coverage under state programs; and (9) concerns over the future of Medicaid include who will benefit from savings generated by the shift to managed care, the potential for increased federal Medicaid spending, and limiting programs if they become too costly.