Medicaid

This testimony focuses on the following two issues: (1) the key factors that explain Medicaid 3.3-percent growth rate in fiscal year 1996 and their implications for future spending and (2) the administration's proposal to contain Medicaid cost growth through decreases in disproportionate share hospital payments and per capita caps, and to increase state flexibility. GAO found no single pattern across all states that accounts for the recent dramatic decrease in the growth of Medicaid spending. Rather a combination of factors underlies the low 1996 growth rate. Leading factors include continued reductions in disproportionate share hospital payments in some states because of earlier federal restrictions on the amount of such payments and the leveling off of Medicaid enrollment in other states following planned expansions in prior years. Several state attributed the lower growth rate to a generally improved economy and state initiatives to limit expenditure growth through programmatic changes, such as managed care and long-term care alternatives. The administration's Medicaid reform proposal would further control spending by reducing disproportionate share hospital expenditures and imposing a per capita cap, while giving the states greater flexibility in program policy and administration for their managed care and long-term care programs.

GAO noted that: (1) GAO found no single pattern across all states that accounts for the recent dramatic decrease in the growth of Medicaid spending; (2) rather, a combination of factors, some affecting only certain states and others common to many states, explains the low 1996 growth rate; (3) leading factors include continued reductions in DSH payments in some states as a result of earlier federal restrictions on the amount of such payments and the leveling off of Medicaid enrollment in other states following planned expansions in prior years; (4) a number of states GAO contacted attributed the lower growth rate to a generally improved economy and state initiatives to limit expenditure growth through programmatic changes, such as managed care programs and long-term care alternatives; (5) while the magnitude of the effect of these programmatic changes is less clear, there is evidence that they helped to restrain program costs; (6) it is likely that the 3.3-percent growth rate is not indicative of the growth rate in the years ahead; (7) just as a number of factors converged to bring about the drop in the 1996 growth rate, so a variety of factors, such as a downturn in the economy, could result in increased growth rates in subsequent years; (8) the administration's proposal for Medicaid reform would further control spending by reducing DSH expenditures and imposing a per capita cap, while providing the states greater flexibility in program policy and administration for their managed care and long-term care programs; (9) these initiatives should produce cost savings; and (10) however, in controlling program spending, attention should be given to targeting federal funds appropriately and ensuring that added program flexibility is accompanied by effective federal monitoring and oversight.