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Medicaid Study from Kaiser

With 62 million members, Medicaid is one of the largest health insurance programs in the nation, providing essential services to those who cannot afford to buy their own plan or pay for medical care. Low-income individuals in need of routine medical services or long-term care benefit immensely from the Medicaid program, including those with disabilities for whom coverage is not offered privately. Medicaid is, as we have seen from heated health reform debates and rejections, also a prime concern for state budgeting, as a source of federal income and an expense simultaneously. A Kaiser Commission on Medicaid study conducted with the Uninsured and Health Management Associates for fiscal year 2012-2013 shows the impact over the past few years of the Great Recession (and emerging from it) – bringing millions of additional people to the Medicaid program throughout the country, and how state budgets were affected.

Primary Observations

  • Medicaid is both an expenditure and a source of revenue for each participating state (all fifty). Actually, in 2010, the largest state expenditure and in state budgets was Medicaid. Yet, when federal funds for the program are not considered, state spending on Medicaid (16 percent) is greatly exceeded by education spending (35 percent). Medicaid is also the states’ main source of federal government income at 42 percent of all federal funding received.
  • Congruent with previous periods of economic hardship, the Medicaid enrollment in every state experienced a large influx of freshly unemployed and other low-income applicants during the recession. In the meantime, states were also struggling to pay for their Medicaid programs. In the face of such a conundrum, state Medicaid spending decreased during this time (a first) as a result of the American Recovery and Reinvestment Act (ARRA).
  • As the nation recovers economically, state tax revenues have increased for ten quarters in a row, but have not reached the same levels as before the recession thus far. Following a drop in unemployment only surpassed by January 2009, the unemployment rate increased to 7.9 percent in October.
  • Cost containment is still a focal point for Medicaid, though eased slightly by the mild economic upturn in recent months. Some states were able to expand their programs, offering more home and community-based services, and covering additional eligibility groups. Undergoing a variety of changes to care delivery systems, Medicaid programs incorporated managed care reforms and coordination to save money and follow health reform ideology.
  • The future outlook of state Medicaid programs centers on Medicaid expansion as the Affordable Care Act becomes a national law. States must decide whether or not to participate based on how it will affect their budgets, a decision several governors have already made.


Medicaid & State Budgets

If you look at the areas most affecting states’ total spending (state and federal funds combined), the top two are K-12 education and Medicaid. In 2010, the total spending for Medicaid was greater than education at 22 percent, to K-12 education’s 21 percent. K-12 education was also expected to surpass total spending on Medicaid in 2011. Total state spending was $1.62 trillion in 2010 for all 50 states, with general fund spending totaling $619.1 billion in 2010. State general fund spending is an assessment of how states spend their own funds on various programs. For FY 2010, K-12 education absorbed far more of the general funds at 35 percent, with Medicaid taking 16 percent of the general fund spending. Spending has been proportioned in this way throughout the last ten years. Medicaid is also the states’ largest source of federal income, as 42 percent of all federal funds spent by states in 2010 went towards the program.


The Recession, Medicaid, and the States

As the Great Recession, officially dated December 2007 to June 2009, was nearly on par with the Great Depression as far as an economic decline, Medicaid was in dire need. During this period, Congress created the American Recovery and Reinvestment Act of 2009 (ARRA), in an attempt to assist states with their financial crisis. One of the greatest components of the ARRA was providing approximately $100 billion in grants to temporarily increase federal Medicaid matching funds (FMAP). States applied these funds both to their high-demand Medicaid programs and across other state expenses. The boost from federal funds provided the first time in the history of Medicaid to lower state spending on the program. In the midst of recessions, states typically experience an increase in public program enrollment and a decrease in available funds simultaneously. According to KCMU:

There has been some debate on the relative magnitude of factors driving state budget shortfalls during the downturn. Analysis shows that the decline in state revenues played a greater role than the increase in Medicaid spending on state budget shortfalls between FYs 2008 and 2010. During this period, state revenues declined by $80 billion while the state share of spending on Medicaid actually declined due to the relief provided under ARRA.


Present Fiscal State Among States

As the fiscal future is beginning to improve, states are slowly recovering from the recession’s damage. After the largest collapse in state tax revenues during this recession, state tax revenues have continued to increase for ten successive quarters, through remaining under nominal collections of four years prior. The U.S. Census Bureau’s preliminary figures for total collections in states (as of October 2012) showed a 1.8 percent increase from the previous year. The unemployment rate also dropped in September to 7.8 percent, falling below 8.0 percent for the first time since January 2009. In October 2012, more jobs were acquired nationwide as unemployment inched up to 7.9 percent.

Approximately 12.3 million people are currently out of work in America, with 5.0 million experiencing long-term unemployment of 27 weeks or more. As of October 2012, the unemployment rate in seven states exceeded 9 percent. With total deficits of over $540 billion since the beginning of the recession through FY 2012, states are expected to get hit with another $55 billion during FY 2013.


Medicaid Spending & Membership

Reaching a near record low in 2012, total Medicaid spending across all states increased by an average 2.0 percent. The low increase on spending was supported by an improving economy, which put a hold on the rapid enrollment rate seen in previous years, and the ARRA. The ARRA stopped contributing to FMAP in June 2011, giving states incentive to soften the impact of increased Medicaid spending. States became more responsible for their own share of Medicaid spending compared to previous years, at 27.5 percent, upon the expiration of ARRA enhanced FMAP. FMAP returned to statutory calculated levels in FY 2012.

Medicaid expenditure and growth in membership are expected to slow even further in 2013, especially compared to enrollment during the recession’s peak. Kaiser estimates that for FY 2013, a 3.8 percent growth in Medicaid spending will occur, remaining low despite its increase from 2012. Total Medicaid spending growth rates have not been this low in fifteen years, which keeps states afloat and optimistic for maintaining their programs in the future.


Changes in Medicaid Policy

Cost Containment

With health reform on its way and in full force, managed care and other forms of expense reduction have become an even more integral part of the Medicaid program. As states have been encouraged and eager to continue lowering their overall spending, almost every state has implemented or made plans for a minimum of one new cost containment policy each. In planning for FY 2012, 48 states added a new policy, and 47 states did so for 2013. Rate restrictions were the most advertised change being made, though mitigated by increased or new provider taxes in certain states. States have also implemented strategies for cost containment such as benefit restrictions, including prescription drugs in managed care, new methods of prescription reimbursement (e.g. Actual Acquisition Cost), and improving control over the utilization of behavioral health medications.

The recovering economy also influenced the process, as multiple states were able to invest more in their programs – with great improvements for providers such as increased rates for physicians, managed care organizations, and nursing homes in 2013. The health reform law will also provide federal funding to increase rates for primary care services to Medicare levels for 2013 and 2014. In order to balance the costs, rates are expected to increase in virtually every state, with six states expecting an increase of more than 80 percent.



Income guidelines for the Medicaid program stayed consistent among most states, cornered by the ACA maintenance of eligibility (MOE) provisions, which limit states in restricting qualifications for Medicaid. Several states also put in place changes to their long-term care services, offering more home and community-based waiver programs. Many states prepared for Medicaid expansion, adding new enrollment groups or making enrollment more user friendly.


Changes in Managed Care Policy

Managed care and care coordination strategies were also important factors in the Kaiser study. Showing variances in Medicaid delivery systems, states have become more fond of using managed care, some of which streamlined their programs into managed care only. Managed care has also helped states who have added new eligibility groups and expanded into different geographical regions. Ten states plan to implement managed long-term care for FY 2013. States have also announced the use of new care coordination methods centered on improving care for those with chronic or complex conditions, and rewarding providers for meeting performance goals. Dual-eligibles for both Medicare and Medicaid are also a focal point for state care delivery enhancements, as 25 states are currently working with the Medicare-Medicaid Coordination Office – a development of the ACA.


Health Reform

As the study was released with a little over one year left before health reform sets in, Kaiser reports that the majority of states are working on numerous planning efforts – especially regarding Medicaid expansion. States are looking at their budgets (both realistically in some areas and a bit exaggerated in others) and projecting how much the expansion will cost overall, though the federal government will provide most of the funding. Another Kaiser study showed that states who do not expand their programs will have just about the same amount of expenditures over time as those who do expand. States will leave many residents uninsured if they choose to opt out, and will not be saving the state much money in doing so. Even those that do not expand their Medicaid programs will be required to streamline enrollment for 2014. Most every state has accepted the 90/10 federal financing to improve or replace their former Medicaid eligibility requirements.


Going Forward

Cost containment and deficits remain a major focal point in state Medicaid spending, though in FY 2013 these topics seemed less urgent than in other years. States are still dealing with uncertainties regarding the future of Medicaid, the results of the federal deficit reduction debates, and how the expansion will pan out if chosen. Medicaid programs in many states are making great efforts, despite these doubts and questions, to implement new methods and procedures to increase the quality of care and control costs in time for the ACA.





1. November 2012. Kaiser Commission on Medicaid and the Uninsured. “STATE FISCAL CONDITIONS AND MEDICAID PROGRAM CHANGES, FY 2012-2013.” PDF 7580-09.

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