Embargoed for release
Tuesday, January 26, 2005
9:30 a.m. ET


Rakesh Singh,
KFF (202) 347-5270

Jon Gardner,
Health Affairs (301) 347-3930


A Sharp Rise in Enrollment During the Economic Downturn Triggered Medicaid Spending to
Increase by One-Third from FY2000-03

Health Affairs Article Finds Medicaid Costs Slowing and Per Enrollee Cost Growing at a Slower Rate
than Private Insurance Spending

WASHINGTON—Medicaid spending increased to $276 billion by fiscal year (FY)2003, up one-third from FY2000, according to a new web-exclusive article released today by the peer-reviewed journal Health Affairs and commissioned by the Kaiser Commission on Medicaid and the Uninsured. Increased program spending was largely driven by rapid increases in enrollment of children and parents in low-income families.

Urban Institute researcher and study author John Holahan concludes that, “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.” He added, “Medicaid enrollment growth undoubtedly kept the uninsurance rate from increasing more than it otherwise would have during this period.”

For FY2000-03, Medicaid spending grew at an average of 10.2 percent annually. However, state Medicaid cost containment actions—ranging from curbing provider payment rates to reducing benefits—and a slowing of enrollment growth served to moderate Medicaid spending growth in FY2003. The 7.1 percent growth in FY2003 is comparable to the increases the program experienced in the late 1990s.

“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. The real problem is rising health care costs and the states ability to pay the bill, and not that Medicaid spending is out of control,” said Diane Rowland, executive director of KCMU.

Growth in Medicaid Spending vs. Private Insurance Spending

Comparing Medicaid’s purchase of acute care services to private insurance costs shows the program’s cost increases are below those of private insurance. The average growth rate of per enrollee Medicaid costs for acute care from FY2000-03 was 6.9 percent—lower than the 9 percent increase in per enrollee costs of the privately insured and substantially lower than the growth in employer-sponsored insurance premiums (12.6 percent).

Although Medicaid purchases health care services in the marketplace for 75 percent of its beneficiaries, that is merely one of the roles the program plays in the American health system. The bulk of Medicaid spending (70 percent) finances health and long-term care for the 25 percent of beneficiaries who are elderly or individuals with disabilities. The federal and state governments share joint responsibility in funding the program.

What Drove Medicaid Spending And Enrollment Growth?

Between FY2000-03, 68 percent of the growth in Medicaid spending was attributable to acute care and 30 percent to long-term care due to the faster growth in enrollment of children and non-disabled adults into the program during the period. During this time period, 90 percent of Medicaid’s total enrollment growth (8.4 million) was from families with only 10 percent from the elderly and individuals with disabilities.

Although families dominated Medicaid enrollment growth from FY2000-03, they only accounted for 44 percent of Medicaid spending growth. The elderly and individuals with disabilities accounted for 56 percent of spending growth. Although the elderly and individuals with disabilities are a minority of the Medicaid population, they are responsible for the majority of program costs due to their intensive use of services.

The Health Affairs article, “Understanding the Recent Growth in Medicaid Spending, 2000-2003” is available at http://content.healthaffairs.org/cgi/content/abstract/hlthaff.w5.52. A webcast of today’s policy briefing releasing the article in Washington, D.C can be viewed after 5 p.m. EDT at the following link http://www.kaisernetwork.org/healthcast/kff/26jan05.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Additional peer-reviewed papers are published weekly online as Health Affairs Web Exclusives at www.healthaffairs.org. Health Affairs Web Exclusives are supported in part by a grant from the Commonwealth Fund.

The Kaiser Commission on Medicaid and the Uninsured provides information and analysis on health care coverage and access for the low-income population, with a special focus on Medicaid's role and coverage of the uninsured. Begun in 1991 and based in the Kaiser Family Foundation's Washington, DC office, the Commission is the largest operating program of the Foundation. The Commission's work is conducted by Foundation staff under the guidance of a bipartisan group of national leaders and experts in health care and public policy. The Kaiser Family Foundation is a non-profit, private operating foundation dedicated to providing information and analysis on health care issues to policymakers, the media, the health care community, and the general public. The Foundation is not associated with Kaiser Permanente or Kaiser Industries.


©2005 Project HOPE–The People-to-People Health Foundation, Inc.