Accounting for Medicaid Spending Growth
Medical assistance has been one of the fastest growing segments of the budget in the last decade, which prompts some in the state to argue for spending cuts in this area. But it is important to understand the reasons for this growth, particularly that our Medicaid investment has grown significantly to meet our commitment to care for Washington’s seniors and people with disabilities.
To understand Medicaid spending, I divided Medicaid beneficiaries into two groups: a) people over age 65 and/or with disabilities, and b) all other low income children and adults. The cost of serving these two groups is quite different. In 2005, seniors and people with disabilities made up 21 percent of Medicaid enrollees, but accounted for 61 percent of categorized spending (Figure 1). Other adults and children make up 79 percent of enrollees, but only 39 percent of spending.
The growth in spending on medical assistance can be understood along these same lines: people over age 65 and/or with disabilities compared to all other low income children and adults. In addition, growth can be evaluated based on changes in enrollment and per-person spending. Using expenditure and enrollment data from the federal Department of Health and Human Services, I broke down nationwide Medicaid spending growth between 1995 and 2005 into the following four categories (also see Figure 2, below):
- Enrollment of seniors and people with disabilities: Eligibility guidelines have not changed significantly for this group of people, but the population is aging, medical advancements are extending life expectancy, and economic factors have played a role. This factor explains nearly one-third of the total growth in spending.
- Per-person spending on seniors and people with disabilities: The cost of health care and changing benefits have risen significantly for this population, contributing nearly one-third of the national growth in spending. (In Washington State, a shift from institutional care to home and community based care has controlled spending growth.)
- Enrollment of other low income children and adults: A growing state and national commitment to expanding access to health care as well as an economic downturn led to enrollment growth, which accounted for 27 percent of total spending growth.
- Per-person spending on other low income children and adults: The significant growth in enrollment was offset by the relatively low per-person cost. Growth in per-person spending on this group was lower than health care spending growth in the economy as a whole and only contributed 9 percent of the total spending growth.
Altogether, nearly two-thirds of spending growth is attributable to the 21 percent of Medicaid recipients who are over age 65 and/or have disabilities. A key factor is the high cost of long-term care (including nursing homes and home health services), which accounted for one-third of total medical assistance spending in 2006.
For many people needing long-term care, options are limited. Private long-term care insurance is often prohibitively expensive. Medicare, a social insurance program that all workers pay into in order to receive health benefits upon retirement, does not provide long-term care benefits. Medicaid becomes the only option for many, although because it is only available to the poor, people have to “spend down” their resources in order to become eligible.
This problem is not limited to the current deficit. The overall population is aging, medical advancements are extending life expectancy, and the cost of health care continues to grow. In addition, the state will bear much of the responsibility for long-term care because the federal government has shifted the costs from Medicare (a federally-funded program) to Medicaid (a program in which the state must pay approximately half the cost). This affects Medicaid’s ability to meet its core mission of providing health care to the poorest Americans.
Long-term care must be comprehensively addressed. A federal modernization of Medicare is required as is a long-term financing model to ensure the affordability of long-term care for middle-income families. In the meantime, Washington policymakers must be cautious about reducing the benefits provided to these vulnerable populations.