Medicaid Managed Care - U.S. Senate Special Committee on Aging

Trends in Program Spending
273
In 1966, spending for <strong>Medicaid</strong> and its predecessor program accounted for $1.5 billion or 3.7 percent of
the nation's personal health care expenditures. By 1994, <strong>Medicaid</strong>'s spending (excluding
administration) had increased to $122.9 billion and its share had climbed to 14.8 percent of personal
health care expenditures (Lazenby et al. 1986; Levit et al. 1996). During this same period, the number
of <strong>Medicaid</strong> beneficiaries grew from 12 million to 35 million (Kaiser Commission 1996b).
<strong>Medicaid</strong> spending growth has been quite volatile over the last decade. Spending went through a period
of extremely rapid growth from 1988 to 1992 (Figure 20-4). The average annual growth rate over those
years was 22.4 percent. From 1992 to 1995, spending growth declined to 9.5 percent (Holahan and
Ligka t996). The current estimate of spending growth for 1996 is 3.3 percent (CBO !997).
Figure 20-4. Average Annual <strong>Medicaid</strong> Expenditure Growth Rate, 1988-2002 (percentage)
22.4%
9.5%
3.%
7.7%
1988-1992 1992-1995 1995-1996' 1997*2002 (projected)
SOURCE: Holahan and Liska 1996; CBO 1997.
* Based on CBO estimate of spending.
The rapid growth from 1988 to 1992 was driven by three principal factors (Holahan et al. 1993;
Holahan and Liska 1996). One was general health care inflation. A second was a significant expansion
in enrollment due to both legislative changes and overall economic recession. During the 1980s, the
Congress enacted a number of expansions in program eligibility-some mandatory and some optional.
States responded by adding almost 8 million people to the <strong>Medicaid</strong> rolls, a one-third increase, from
1988 to 1992. A third factor was the use by many states of new financing practices, including provider
taxes and donations and disproportionate share hospital (DSH) payments. 7
7 Disproportionate share hospital expenditures go to hospitals that serve a disproportionate number of low-income
patients. States typically encouraged provider contributions or imposed taxes on providers. The state <strong>Medicaid</strong> program-with
matching federat funds-would then increase payment to the hospital enough to retuan much or all of the donation or tax
payment. In some cases, new funds were used to support care for the poor, more often, federal funds were substituted for state
funds. DSH payments grew from $400 million in 1988 to more than $17 billion in 1992 (Holahan and Liska 1996).
1997 Annual Report to Congress/Chapter 20 422