In the first year of president barack obama s term, Americans

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1 Enrollment Is Driving Medicaid Costs But Two Targets Can Yield Savings Policymakers should battle states creative financing and push for better management of the highest-cost cases. by John Holahan and Alshadye Yemane ABSTRACT: This paper examines various reasons for the growth in Medicaid spending in the current decade. Although Medicaid spending has grown faster than the rate of increase in national health spending, much of this is explained by increased enrollment. Per enrollee, Medicaid spending actually compares favorably to increases in medical care prices and gross domestic product. The relative success in Medicaid cost containment seems to be attributable to limits on provider payment rates, expansion of managed care, limits on the use and pricing of prescription drugs, and expansion of community-based long-term care programs. We suggest two strategies for further cost containment. [Health Aff (Millwood). 2009;28(5): ; /hlthaff ] In the first year of president barack obama s term, Americans attention has turned again to health reform. One major topic in the reform debates of 2009 is the cost of public health insurance coverage. To inform these discussions, we analyze recent spending growth in the federal-state Medicaid program, which covers low-income and disabled Americans. Medicaid spending increased from $205.7 billion in 2000 to $330.8 billion in 2007 an average annual growth rate of 7.0 percent (Exhibit 1). In 2006, Medicaid prescription drug spending for dual eligibles (those eligible for both Medicare and Medicaid) was shifted to Medicare, which meant a one-time reduction in Medicaid spending and a lower rate of growth. After adjusting for this shift, Medicaid spending increased about 7.8 percent over this period. As we contend in this paper, Medicaid spending growth has largely been driven by enrollment and underlying health care inflation. Per enrollee, this growth, over and above increases in medical care prices or growth in gross domestic product (GDP), has been quite small. Nonetheless, there are still areas in which Medicaid spending growth could be better controlled. John Holahan (jholahan@ui.urban.org) is director of the Health Policy Center at the Urban Institute in Washington, D.C. Alshadye Yemane is a research associate at the center. HEALTH AFFAIRS ~ Volume 28, Number DOI /hlthaff Project HOPE The People-to-People Health Foundation, Inc.

2 Looking Ahead EXHIBIT 1 Medicaid Spending Growth, By Service, Federal Fiscal Years Category 2000 ($ millions) 2007 ($ millions) Spending growth (%), Average annual growth (%), Average annual growth in spending per enrollee (%) All expenditures All services (7.8) 7.5 (8.4) a 4.8 Acute care Inpatient hospital Physician/lab/x-ray Outpatient/clinic Managed care Other acute care Prescription drugs (9.8) 6.6 Long-term care Nursing home care ICF/MRs Mental hospitals b Home health/personal care c SOURCES: Urban Institute estimates based on data from Medicaid Financial Management Reports (HCFA/CMS Form 64). NOTES: All data are net of adjustments. The data we receive from the Centers for Medicare and Medicaid Services (CMS) do not allow us to determine when adjustments are made. If there are adjustments from prior periods included in the FFY 2007 spending totals, they are included in the 2007 spending data. Numbers in parentheses under average annual growth reflect growth rates under the assumption that dual eligibles prescription coverage did not shift to Medicare in Growth rates for average annual growth in spending per enrollee exclude dual eligibles prescription drug spending altogether, to make 2000 and 2007 spending per enrollee easier to compare. ICF/MR is intermediate care facility for the mentally retarded. a Not applicable. b Includes inpatient psychiatric services for people under age twenty-one and other mental health facility services for people age sixty-five and older. c Includes home health services, home and community-based waiver services, personal care, and related services. Medicaid Spending Growth, Average annual growth rates in Medicaid spending varied considerably during (Exhibit 2). This reflects the fact that Medicaid spending increases with enrollment growth, which is largely driven by underlying economic conditions and policy changes; health care inflation; and a few major policy shifts. 1, 2 Overall, Medicaid spending typically grows more slowly than spending on medical services; the difference between the two is largely attributable to administration, disproportionate-share hospital (DSH) payments, and Medicare premiums for low-income elderly and disabled enrollees. Although Exhibit 2 shows growth rates for both total spending and spending for medical services, the following comments focus only on the latter Between1995and1998,Medicaidspendingonservicesgrewat an annual rate of 5.1 percent. Medicaid enrollment grew very slowly during these years in part because of the early impacts of welfare reform, which unintentionally removedsomepeoplefrommedicaid. 3 Strong economic growth also increased the demand for labor, reducing Medicaid enrollment as workers incomes rose and made them ineligible. Health care inflation was also low during this period, in both 1454 September/October 2009

3 EXHIBIT 2 Average Annual Growth In Medicaid Spending And Spending On Medical Services, Percent 12 All spending Spending on medical services Actual, Adjusted, SOURCES: Kaiser Commission on Medicaid and the Uninsured and Urban Institute, Estimates based on data from the Centers for Medicare and Medicaid Services (CMS) Financial Management Reports (Form 64), NOTE: Adjusted expenditures exclude all prescription drug spending for dual eligibles, to remove the effect of their transition to Medicare Part D in Medicaid and the private sector, largely because of the impact of managed care Between 1998 and 2000, Medicaid spending for medical services increased 8.8 percent. Medicaid enrollment began to increase because welfare reform s initial effects on enrollment were reversed; those who had been wrongly dropped from the program were re-enrolled. Economic growth was strong, increasing state revenues. Several states used revenue increases to expand coverage using the Section 1931 provisions of the welfare reform legislation or Section 1115 waivers. In addition, the State Children s Health Insurance Program (now called CHIP) was enacted in 1997 and fully implemented by This contributed to an increase in Medicaid enrollment, as many children who responded to the increased CHIP outreach efforts were actually found to be eligible for Medicaid. Health care spending also began to increase at faster rates, particularly for prescription drugs. The impact of managed care began to weaken, and costs of both hospital inpatient and outpatient care increased more rapidly than in the mid-1990s. During this period, states also expanded the use of new financing mechanisms, such as upper payment limit programs that used intergovernmental transfers to increase Medicaid payments to hospitals and nursing homes up to Medicare levels. These programs allowed several states to generate additional federal matching funds with little or no new state contributions Between2000and2002,thenationenteredamajoreconomicrecession. Medicaid spending increased 12.9 percent per year. Medicaid enrollment increased because of job and income losses. Because states raised income thresholds during previous eligibility expansions, more people who were affected by the recession became eligible for Medicaid. Health care costs continued to increase. Managed care was no longer providing states (or other payers) with the same savings it had HEALTH AFFAIRS ~ Volume 28, Number

4 Looking Ahead provided in the 1990s. States use of questionable financing practices continued, although the federal government initiated serious efforts to curtail them Between2002and2005,Medicaidspendinggrowthslowedto 7.3 percent per year, as a result of slower growth in enrollment and in acute care spending per enrollee. In 2005, prescription drug spending increased only slightly (data not shown). During this period, the federal government also became much more aggressive in controlling states use of UPL programs Between 2005 and 2007, enrollment growth was virtually flat, and Medicaid spending on medical services increased only 2.8 percent. In 2006, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) shifted Medicaid costs of prescription drugs for dual eligibles to Medicare. When we adjusted for this shift, we found that Medicaid spending increased 5.9 percent per year. The remainder of the paper discusses these underlying patterns in more detail. Study Data And Methods Data sources. We relied primarily on spending data from the Medicaid Financial Management Reports (Form 64) from the Centers for Medicare and Medicaid Services (CMS) for federal fiscal years (CMS-64 data). These data report spending on services under fee-for-service Medicaid as well as payments for Medicaid managed care, Medicare cost sharing, the DSH program, and administration. These data do not contain enrollment information. Enrollment data for this study came from a survey conducted by the Kaiser Commission on Medicaid and the Uninsured and Health Management Associates. 4 These data provide national enrollment levels separately for the aged and disabled population and for nondisabled children and adults (or families) as of June of each year. Spending calculations. Because the CMS-64 data do not report spending by enrolled populations, it is impossible to estimate spending per enrollee directly. Instead, we used the 2004 Medicaid Statistical Information System (MSIS) to allocate spending on each service by eligibility group. We then derived an estimate of enrollment growth that was weighted by the importance of each service to each group of enrollees. For example, the aged and disabled accounted for 97 percent of spending in long-term care services; thus, it is primarily the enrollment growth for the aged and disabled that should be used as the denominator in calculating per enrollee spending growth for long-term care services. This allowed us to estimate the growth in spending per enrollee in a way that accounts for differences in service use by different eligibility groups. 2 Enrollment Growth Between2000and2007,Medicaidenrollmentincreasedfrom31.8millionto 42.3 million (or at an annual rate of 4.2 percent). 4 Enrollment among the aged and disabled grew from 10.1 million to 12.1 million over this period, an annual increase of 2.6 percent. The number of children and nondisabled adults increased from September/October 2009

5 million to 30.2 million, an average annual increase of 4.9 percent. Aged and disabled. Although the growth in enrollment of aged and disabled people stayed roughly constant over the period, even falling slightly in the past two years (Exhibit 3), it is still very important because this population has more costly health care needs than younger, healthier populations do. Enrollment growth among the aged and disabled has grown substantially faster thantheu.s.population(about0.9percent)peryearovertheperiod,forseveral reasons. First, the baby boomers, who will eventually greatly expand the size of the elderly population, are now ages ages at which the likelihood of disability increases. Data from the Current Population Survey show that the population ages is by far the fastest-growing group of adults in the U.S. population. 5 This population is now affecting spending on the disabled, but as they turn age sixty-five, their impact on spending will shift to the elderly population. Second, there have been important advances in medical technology and drugs, whichcansaveandextendlives.theimprovementindrugsforhiv/aidsand other conditions may have contributed to longevity, but at the same time can mean continued dependence on Medicaid. Third, there has been an increased ability to recognize and treat chronic problems, particularly mental health problems, which are also contributing to enrollment growth. These factors show no signs of abating, and they will likely continue to affect Medicaid spending patterns. 6 Families. For families, enrollment growth was extremely rapid during the economic recession of (Exhibit 3). Since then, enrollment growth rates have fallen consistently and actually declined between 2005 and During difficult economic times, people lose employment, and their incomes decline; thus, more people become eligible for Medicaid. Public coverage expands, particularly for children; some adults losing employer coverage enroll in Medicaid, but most are not eligible. As the economy improves, the reverse occurs, to some degree. Underlying these cy- EXHIBIT 3 Average Annual Growth In Medicaid Enrollment, By Enrolled Population, Percent Aged and disabled Families SOURCE: Kaiser Commission on Medicaid and the Uninsured and Urban Institute estimates based on Kaiser Commission Medicaid enrollment data collected by Health Management Associates from forty-four states, inflated proportionally to national totals. HEALTH AFFAIRS ~ Volume 28, Number

6 Looking Ahead clical patterns is a more consistent, ongoing decline in employer-sponsored insurance, which also affects Medicaid enrollment. Over the period, Medicaid enrollment growth clearly kept the number of uninsured people from increasing faster than it otherwise would have. 5 To the extent that these trends in employer-sponsored insurance continue, particularly among small firms and low-wage workers, Medicaid enrollment is likely to expand. This is particularly likely in the next few years because of the very serious economic decline facing the nation. However, to the extent that Medicaid coverage is substituting for declining private coverage, growth in Medicaid spending does not contribute to increases in national health spending. Medicaid Spending By Service Acute and managed care. Medicaid acute care spending grew 9.8 percent per year between 2000 and 2007 (Exhibit 1). Medicaid managed care was the fastest-growing acute care service (12.6 percent per year) because of the sizable increase in the number of Medicaid enrollees in managed care. During , enrollment in capitated managed care plans increased from 16.9 million in 2000 to 27.1 million in 2006 (an average of 8.1 percent per year). 7 In , acute care spending was also driven by rapid growth in other acute care services (9.1 percent per year), which includes dental care, vision and hearing, psychiatric services, adult day care, and many services covered under Section 1115 waiver programs. Spending for physician services grew only 6.6 percent per year, in part reflecting the movement of services from fee-for-service to managed care. Prescription drugs. Prescription drug spending actually fell 1.4 percent per year, largely reflecting the shift of dual eligibles drugs to Medicare (the rate of increase in drug spending by non dual eligibles also fell between 2005 and 2007). Drug spending for the remaining beneficiaries increased 9.8 percent per year. Long-term care. Long-term care spending increased only 5.8 percent per year, with institutional services that is, nursing home care, intermediate care facilities for the mentally retarded (ICF/MRs), and mental hospitals all increasing by relatively low single-digit rates. Spending for home health and personal care services increased 11.6 percent per year; most of this was in the early part of the period. This increase for provision of services in the community likely contributed to the slow growth in spending for institutional care. Annual Medicaid Spending Per Enrollee, The annual growth rates, although high, in part reflect the enrollment growth of 4.2 percent per year discussed above. We now turn to look at growth in spending per enrollee, shown in Exhibit 1. Simply dividing the change in spending by thechangeinenrollmentwouldunderstatetheincreaseinspendingperenrollee because Medicaid has shifted to a lower-cost mix of enrollees. Therefore, as dis- cussedabove,weadjustedforthechangeincompositionbydividingaveragean September/October 2009

7 nual spending for each service by a weighted mix of enrollees, with the weight reflecting the importance of each service to particular groups of enrollees. Overall spending per enrollee for all Medicaid benefits increased 4.8 percent peryearovertheseven-yearperiod wellbelowoverallspendinggrowth.inpart, growth rates for acute care in general and hospital inpatient and outpatient care specifically may be lower than the overall average because of a shift in the share of the Medicaid population away from fee-for-service and to managed care. But they may also reflect a long- standing cost containment strategy in Medicaid to control hospital and physician payment rates. Data from the American Hospital Association and the Medicare Payment Advisory Commission (MedPAC) show that payments to hospitals in 2008 were 5 percent below Medicare rates, which were themselves 9 percent below hospital costs. 8, 9 A study by Milliman found that Medicaid hospital rates were about 15 percent below hospital costs in 2006, while payments by commercial insurers were 23 percent above costs. 10 Spending on hospital inpatient and outpatient care can also reflect the use of supplemental payment programs by states (discussed in greater detail below). For example, in 2007 there was a particularly sharp increase in spending on both hospital inpatient and outpatient care 11.3 percent and 8.8 percent per year, respectively. 11 Much of the increase in 2007 seems to have occurred in a relatively small number of states, which clearly affected total growth rates. 2 Physician spending. Physician spending per enrollee grew only 2.9 percent per year. Again, some of the low growth was the result of the movement to managed care but also reflects payment policy. Medicaid physician payment rates are well below those of Medicare and private payers. Stephen Zuckerman and colleagues have shown that Medicaid fees experienced very little real growth over the period and were 28 percent below Medicare rates. 12 MedPAC data show that physician payment rates in Medicare were 81 percent of private payment rates in Managed care. The fastest rate of growth in acute care was for managed care. The number of people in capitated managed care plans increased 8.1 percent per year, compared with overall enrollment growth of 4.2 percent. Medicaid spending on managed care per enrollee increased 8.7 percent annually; the denominator in this case is Medicaid enrollees, not the number of people using managed care services. Thereisconsiderableevidencethattheuseofmanagedcarehassavedmoneyin Medicaid. Much of this is attributable to reductions in preventable hospitalizations, use of emergency departments, and prescription drug costs Assuming that states capture some of these efficiencies in lower capitation rates, the growing use of managed care is also contributing to slower rates of overall spending in Medicaid (although not as drastically as seen in the late 1990s). Other care. Spending per enrollee for the other care category grew 4.8 percent per year. There does not appear to have been much increase in the use of optional acute care services such as dental care, vision/hearing, podiatry, and chiropractic. But spending in a residual other care category, used by states to in- HEALTH AFFAIRS ~ Volume 28, Number

8 Looking Ahead clude rehabilitation services and various services included under Section 1115 waiver programs, increased from $7.8 billion in 2000 to $14.4 billion in fiscal year The reasons for the rapid expansion in these services are unclear, but they seem to have clearly driven growth in acute care spending. Prescription drugs. Prescription drug spending per enrollee increased 6.6 percent per year. This masks a considerable slowdown in the past three years. For example, between 2000 and 2002, drug spending increased 14.0 percent per year, and between 2002 and 2004, 10.2 percent per year. During , the growth rate declined to an average of 0.7 percent even after adjusting for the shift of dual eligibles drugs to Medicare. The slow rates in these three years seem to reflect the success of states efforts to control drug spending through policies such as dispensing limits, preferred drug lists, prior authorization, generic substitution, and copayments. 19, 20 Drug spending growth has also been slowing for the general population. 21 Long-term care. Long-term care spending per enrollee increased 3.1 percent per year. These slow growth rates are surprising, given concerns about the effects of the aging population on long-term care spending. Nursing home spending per enrollee was flat over the seven-year period and actually declined after This seems to reflect low rates of payment increase as well as a leveling off in nursing home caseloads, which remained at 1.4 million over the six-year period. 7 Nursing homes were also a focus of supplemental payment programs by states. Federal efforts to reduce the use of these programs may also be responsible for the low growth rates since There have also been very slow rates of growth in ICF/MRs and mental institutions, where enrollment fell from 147,000 in 2000 to 141,000 in Home and community-based care. Spending for home health and personal care services, including waiver services, increased at an average of 8.6 percent per year. These rates declined in more recent years, however, despite the fact that many states seem to be expanding their use of these programs. These expansions have probably contributed to the decline in the use of institutional services. There also has been widespread concern that such expansions would have a woodwork effect 22 that is, many people who are in need of assistance, even those not currently receiving government help, would enroll in Medicaid to receive community-based care (thus, coming out of the woodwork ), and this increased enrollment would offset any impacts of these programs on reduced use of institutions. This does not seem to be occurring. This could reflect the strong budget-neutrality provisions in Section 1115 waiver programs. But for whatever reason, long-term care spending has been much less a cost driver in Medicaid than acute care has been. Medicaid Spending And Health Spending Benchmarks Although growth in Medicaid spending for medical services was greater than the average annual growth rates in the Medical Care Consumer Price Index (CPI), GDP, and national health expenditures (NHE), growth in service spending per enrollee was relatively similar to the Medical Care CPI growth rate and lower 1460 September/October 2009

9 than the annual growth rate in GDP and NHE per capita, although higher than GDP per capita (Exhibit 4). The lower growth rate for services spending per capita was largely driven by long-term care spending, which was considerably lower than all three benchmarks. By contrast, acute care spending was about 1.5 percentage points higher than the Medical Care CPI and about two percentage points larger than GDP growth per capita, although it was still lower than the NHE per capita growth. The higher overall spending growth rates but the relatively lower spending per enrollee growth rates support the idea that much of the spending growth between 2000 and 2007 was driven by enrollment growth. Medicaid spending for acute care services during increased more slowly than health spending per person with private insurance coverage and monthly premiums for those with employer coverage (Exhibit 5). This finding is consistent with research that shows that Medicaid spending is modest in comparison with private insurance spending by low-income people. Jack Hadley and John Holahan showed that when health status, disability, and chronic illness are controlled for, Medicaid spending is lower than spending for those with private coverage. 23 This is particularly true for those in fair or poor health. Areas For Potential Cost Containment Although per enrollee service spending growth rates are generally lower than private coverage or overall health care costs, there are two areas where Medicaid spending growth could be further curtailed. Creative health care financing by states. For several years, Medicaid has been plagued with questionable financing practices developed by states. 24 These be- EXHIBIT 4 Medicaid Spending Growth Versus Various Benchmarks, Percent Medicaid services spending All serv. Acute care Rx drugs Medicaid services spending per enrollee LTC Medical Care CPI Gross domestic product SOURCE: Urban Institute, Estimates based on data from the Centers for Medicare and Medicaid Services (CMS) Medicaid Financial Management Reports (Form 64). NOTES: Adjusted expenditures exclude all prescription drug spending for dual eligibles, to remove the effect of their transition to Medicare Part D in LTC is long-term care. CPI is Consumer Price Index. NHE is national health expenditures. Total Per capita Total NHE Per capita HEALTH AFFAIRS ~ Volume 28, Number

10 Looking Ahead EXHIBIT 5 Growth In Medicaid Acute Care Spending Per Enrollee Versus Private Health Spending And Premium Growth, Percent Medicaid acute care spending per enrollee a Health care spending per person with private coverage b Monthly premiums for employer-sponsored coverage c SOURCES: See below. a Kaiser Commission on Medicaid and the Uninsured and Urban Institute analysis of data from the Medicaid Statistical Information System (MSIS), Centers for Medicare and Medicaid Services (CMS) Form 64, and Kaiser Commission and Health Management Associates data, The annual growth rate for Medicaid is adjusted to remove the effect of the shift in spending for prescription drugs for dual eligibles from Medicaid to Medicare. b Ginsburg PB, Strunk BC, Banker MI, Cookson JP. Tracking health care costs: continued stability but at high rates In Health Aff (Millwood). 2006;25(6):w c Kaiser Family Foundation/Health Research and Educational Trust Survey of Employer-Sponsored Health Benefits, gan with the legitimate use of DSH payments that were made to hospitals serving large numbers of low-income people to compensate them for underpayments by Medicaid and for the cost of uncompensated care. But over time, states began to use these programs to obtain federal matching payments; while hospitals received additional funds, in many cases some or all of the federal dollars were returned to the state. In several cases, provider taxes and donations were used to generate the state s share, much of which was subsequently returned to the original source. The inappropriate use of DSH payments led to legislation 25 that eliminated DSH payments for individual facilities, established allotments by states, restricted the use of provider donations and provider taxes, and limited the amount of a state s DSH payment that could be paid to mental health facilities. States responded by developing other approaches to achieve the same ends. The most common is the use of UPL programs, often called supplemental payment programs, in which states increase their payment above current levels (and usually well above costs) but up to the UPL ceiling, which is based on what Medicare would pay for comparable services. 26, 27 States typically made supplemental payments to nursing homes or hospitals, usually government facilities; the facilities then returned all or most of the state and federal payments back to the state treasury. These programs were limited through legislation in 2000, 28 which established separate payment limits for each of several types of health facilities. States, however, seemed to find new and different ways to use the supplemental payment approach to generate new federal revenues. The U.S. Government Ac September/October 2009

11 countability Office has identified inappropriate services rendered by schoolbased clinics and has targeted case management and rehabilitation service programs operated by state and local governments. 29 The mechanism is similar across these different providers. But in general, payments are made in excess of the cost of providing services, and although some funds may remain with the government agency providing the services, much is returned to the state general fund. In the spending data presented earlier, an unknown amount of these dollars are imbedded, most likely in the amount shown for hospital and nursing home spending as well as for other care services. Despite great effort in recent years, the federal government has found it extremely difficult to fully rein in the various practices described above. The problem of state Medicaid revenue maximization, as the practice is called, will require consistent and aggressive efforts by the federal government to limit these practices and ensure that states pay their statutorily required matching payments. High-cost enrollees. The second major area in which Medicaid costs could be lowered is by making major changes in the way care for high-cost enrollees is managed and paid for. The most prominent of these are dual eligibles, for whom Medicare provides a basic acute care benefit package; Medicaid pays premiums, deductibles, and copayments for Medicare-covered services and provides some additional acute care services and long-term care benefits. Many of these are optional. As a result, there is much variation among states in what is provided. In 2005, there were 7.0 million people, many of whom had multiple chronic conditions, who received full benefits from both Medicare and Medicaid. 30 These enrollees cost Medicaid and Medicare about $200 billion in Because states have only partial responsibility for these populations, it is difficult for them to design programs to efficiently meet their needs. Because the responsibilities are split between the two programs, coordination is difficult. One solution is to shift the cost of managing dual eligibles to the federal government, which then could be charged with designing and improving care coordination programs. These could involve developing managed acute and long-term care programs or alternative approaches to care coordination, such as medical homes. Having all such enrollees in one program would increase the financial incentives to develop programs that manage their care more effectively and slow the rate of growth in their costs. Another alternative is to increase matching rates together with mandating that more noninstitutional services be covered by states. There could then be a greatly increased effort to develop joint federal/state programs to manage the care of the more costly dual eligibles. An advantage of this approach would be that programs could be designed to benefit other high-cost enrollees who are not dual eligibles, such as disabled people who receive only Medicaid benefits. In 2005 there were approximately four million Medicaid enrollees who were not dual eligibles and who had very high levels of spending (more than $22,000 per year per enrollee). 32 These populations, too, would benefit from improvements in care management. HEALTH AFFAIRS ~ Volume 28, Number

12 Looking Ahead Summary And Concluding Remarks In this paper we have shown that Medicaid spending has grown slightly faster than national health spending in general, but this has largely been due to increases in enrollment, which during averaged more than 4 percent per year. Medicaid spending per enrollee is close to or below most benchmarks, such as increases in the Medical Care CPI or increases in GDP. Medicaid programs have controlled spending growth by the use of the following: (1) low rates of provider payment to physicians, hospitals, and other providers; (2) the increasing use of managed care programs; (3) aggressive policies toward the use and pricing of prescription drugs; and (4) decreased reliance on long-term care institutions and expansion of community-based settings. It is difficult for Medicaid to do better in the absence of systemwide cost containment. Nonetheless, the federal government must expand its current efforts to limit various financing mechanisms used by the states to bring in federal dollars with little or no state contribution. Also, a concerted effort should be made to manage the care of the chronically ill, both those disabled people who are served solely by Medicaid and those who are enrolled in both Medicaid and Medicare. This paper draws on extensive analysis conducted over the past decade in partnership with the Kaiser Family Foundation s Commission on Medicaid and the Uninsured. NOTES 1. Holahan J, Ghosh A. Understanding the recent growth in Medicaid spending, Health Aff (Millwood). 2005;24:w Holahan J, Yemane A, Rousseau D. Medicaid expenditures increased by 5.3 percent in 2007, led by acute care spending growth. Washington (DC): Kaiser Commission on Medicaid and the Uninsured; forthcoming. 3. Garrett B, Holahan J, Health insurance coverage after welfare. Health Aff (Millwood). 2000;19(1): Kaiser Commission on Medicaid and the Uninsured. Medicaid enrollment in fifty states. Washington (DC): Kaiser Commission; 2009 Mar. 5. Holahan J, Cook A. The U.S. economy and changes in health insurance coverage, Health Aff (Millwood). 2008;27(2):w Kronick R, Rousseau D. Is Medicaid sustainable? Spending projections for the program s second forty years. Health Aff (Millwood). 2007;26(2):w Authors calculations for 2000 and 2006 using Medicaid Statistical Information System (MSIS) data. 8. American Hospital Association. Underpayment by Medicare and Medicaid fact sheet. Chicago (IL): AHA; 2008 Nov. 9. Medicare Payment Advisory Commission. Report to the Congress: Medicare payment policy, hospital inpatient and outpatient services. Washington (DC): MedPAC; 2008 Mar. p Fox W, Pickering J. Hospital and physician cost shift: payment level comparison of Medicare, Medicaid, and commercial payers [Internet]. Washington (DC): Milliman; 2008 Dec [cited 2009 Mar 23]; p. 5. Available from: Authors calculation from the 2006 and 2007 CMS-64 data. 12. Zuckerman S, Williams A, Stockley K. Trends in Medicaid physician fees, Health Aff (Millwood). 2009;28(3):w MedPAC. Report to the Congress: Medicare payment policy, physician services. Washington (DC): 1464 September/October 2009

13 MedPAC; 2008 Mar. p America s Health Insurance Plans. Medicaid managed care cost savings a synthesis of fourteen studies [Internet]. Washington (DC): AHIP; 2004 Jul [cited 2009 Mar 23]. Available from: Center for Health Care Strategies. Comparison of Medicaid pharmacy costs and usage between the feefor-service and capitated setting. Hamilton (NJ): CHCS; 2003 Jan. 16. California HealthCare Foundation. Preventing unnecessary hospitalizations in Medi-Cal: comparing feefor-service with managed care [Internet]. Oakland (CA): CHCF; 2004 Feb [cited 2009 Mar 13]. Available from: Coughlin TA, Long SK. Effects of Medicaid managed care on adults. Med Care. 2000;38(4): Buchanan J, Leibowitz A, Keesey J. Medicaid health maintenance organizations: can they reduce program spending? Med Care. 1996;34(3): Smith V, Gifford K, Ellis E. Headed for a crunch: an update on Medicaid spending, coverage, and policy heading into an economic downturn [Internet]. Washington (DC): Kaiser Commission; 2009 Sep [cited 2008 Mar 23]. Available from: Smith V,Gifford K, Ellis E.As tough times wane, states act to improve Medicaid coverage and quality: results from a fifty-state Medicaid budget survey for state fiscal years [Internet]. Washington (DC): Kaiser Commission on Medicaid and the Uninsured; 2007 Oct [cited 2009 Mar 23]. Available from: Centers for Medicare and Medicaid Services, Office of the Actuary. National health expenditure aggregate, per capita, percent distribution, and annual percent change by source of funds: calendar years Data from the National Health Statistics Group [Internet]. Baltimore (MD): CMS; [cited 2009 Apr 22]. Available from: Historical.asp 22. Weissert WG. Seven reasons why it is so difficult to make community-based long-term care cost-effective. Health Serv Res Oct;20(4): Hadley J, Holahan J. Is health care spending higher under Medicaid or private insurance? Inquiry Winter;40(4): Coughlin T, Bruen B, King J. States use of Medicaid UPL and DSH financing mechanisms. Health Aff (Millwood). 2004;23(2): The Medicaid Voluntary Contributors and Provider-Specific Tax Amendments of 1991; the Omnibus Budget Reconciliation Act of 1993; and the Balanced Budget Act of Coughlin T, Zuckerman S, McFeeters J. Restoring fiscal integrity to Medicaid financing? Health Aff (Millwood). 2007;26(5): U.S. Government Accountability Office. CMS needs more information on the billions of dollars spent on supplemental payments. Washington (DC): GAO; 2008 May. 28. The Medicaid, Medicare, and SCHIP Benefits Improvement and Protection Act of GAO. States efforts to maximize federal reimbursements highlight need for improved federal oversight. Testimony before the Committee on Finance, U.S. Senate, 2005 Jun Holahan J, Miller D, Rousseau D. Dual eligibles: Medicaid enrollment and spending for Medicare beneficiaries in Washington (DC): Kaiser Commission; 2009 Feb. 31. Coughlin T, Waidmann T, O Malley Watts M. Where does the burden lie? Medicaid and Medicare spending for dual eligible beneficiaries [Internet]. Washington (DC): Kaiser Commission; 2009 Apr 30 [cited 2009 Jun 2]. p Available from: Authors calculations using 2005 Medicaid Statistical Information System (MSIS) data. HEALTH AFFAIRS ~ Volume 28, Number