2017 State Medicaid Spending Rose as Feds Withdrew Funding

January 16, 2020 - As the promise of federal funding slacked in 2017, states put more of their own funds toward their Medicaid programs, with Medicaid spending absorbing 17 percent of overall state-generated funds, according to Pew research.

“After a post-recession spike, the share of state funds spent on the program has stayed high but nearly level—even as states that expanded Medicaid eligibility for the first time picked up a fraction of the extra costs,” the researchers explained.

Medicaid spending’s share of state-generated funds dipped during the recession and jumped in 2012. Since then, it has been steadily creeping up to five percent higher than in 2000.

Altogether, states spent a 17-year record high on Medicaid in 2017, putting 17.1 cents of every state-generated dollar toward the public payer program. The amount was almost 5 cents per dollar higher than the last record in 2000.

Higher Medicaid enrollment drove costs upward. There were twice as many Medicaid enrollees in 2017 as in 2000, which according to Pew were mainly influenced by the two economic downturns and the weakening of employer-sponsored health insurance.

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However, this was slightly counterbalanced by the federal government’s contribution toward newly eligible Medicaid enrollees.

In 2017, the federal government contributed 61.6 percent of Medicaid spending, or $366.2 billion. Meanwhile, states contributed the remaining 38.4 percent ($288.2 billion).

The federal government fully covered newly eligible Medicaid enrollees’ expenses from 2013 through 2016. These were the first couple of years that states started implementing the ACA’s Medicaid expansion. When states started taking on more financial responsibility for these newly eligible enrollees in 2017, their state Medicaid spending rose.

In 2017, states picked up five percent of new enrollee costs. That year, overall spending per new enrollee was $5,244—over $2,000 lower than the average spending for Medicaid enrollees. Federal spending on Medicaid still increased by 1.6 percent in 2017, but this was the smallest increase since 2012.

In 2020, states’ own source revenue spending toward new Medicaid enrollees will bump up to ten percent.

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Enrollment is slowing due to various factors, but that does not necessitate a decline in state-generated dollars that will go toward Medicaid. Prescription drug prices, provider payment rates, and more Medicaid expansions could keep states locked in the high-priced plateau or even push spending higher.

The Pew research demonstrates the impact of federal funding on state Medicaid spending.

States draw their Medicaid spending from general funds, Pew reported. However, some may cut costs in their Medicaid programs or tax providers to make their share more manageable.

While the increase in state spending was 17 percent overall, the actual state-by-state Medicaid spending share of own source revenue varied dramatically. 

For example, Illinois experienced no change in their share in 2017 as compared to 2000. Utah, the next lowest spender, spent 5.8 percent on its Medicaid program. 

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In contrast, 13 states saw the highest amount of own source revenue go toward Medicaid spending that they had in 17 years. Eight of the states that saw a record high were expansion states.

For six states, Medicaid absorbed over twenty percent of their revenue: New York’s share was 28.7 percent, Rhode Island’s was 23.4, and the remaining four all hovered around 22 percent.

The state with the biggest shift in state-funding toward Medicaid spending in the past 17 years was Louisiana. The state spent 11.5 percent more of its own money on Medicaid in 2017 than it did in 2000, rising to 22 percent in 2017.

For fiscal year (FY) 2019, a KFF survey indicated that overall Medicaid spending grew 2.9 percent.

KFF experts expect a more drastic growth in Medicaid spending in 2020. They predicted a 5.7 percent increase.

The same survey said Medicaid enrollment was flat, though 31 states are preparing for an enrollment uptick in FY 2020.

State Medicaid expansions may play a big role in state spending amounts. Tennessee, for instance, is considering a major change in how it receives federal funding and utilizes savings.

Under its block grant proposal, Tennessee would receive a fixed amount of funding from the federal government—$7.9 billion, based on the state’s average enrollment from the past three years. The state can then cut spending however it chooses and would split the savings with the federal government.

With so much incentive to cut spending, the state may expect lower spending and, hence, may part with a lower share of their own source revenue for Medicaid. The question is whether this strategy would affect patient outcomes.

With little to no hope of an overall healthcare spending decrease in the near future, states will have to strategize about how to handle the ten percent contribution of their own share revenue in 2020 and the following years.