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Medicaid costs are growing ... slowly?

at 02:00 PM ET, 05/05/2012

In any proposal to bring down government spending, Medicaid nearly always finds itself in the crossfire. Rep. Paul Ryan’s budget would find $1 trillion in cuts to the entitlement program. Republican presidential contender Mitt Romney, who has described Medicaid as a “disaster for the federal government,” wants to cut it in half. President Obama’s budget would cut $72 billion from the program.

Implicit in these budget proposals is an assumption that Medicaid’s costs are spiraling out of control, making the entitlement program an unsustainable budget-buster. Dig into the data on Medicaid cost growth, however, and you find quite the opposite: Medicaid costs have grown, on a per-enrollee basis, slower than pretty much any other part of the health-care system.

The Kaiser Family Foundation put out new data Friday that Medicaid’s per-person costs grew 2.5 percent between 2007 and 2010, significantly slower than the rate of growth in private insurance and a full point lower than overall medical trend:


(Kaiser Family Foundation)

The only thing that grew slower than Medicaid’s costs were the overall economy, in the midst of a recession. “The comparison of Medicaid to other health spending indicators suggests that while Medicaid acute care spending may be growing faster than growth in the economy,” the Kaiser report concludes, “Medicaid has done considerably better in controlling per capita costs than has private coverage.”

This Kaiser study comes on the heels of a separate analysis, from Bloomberg Government, that found similar results. It showed Medicaid spending, per capita, hovering around $350 per person over the past decade. Spending patterns varied by state, but none showed a clear spike upwards:
(Bloomberg Government)

Medicaid is certainly eating up a greater share of state budgets. But these data suggest that has everything to do with enrollment numbers, which have shot up during the economic downturn. Medicaid enrollment swelled from 42 million Americans in June 2007 up to 50 million three years later. In 2008 alone, enrollment grew by 7.8 percent.

In a way, these studies are great news: They suggest that Medicaid is doing something right in holding down its per-member costs. But this could also present a hurdle for Medicaid reform plans that want to curtail spending without cutting back Medicaid’s eligibility rules, or slashing enrollment: Aside from that, there’s not much space to cut.

 
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