Medicaid spending is slowing. Yes, really.

October 25, 2012

The Kaiser Family Foundation surveyed all states on their Medicaid spending this year. The biggest takeaway might surprise you: Medicaid spending growth hit a "near-record low" in 2012, with similar trends expected in 2013.

That's good news for the federal budget. The entitlement program is growing more slowly than we expected at the start of this fiscal year. At the same time, that could be bad news for the program. Some of the spending slowdown has to do with states reducing how much they pay doctors, which could make providers less likely to accept new patients.

First, the positive budget impact: "That was slightly less," the Kaiser analysts note, "than the original legislative appropriations of 2.2 percent" growth set at the start of this fiscal year.

The slowdown largely has to do with a steady drop in Medicaid enrollment. As the economy has recovered, the safety net program has seen fewer Americans seek assistance with their health care coverage. Medicaid enrollment increased by 3.2 percent in 2012, a significant drop from the 7.8 percent increase the program saw back in 2009.

Keep in mind, those numbers apply to overall Medicaid spending. It includes both the state and federal contributions to the program. When you dig down into the state contribution, you get a quite different picture.

For the past three years, states have received additional Medicaid funding as part of the stimulus law. The whole idea was to bolster states' Medicaid programs during the recession, as more residents came onto the rolls. 

Those stimulus payments ran out last year, meaning states were left to cover a bigger chunk of their Medicaid bill. Their spending spiked.

States saw their spending increase by 27.5 percent this year. Granted, that's a one-time surge: In 2013, they only expect spending to go up by 2.3 percent.

States still did need to find a way to make ends meet. Forty-eight took on some kind of cost containment measure in 2012. Many of those were rate cuts, reducing what they pay to the hospitals and doctors who see Medicaid patients. Here's what that looks like for primary care doctors, specialists and dentists over the past few years:

It's worth noting that many that states expect this trend will reverse in 2013: More plan to boost doctor salaries in that year. 

Right now though, some of the cuts are especially severe. Here in the District of Columbia, Medicaid has implemented a 20 percent across-the-board cut for doctors. California slashed rates by 10 percent while South Dakota, Illinois and Tennessee put into effect smaller, single-digit cuts.

The Affordable Care Act will bring some reprieve. It boosts primary care doctors' reimbursement rates in Medicaid to match those of the Medicare program. From what we know of previous research, reimbursement rates matter. Sandra Decker's paper in the journal Health Affairs this year found that states that pay doctors less tend to have fewer physicians accepting new Medicaid patients. 

The good news on Medicaid is that spending is becoming less of a budget burden. The bad news is how states are getting there: With budget restrictions that could curb access to providers. 

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Brad Plumer | October 25, 2012