From 2000 to 2003, a sharp rise in enrollment during the economic downturn triggered Medicaid budgets to increase by a third – an average annual increase of 10.2 percent. A new analysis in Health Affairs found that during this four-year period:
● In per capita terms, average annual Medicaid costs for acute care services grew by 6.9 percent, compared to 12.6 percent for employer-sponsored insurance.
● While low-income families represented 90 percent of enrollment growth, they accounted for 44 percent of cost increases. Elderly and disabled beneficiaries, with their dramatically higher per capita costs, drove 56 percent of Medicaid spending growth.
The implications are clear. First, state Medicaid programs are often more effective than employers in controlling health expenditures – especially during economic downturns and the worst part of the commercial underwriting cycle. Second, in a slow economy states will always experience big budget hits from increased enrollment of low-income kids and their parents. However, over the long-term, states must focus most of their cost containment efforts on high-cost beneficiaries, where care is notoriously inefficient.