Medicaid accounts for the largest share of state budgets and is growing still. Since fiscal year 2010, state Medicaid spending nationwide grew from 22.2 percent to about 24 percent of the average state budget, according to the National Association of State Budget Officers (NASBO). Since the recession began in 2007, Medicaid enrollment has grown by more than 10 million people, even as state tax revenues have dwindled.  Over 70 million Americans were served by state Medicaid programs in 2012.

Since most states have balanced budget provisions in their Constitutions, they had only a few basic options to manage health costs and spending. In 2011, two thirds of states cut provider payments, and 18 states reduced Medicaid benefits, says a recent report from the Government Accountability Office (GAO). Twenty six states increased provider taxes that year, as well.

States Increased Certain Medicaid Payments and Benefits:

States were not solely focused on cuts, however. In many cases, the same state cut payments for some providers while raising payments for others. The GAO report has good data to track those changes:

  • More than 40 states each year from 2008 to 2011 reported increasing at least one payment rate.
  • Each year, the number of states reporting Medicaid payment increases was more than the number reporting decreases, and some states reported doing both.
  • Hospitals were the providers most frequently subjected to decreased payment rates, though hospitals also often benefited from increased rates as well.
  • Nursing homes most frequently benefited from increased payment rates.

The same dynamic was true for Medicaid benefits and services:

  • 26 to 31 states each year from 2008 to 2011 reported increasing at least one benefit or service.
  • In 2011, six states increased dental services and nine states reduced them.
  • Eight states raised prescription drug benefits, and seven states cut them in 2011.
  • Services for nursing facilities and Intermediate Care Facilities for Persons with Intellectual Disabilities (ICF/ID, sometimes called ICF/MR) saw the fewest changes, whether positive or negative.
Medicaid Provider Shortages Because of Low Rates and Other Factors:

In addition to budget challenges, 38 states told the GAO they had trouble with Medicaid provider shortages, especially for dental care and specialty care providers in mental health, obstetrics and gynecology (OB/GYN), and pediatrics. Few states had trouble with access to nursing facilities and community-based long-term services and supports (LTSS).

Several factors contribute to Medicaid provider shortages, mainly Medicaid’s low reimbursement rates compared to Medicare, general provider shortages, and difficulties with missed appointments and administrative duties to enroll and file claims with Medicaid.

Forty states told the GAO they made claims processing faster and easier in an attempt to maintain current providers or to attract new ones, with some states counted in both categories. Fewer states said they increased payment rates or other provider incentives.

Medicaid Primary Care Payment Increase:

The Affordable Care Act (ACA) health reform law attempts to improve the situation for primary care physicians, at least, by requiring states in 2013 and 2014 to increase Medicaid primary care rates to 100 percent of Medicare rates. Medicaid primary care rates are 59 percent of Medicare rates on average, but payment varies by state, from 50 percent to 77 percent of Medicare rates.

The Centers for Medicare and Medicaid Services (CMS) recently answered a number of frequently asked questions about the ACA section 1202 rate increase, which you can read more about in this blog post.