View Research by Author - Brian K. Bruen

Citation URL: http://www.urban.org/BrianKBruen

This brief explores the factors behind the 25% increase in Medicaid spending that occurred between fiscal years 2000 and 2002. It concludes that the spending increases have been driven by enrollment increases resulting from the loss of income and private insurance during the current economic downturn together with rising health care costs, particularly prescription drugs, which have affected the entire health care sector. Despite slower enrollment growth for the aged and disabled and for children and non-disabled adults, the aged and disabled accounted for almost 60% of the spending growth. Although current growth rates are clearly high relative to state fiscal capacity, per enrollee spending growth is below levels seen in the private health care market.

This analysis uses Medicaid administrative data to estimate the share of current Medicaid enrollment and spending attributable to dual eligibles and the fiscal effects of hypothetical reforms where the federal government takes up some or all of the states’ expenditures for dual eligibles. In the paper we find that the 7.2 million dual eligibles account for about 14 percent of Medicaid enrollees and for over 42 percent of Medicaid expenditures for medical services. Most of these expenditures are for long-term care services or prescription drugs. In the paper we present six hypothetical restructuring options where the federal government assumes a larger role in the financing of dual eligibles. The largest benefits would accrue to states if the federal government absorbed long term care spending for the dual eligibles, which currently accounts for about two-thirds of all spending on dual eligibles. But savings would be significant if the federal government absorbed responsibility for paying for Medicare premiums and cost sharing on Medicare covered services, which would provide a savings of $6.5 billion (2002 dollars). Taking over responsibility for prescription drugs would increase state savings to $5.6 billion. (Kaiser Commission on Medicaid and the Uninsured brief, September 1, 2003.)

Using data from a 2002 survey, the authors look at the design and operation of Medicaid disproportionate share hospital (DSH) and upper payment limit (UPL) programs in thirty-four states. The authors find that more available DSH gains were paid to hospitals in 2001 than occurred in the late 1990s. By contrast, survey data suggest that the bulk of available UPL gains in 2001 were kept by states and not by providers. Using simulation analyses, the authors estimate that because of DSH and UPL practices, the effective 2001 federal Medicaid match rate in the survey states was about three percentage points higher on average than it would have been otherwise.

The Medicare and Medicaid programs distribute extra payments to hospitals that treat a disproportionate share of indigent patients. The disproportionate share hospital (DSH) payment program under Medicare and Medicaid represent an important source of hospital revenues with DSH payments totaled nearly $20 billion in 1998. Yet relatively little is know about the distribution of these payments and how well they are targeted toward safety net hospitals. In a first time national examination of the joint distribution of Medicaid and Medicare DSH funds, we find that the current allocation targets financially vulnerable safety net hospitals at least as well as the alternatives that we examined.

This issue paper examines several factors behind the recent acceleration of Medicaid spending, many of which also underlie a more general rise in health care costs and private health insurance premiums. The authors also discuss reasons why Medicaid spending growth appears likely to remain at higher levels for the foreseeable future. Factors identified as contributing to current and/or projected growth include rising Medicaid enrollment, rapid growth of pharmacy costs, escalating costs for providers—including hospitals, managed care plans, and nursing facilities—and states’ mounting use of upper payment limit financing arrangements. The authors conclude that acceleration of Medicaid spending growth is a serious concern for states and the federal government given current economic and budget circumstances, and suggest that a restructuring of Medicaid financing may be necessary if Medicaid is to continue to provide for low-income populations as well as to expand to reach more of the uninsured. (Published by the Kaiser Commission on Medicaid and the Uninsured; 2002 May.)

Although health care was not a top priority for Wisconsin, the state implemented some major health care initiatives. BadgerCare, the state's publicly-subsidized health program for low-income families with incomes too high to qualify for Medicaid, is often touted as a model for other states. Wisconsin also has been a national leader in long-term care, especially in the development of flexible home and community-based services. The latest major initiative was Family Care, which consolidates funding for long-term care through use of managed care organizations. Wisconsin has new political leadership and is facing a very different fiscal environment than it had during the late 1990s. The economic slowdown, which deepened in the aftermath of September 11, exacerbated a large budget deficit. The state addressed this gap in 2001 by creative repackaging of tobacco settlement funds and vastly expanding its Medicaid intergovernmental transfer program. This generated federal funds at no cost to the state. Despite the financial pressures, Medicaid and other health programs were cut only slightly in 2001 and new funds were found to create a major new prescription drug assistance program for senior citizens.

Medicaid spent an estimated $21.0 billion on outpatient prescribed drugs in 2000. Expenditures for drugs grew more than twice as fast as total Medicaid spending from 1997 to 2000, and officials from nearly every state cited pharmacy costs as one of the top two or three Medicaid cost drivers in 2001. Faced with double-digit Medicaid spending growth and declining revenue growth, states and the federal government are under pressure to find effective methods to control spending. This report presents data on Medicaid drug spending trends, summarizes states’ options in designing their drug benefits, and reviews several ways that states are using their flexibility to curb the rate of growth of their Medicaid drug budgets. (Published by the Kaiser Commission on Medicaid and the Uninsured; 2002 February.)

California recently applied for a waiver of federal State Children's Health Insurance Program (SCHIP) requirements that would allow it to expand Healthy Families, its insurance program for low-income children, to parents. This paper explores the implications of expanding Healthy Families for marginal tax rates and marriage penalties and bonuses. The authors use a model of California tax and transfer programs to analyze the impact of the proposed expansion on the work and marriage incentives of several prototypical families. They also discuss tradeoffs associated with program expansion and examined a few alternative designs based on higher income limits and different premium structures. (Published by the Medi-Cal Policy Institute; 2001 September.)

California recently applied for a waiver of federal State Children’s Health Insurance Program (SCHIP) requirements that would allow it to expand Healthy Families, its insurance program for low-income children, to parents. This brief summarizes the findings from a larger paper written by the authors that explored the implications of expanding Healthy Families for marginal tax rates and marriage penalties and bonuses, as well as alternative design options that might increase work and marriage incentives. (Published by the Medi-Cal Policy Institute; 2001 September.)

With spending totaling more than $15 billion a year, one of the largest public subsidy programs to help pay for health care services for the uninsured is the Medicaid disproportionate share hospital (DSH) program. Although the DSH program sometimes has been highly controversial, this study provides some insights on the experiences of five community programs that have used DSH funds in a positive way: To provide health care services to the uninsured. While each program is unique and faces it own set of circumstances, several lessons are drawn to guide other communities as they search for local solutions to the growing problem of caring for the uninsured.

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