New Report Shows Slower Medicaid Spending Growth

By Richard Kronick, Deputy Assistant Secretary for Health Policy
Posted March 01, 2013

The 2012 Medicaid Actuarial Report released today contains good news.  It shows that Medicaid benefits spending per beneficiary is estimated to have decreased by 1.9% from 2011 to 2012.  This decline in per beneficiary spending is virtually unprecedented.  Except in 2005-2006, when the cost of prescription drugs for Medicaid-Medicare dual beneficiaries shifted to Medicare Part D, Medicaid spending per beneficiary has never declined from one year to the next in the 47-year history of the program.  Health care spending growth has generally been slow over the past few years, but Medicaid spending growth in 2012 is well below spending growth in the rest of the health care economy.

These results can be interpreted to suggest that Medicaid programs managed spending growth more effectively than did other payers in 2012.  And that states have substantial flexibility to manage Medicaid spending growth.

Projected spending growth per beneficiary over the next decade is only 3.2% per year, less than the rate of growth of the per capita Gross Domestic Product, and lower than projected growth in overall per person health spending.  As a result of Medicaid expansion in 2014, a larger proportion of Medicaid beneficiaries will be relatively low cost healthy adults, and a smaller proportion will be relatively high cost disabled and aged beneficiaries, and the changing mix of Medicaid beneficiaries accounts for part of the reason that projected Medicaid spending growth is so slow.  But even focusing separately on projected rates of growth for children, adults, disabled and aged beneficiaries, the projections show a program with modest expenditure growth per person.

Furthermore, largely because of the decrease in Medicaid spending and a slower growth rate than was assumed last year, in this year’s report projected spending in 2020 is fully 14% lower than the projection made in last year’s report. 

There are very strong financial and economic arguments in favor of states expanding Medicaid eligibility to 133% of the federal poverty level.  From 2014 through 2016, 100% of the costs of covering newly eligible people will be paid by the Federal government, with that percentage gradually decreasing to 90% by 2020.  That means that over the next decade more than 90% of the total costs for newly eligible people will be paid for by the Federal government, representing substantial new flow of Federal funds to hospitals and other health care providers in states that choose to expand.  This will undoubtedly lead to more jobs and tax revenue, as well as improved health and financial security for millions of newly insured low-income workers. 

While the baseline assumption in today’s report is that, in 2015, 65% of newly eligible Medicaid beneficiaries will live in states that have chosen to expand Medicaid, today’s report underscores substantial uncertainty about state decisions. We remain optimistic that, over time, all states will recognize the health, financial, and economic benefits of extending Medicaid.  These new data suggest just how effectively the Medicaid program manages spending growth, and is well positioned to accommodate future beneficiaries.

To read today’s report on the financial outlook for Medicaid, visit:

And for a letter from Secretary Sebelius to governors detailing more information on the flexibility states have in designing their Medicaid programs, see: (PDF - 223 KB)