State Medicaid Spending Grew 8.8% in FY 2010, With a 7.4% Rise Expected in FY 2011

State Medicaid spending increased by an average of 8.8% in fiscal year (FY) 2010. This is the highest rate of growth in eight years and well above the 6.3% increase predicted at the start of FY 2010 in June 2009, according to the tenth annual survey of state Medicaid directors released by the Kaiser Family Foundation's Commission on Medicaid and the Uninsured (KCMU). The state directors attributed the spending increase to heavier Medicaid caseloads resulting from recession-driven job losses, which left many families without access to affordable employer-provided health coverage. States are projecting a FY 2011 spending increase of 7.4%, consistent with expectations that growth in Medicaid enrollment will slow to 6.1%.

Another newly released KCMU report, which looks at the number of individuals on state Medicaid rolls, shows that enrollment grew by 3.69 million from December 2008 to December 2009, when a total of 48.5 million people were enrolled in state Medicaid programs. This is the largest absolute 12-month enrollment increase since the early days of Medicaid implementation in the late 1960s and represents an 8.2% annual increase. Twenty-three states experienced double-digit growth during the 12-month period. The five states reporting the largest percentage increases in enrollment were Nevada (22.4%), Wisconsin (21.5%), Maryland (19.9%), Arizona (19.3%), and Alaska (16.9%), according to the six-page report.

States received critical fiscal help in closing Medicaid budget gaps from the American Recovery and Reinvestment Act of 2009 (ARRA), which temporarily boosted the federal Medicaid match and provided an estimated $87 billion to states starting in October 2008. ARRA's enhanced Medicaid match was scheduled to end in December 2010, but in August Congress enacted additional relief for states through June 2011, although at a reduced level: $16 billion over six months instead of the widely expected $24 billion, which would have extended the enhanced match at the previous rate.

Even with the extra funds, 48 states implemented at least one new policy to curb Medicaid spending in FY 2010, and 46 states plan to do so in FY 2011, according to the 119-page state survey report. States generally did not reduce Medicaid eligibility levels because ARRA required them to maintain efforts in this area in order to qualify for the enhanced federal match. Although survey data indicate that ARRA funds helped many states avoid or reduce rate cuts to providers (hospitals, physicians, managed care organizations, and nursing homes), 39 states implemented a rate cut or freeze in FY 2010, and 37 states plan similar actions in 2011. A total of 20 states implemented new restrictions on benefits in FY 2010—the largest number in one year since the KCMU surveys began in 2001 and double the number in FY 2009. Fourteen states plan new restrictions on benefits in FY 2011.

Despite tight budgets, many states simplified or expanded Medicaid eligibility and benefits, usually for small populations, although a few states, including Colorado and Wisconsin, are implementing broader reforms and eligibility expansions. Sixteen states in FY 2010 and 13 in FY 2011 have established or expanded disease management programs in Medicaid. The health reform law (see below) includes provisions for improving care delivery in Medicaid, such as a new patient "health home" option to facilitate coordination of care for persons with chronic care needs, creation of the Center for Mental Health Services' Innovation Center to test payment and delivery models, and several demonstration and grant programs (see Druss and Mauer's article in this month's special section, page 1087).

However, state Medicaid directors expect the recession's impact to linger, even as the economy improves. The phase-out of enhanced federal assistance will boost the state's share of Medicaid costs in FY 2012 by 25% or more in some cases, the survey found. In addition, directors are facing the expense of preparing for Medicaid expansion under health reform in 2014, when nearly all individuals with incomes below 133% of the federal poverty level will become eligible. A third KCMU report provides a look at efforts to prepare for reform in five states—Connecticut, Michigan, Massachusetts, North Carolina, and Washington. The 14-page report notes that expected leadership transitions—37 states are holding gubernatorial elections in 2010—will lead to replacement of many of the political appointees who are currently spearheading implementation of reform. In addition, Medicaid directors are faced with an aging workforce, constraints on hiring, and the toll from the recession, and they cited particular concerns about the need for more staff and outside contractors to help design insurance exchanges, handle expanded enrollment for Medicaid and the exchanges, and update eligibility systems in the time frame required under the reform law.

The survey report, Hoping for Economic Recovery, Preparing for Health Reform: A Look at Medicaid Spending, Coverage and Policy Trends Results From a 50-State Medicaid Budget Survey for State Fiscal Years 2010 and 2011, along with the enrollment update, Medicaid Enrollment: December 2009 Data Snapshot, and the five-state analysis, Health Reform and State Workforce Challenges: An Early Look at Five States, are available on the KCMU site at www.kff.org/medicaid/index.cfm .