Urban Institute researcher and study author John Holahan concludes that, “Medicaid played its role as a safety net, providing coverage to those facing economic declines and loss of employer sponsored insurance, but the result was a sharp increase in program costs.” He added, “Medicaid enrollment growth undoubtedly kept the uninsurance rate from increasing more than it otherwise would have during this period.”
For FY2000-03, Medicaid spending grew at an average of 10.2 percent annually. However, state Medicaid cost containment actions—ranging from curbing provider payment rates to reducing benefits—and a slowing of enrollment growth served to moderate Medicaid spending growth in FY2003. The 7.1 percent growth in FY2003 is comparable to the increases the program experienced in the late 1990s. See Figure 1.
“We know states are struggling with Medicaid spending and the pressure it puts on other state priorities, but this study shows that Medicaid costs actually grew at a slower rate than private insurance costs. The real problem is rising health care costs and the states ability to pay the bill, and not that Medicaid spending is out of control,” said Diane Rowland, executive director of KCMU.
Growth in Medicaid Spending vs. Private Insurance Spending
Comparing Medicaid’s purchase of acute care services to private insurance costs shows the program’s cost increases are below those of private insurance. The average growth rate of per enrollee Medicaid costs for acute care from FY2000-03 was 6.9 percent—lower than the 9 percent increase in per enrollee costs of the privately insured and substantially lower than the growth in employer-sponsored insurance premiums (12.6 percent). See Figure 2.
