Objectives, Scope, and Methodology

The House Budget Committee asked us to examine (1) the nature of federal and state Medicaid spending in recent years, (2) some states’ efforts to contain Medicaid costs and expand coverage through waivers of certain federal requirements, and (3) the potential impact of the waivers on federal spending and on Medicaid’s program structure overall. Collecting Information on Medicaid Spending and Waivers

To address the issue of federal and state Medicaid spending, we analyzed data contained in HCFA statistical reports and also reviewed and synthesized information from research articles and major studies that focused on Medicaid costs. Between 1985 and 1993, federal Medicaid expenditures grew each year, on average, by 16 percent. During this time, state Medicaid expenditures grew at a slightly slower rate of 15 percent. Medicaid spending has also increased sharply when compared with spending for other federal social programs. The Congressional Budget Office estimates that program spending will grow by 10.7 percent annually over the next 5 years. Most states’ demonstrations expand coverage to low-income individuals and families who were previously ineligible for Medicaid (although income and categorical requirements for these new eligibles vary considerably from state to state). Some Section 1115 Demonstrations Could Increase Federal Expenditures

Some states with approved section 1115 waivers could be eligible for more federal Medicaid funds than they might have received without the waivers. Under these terms, spending for Tennessee’s Medicaid program may increase from $2.7 billion in 1993 to $4.1 billion in 1998. It currently consumes about 6 percent of all federal outlays (3 times the share devoted to Food Stamps and 5 times the share devoted to AFDC). The administration’s method for determining budget neutrality may allow states access to more federal funding than they would have received without the waiver.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed federal and state Medicaid spending trends, focusing on: (1) states' efforts to contain Medicaid costs and expand coverage through waivers of certain federal requirements; and (2) the potential impact of these waivers on federal spending and on Medicaid's overall program structure.

What GAO Found

GAO found that: (1) Medicaid accounts for about 6 percent of all federal outlays; (2) federal Medicaid costs will increase from $131 billion to $260 billion by the year 2000, which will be more than the rate of increase for the total federal budget; (3) between 1985 and 1993, federal Medicaid spending increased 16 percent per year, while state spending increased 15 percent per year; (4) federal spending increased more than 25 percent per year in 1992 and 1993, mostly due to states collecting donations and taxes from certain hospitals and then returning them as Medicaid payments; (5) some states have sought waivers from certain program requirements to expand coverage to formerly ineligible clients; (6) it could not determine how managed care will impact patient access to services and the quality of care, since only two states have completed waiver implementation under their new systems; (7) some states will receive more Medicaid funds than others under their approved waivers than they would have under their previous programs; (8) despite negotiated spending caps, the waivers could increase federal Medicaid spending, since more low-income people will receive coverage under state programs; and (9) concerns over the future of Medicaid include who will benefit from savings generated by the shift to managed care, the potential for increased federal Medicaid spending, and limiting programs if they become too costly.