My remarks today focus on two broad issues: (1) key factors that explain the 3.3-percent growth rate in fiscal year 1996 and their implications for future Medicaid spending and (2) the administration’s proposal to contain Medicaid cost growth through decreases in disproportionate share hospital (DSH) payments and per capita caps, and to increase state flexibility. in the 1996 growth rate, so a variety of factors—such as a downturn in the economy—could result in increased growth rates in subsequent years. Finally, the administration’s proposal for Medicaid reform would further control spending by reducing DSH expenditures and imposing a per capita cap, while providing the states greater flexibility in program policy and administration for their managed care and long-term care programs. These initiatives should produce cost savings. However, in controlling program spending, attention should be given to targeting federal funds appropriately and ensuring that added program flexibility is accompanied by effective federal monitoring and oversight. Recent slowdowns in state-initiated eligibility expansions also helped to effect substantial decreases in the growth rates in selected states. State Managed Care Programs and Long-Term Care Policies

uncertain because of state variations in program scope and objectives. Potential for Higher Expenditure Growth in Future Years

Many of the factors that resulted in the 3.3-percent growth rate in 1996—such as DSH payments, unemployment rates, and program policy changes—will continue to influence the Medicaid growth rate in future years. However, there are indications that some of these components may contribute to higher—not lower—growth rates, while the effect of others is more uncertain.
Why GAO Did This Study

GAO discussed recent Medicaid spending trends and their potential implications for future outlays, focusing on: (1) key factors that explain the Medicaid 3.3-percent growth rate in fiscal year 1996; and (2) the administration's proposal to contain Medicaid cost growth through decreases in disproportionate share hospital (DSH) payments and per capita caps, and to increase state flexibility.

What GAO Found

GAO noted that: (1) GAO found no single pattern across all states that accounts for the recent dramatic decrease in the growth of Medicaid spending; (2) rather, a combination of factors, some affecting only certain states and others common to many states, explains the low 1996 growth rate; (3) leading factors include continued reductions in DSH payments in some states as a result of earlier federal restrictions on the amount of such payments and the leveling off of Medicaid enrollment in other states following planned expansions in prior years; (4) a number of states GAO contacted attributed the lower growth rate to a generally improved economy and state initiatives to limit expenditure growth through programmatic changes, such as managed care programs and long-term care alternatives; (5) while the magnitude of the effect of these programmatic changes is less clear, there is evidence that they helped to restrain program costs; (6) it is likely that the 3.3-percent growth rate is not indicative of the growth rate in the years ahead; (7) just as a number of factors converged to bring about the drop in the 1996 growth rate, so a variety of factors, such as a downturn in the economy, could result in increased growth rates in subsequent years; (8) the administration's proposal for Medicaid reform would further control spending by reducing DSH expenditures and imposing a per capita cap, while providing the states greater flexibility in program policy and administration for their managed care and long-term care programs; (9) these initiatives should produce cost savings; and (10) however, in controlling program spending, attention should be given to targeting federal funds appropriately and ensuring that added program flexibility is accompanied by effective federal monitoring and oversight.