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Medicaid Spending Growth in the Great Recession and Its Aftermath, FY 2007-2012

The recent recession, commonly known as “the Great Recession,” officially ended in June 2009. Although it has been slow, the economy is recovering, albeit more quickly in some states than in others. By most measures, this was the worst economic downturn affecting the United States since the Great Depression. As millions of Americans lost income and health benefits due to job losses during this period, many turned to the Medicaid program to provide health coverage for themselves and their families. It was in this climate that Congress passed the American Recovery and Reinvestment Act in 2009, which among other things, instituted a maintenance of eligibility requirement and enhanced the federal match.1 However, as the economy has begun to recover, with GDP rising and the unemployment rate decreasing, the rate of Medicaid enrollment has slowed. In June 2011, the federal match rate returned back to pre-ARRA levels, leaving states to cover the remaining amount of Medicaid spending while still being required to maintain eligibility levels.

Over the 2007 to 2012 period, Medicaid enrollment increased by 5.1 percent on average per year, with a high between 2008 and 2009 of 7.8 percent. In this paper, we use CMS administrative data to track Medicaid spending from 2007 through 2012, providing possible explanations for the spending trends. We then use enrollment data to calculate the spending per enrollee growth by service during this period, spending by eligibility group over this period, and deconstruct spending growth into enrollment growth and spending per enrollee growth. We find that overall Medicaid spending over the 2007 to 2012 period tracked enrollment, which is largely explained by economic circumstances and, to a smaller degree, decisions to expand Medicaid in some states. Although spending growth slowed considerably in 2012, which may reflect states’ reactions to the end of the enhanced federal match, it was relatively high over the entire period. However, we find that spending per enrollee grew relatively slowly when compared to private health insurance per capita and the underlying inflation in the cost of medical care.

As of July 2014, 27 states including D.C. had decided to expand their Medicaid programs as part of health reform.2  Consequently, we anticipate Medicaid enrollment to jump. As this report shows, Medicaid spending follows enrollment, and consequently we also anticipate a jump in spending, although the federal government will largely pay for it. At a per enrollee level, however, we anticipate that spending in the Medicaid program will continue to grow more slowly than in other programs.

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