Medicaid Spending Growth Compared to Other Payers: A Look at the Evidence

Medicaid provided health coverage for over 70 million individuals during the 2013 fiscal year. A number of studies have demonstrated that Medicaid coverage helps to improve receipt of preventive health care, access to care, and out-of-pocket spending burdens and other financial outcomes. However, given ongoing concerns about federal and state budgets, the costs of the Medicaid program are likely to be again at the forefront of state and federal policy discussions. As federal policy makers consider proposals to reform Medicaid financing, this issue brief examines evidence from over 40 methodologically rigorous studies related to Medicaid program spending. Key findings show:

Per capita spending in the Medicaid program is lower compared to private insurers after adjusting for the greater health needs of Medicaid enrollees. One study showed if a low-income adult Medicaid enrollee were instead covered by private health insurance, spending would be over 25 percent higher.¹ An early study² found 18 percent higher spending and attributed the difference to differences in provider payment rates.

Medicaid spending growth primarily has been driven by rising Medicaid enrollment, and spending growth per enrollee in Medicaid has been low compared to other payers. One study showed that from 2007 to 2013, growth in per enrollee Medicaid spending on medical services was the same as GDP per capita growth and lower than growth in national health expenditures per capita, the consumer price index for medical care, and private health insurance per enrollee spending.³

Lower payment levels in Medicaid have contributed to its relatively low costs. For example, a survey of Medicaid physician fees showed that Medicaid fees were 66 percent of the Medicare fees in 2014,⁴ and another study showed that Medicaid’s per unit pharmacy costs were less than half of Medicare’s per unit pharmacy costs in 2012.⁵

Recent federal budget proposals include provisions to reform Medicaid financing in an effort to reduce federal spending. Some savings may be found from more efficient care delivery (i.e. reductions in emergency room visits or hospital readmissions). However, given Medicaid’s already lower payment rates that contribute to lower per capita spending, such proposals could result in reductions in utilization and/or enrollment as well as additional pressure on states to lower provider payment further. These changes could have adverse effects on beneficiaries’ access to care.