New Reports Find States Expecting 7.4 Percent Growth in Medicaid Spending In Fiscal Year 2011 As the Recession’s Lingering Effects Drive Up Enrollment

States Face New Budget and Workforce Challenges As Temporary Federal Aid Nears End And Health Reform Planning Heats Up

WASHINGTON, D.C. – Due to the nation’s deep recession, states experienced rapid growth in their Medicaid enrollment and spending last year and expect additional growth, though at a slower pace, in fiscal year 2011, according to a survey of state Medicaid officials in all 50 states released today by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured (KCMU).

States reported an average increase in Medicaid spending of 8.8 percent across all states in fiscal year 2010, the highest rate of growth in eight years and well above their original projections of 6.3 percent growth.  Medicaid directors attributed the unexpected jump to higher-than-expected increases in eligible families due to the recession, which pushed the national unemployment rate above 10 percent and even higher rates in some states.

For fiscal year 2011 (which runs through June 2011), states budgeted for an average 7.4 percent increase in spending above fiscal year 2010 – a slightly slower rate of growth consistent with their expectations that enrollment growth will slow to 6.1 percent, according to the 10th annual survey of state Medicaid directors.

The American Recovery and Reinvestment Act of 2009 (ARRA) provided a temporary boost in the federal government’s share of Medicaid costs, providing an estimated $87 billion to states starting in October 2008.  ARRA’s increased federal Medicaid support was originally scheduled to end in December 2010, but in August, Congress enacted additional relief for states through June 2011 at a reduced level, providing $16 billion over six months.

“The recession swamped state budgets and Medicaid programs, but with the extra federal aid, Medicaid helped millions of additional people as intended during tough times,” said Diane Rowland, executive vice president of the Kaiser Family Foundation and executive director of the Kaiser Commission on Medicaid and the Uninsured. “Looking ahead, states will face new challenges as the federal aid winds down and as they prepare for health reform.”

A separate KCMU report released today finds that Medicaid enrollment increased by nearly 6 million people between the start of the recession in December 2007 and December 2009.  In December 2009, 48.6 million people were enrolled in state Medicaid programs, an increase of 1.6 million over June 2009 and 3.8 million over December 2008, an annual growth rate of 8.4 percent.* State-by-state totals included in the Medicaid enrollment report show every state experienced a year-to-year increase.

Federal relief helped states preserve eligibility, though most took steps to control costs

States report that the federal fiscal relief provided critical assistance to close Medicaid budget gaps in both fiscal years 2009 and 2010, as states experienced their sharpest decline in revenues on record, according to the 50-state survey report.

Even with the extra funds, nearly every state implemented at least one new policy to curb Medicaid spending in fiscal year 2010 (48 states) and most plan to do so in fiscal year 2011 (46 states).  States generally did not reduce Medicaid eligibility levels, as ARRA required states to maintain those efforts to receive the enhanced federal aid, but took actions in other areas:

• A record 20 states implemented new restrictions on benefits in fiscal year 2010, and 14 states plan new restrictions in fiscal year 2011. This includes the elimination of some or all dental services in Arizona, California, Hawaii and Massachusetts. Other states limited benefits including imaging services, medical supplies, therapies or personal care services.

• Thirty-nine states implemented a provider rate cut or freeze in fiscal year 2010, and 37 states plan similar action in 2011.

• Eighteen states implemented utilization controls and other reductions on long-term-care services in fiscal year 2010, and 10 states plan to do so in fiscal year 2011.

In spite of the tight budget environment, many states reported acting to simplify or expand Medicaid eligibility and benefits –often for small populations, though a few states including Colorado and Wisconsin are implementing broader reforms and eligibility expansions. Some of those efforts to streamline enrollment could help states qualify for performance bonus payments enacted as part of the Children’s Health Insurance Program Reauthorization Act of 2009. States also continue to expand community-based long-term care services, focus on improvements to delivery systems and develop health information technology in Medicaid.

States see future budget, health reform implementation challenges

Even with an improving economy, state Medicaid directors expect the recession’s impact to linger, as the phase out of enhanced federal assistance will boost the state’s share of costs in fiscal year 2012 by 25 percent or more in some case, the survey finds.

In addition, Medicaid directors see preparing for the implementation of health reform as both an opportunity and a challenge.  Under health reform, Medicaid will be expanded to cover nearly all individuals with incomes below 133 percent of poverty resulting in a large expansion in most states, particularly among low-income adults without dependent children who historically have been excluded from coverage under the program. In addition, the law creates health insurance exchanges that will be established at the state level.

A third report released today provides an early look at state efforts to prepare for health reform, examining the experiences to date in five states (Connecticut, Michigan, Massachusetts, North Carolina and Washington). The report finds that the state political environment and expected leadership transitions create uncertainties and are already factoring into state strategies on health reform implementation. State leaders dealing with an aging workforce, hiring constraints, and the toll from the recession also see a need for additional staff and outside contractors to help with designing insurance exchanges, handling expanded enrollment for Medicaid and state exchanges and updating eligibility systems in the timeframe required under the reform law.

The three reports are: Hoping For Economic Recovery, Preparing For Health Reform: A Look At Medicaid Spending, Coverage And Policy Trends Results From A 50-State Medicaid Budget Survey For State Fiscal Years 2010 And 2011, authored by researchers at the Kaiser Family Foundation and Health Management Associates; Medicaid Enrollment: December 2009 Data Snapshot; and Health Reform and State Workforce Challenges: An Early Look at Five States, authored by researchers at the Foundation and the Center for State and Local Government Excellence.

They were released at a Washington, DC briefing and are available online.

*Enrollment figures in this sentence were corrected on Oct. 13, 2010 to reflect a change in one state.

The Kaiser Family Foundation is a non-profit private operating foundation, based in Menlo Park, California, dedicated to producing and communicating the best possible analysis and information on health issues.

The Kaiser Commission on Medicaid and the Uninsured provides information and analysis on health care coverage and access for the low-income population, with a special focus on Medicaid’s role and coverage of the uninsured. Begun in 1991 and based in the Kaiser Family Foundation’s Washington, D.C. office, the Commission is the largest operating program of the Foundation. The Commission’s work is conducted by Foundation staff under the guidance of a bipartisan group of national leaders and experts in health care and public policy.