Medicaid Spending Growth Slows in FY 2016, Kaiser Says

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By Alex Ruoff

Oct. 13 — Medicaid enrollment and spending nationwide grew over the past year at significantly lower rates than in 2015, according to the Kaiser Family Foundation.

In fiscal year 2016, Medicaid enrollment grew on average 3.9 percent and Medicaid spending grew 5.9 percent, roughly half the previous year's growth rate, according to a survey of Medicaid directors by the Kaiser Family Foundation released Oct. 13. Growth rates for Medicaid enrollment and spending are expected to continue to decline in 2017.

However, even as new enrollment slows in coming years, the rising cost of prescription drugs will increasingly tax state and federal budgets, Medicaid directors and researchers told Bloomberg BNA. Many states are expected to struggle in controlling these costs, largely because Medicaid programs must pay for all federally approved drugs.

“They don't have a lot of influence over pricing,” Vern Smith, who worked on the survey for Kaiser and serves as a senior fellow at the Washington-based consulting firm Health Management Associates, told Bloomberg BNA. “States can't pick and choose what drugs to cover, so they'll likely try to find savings wherever they can.”

Enrollment in Medicaid programs nationwide grew more than 13 percent on average in fiscal year 2015, primarily due to the expansion of 29 Medicaid programs under the Affordable Care Act by the end of that year.

Enrollment growth propelled Medicaid spending as well, which rose more than 10 percent in 2015, prompting fears from many state legislatures that local budgets wouldn’t be able to handle the costly programs as federal funds for coverage expansion start to taper in 2017.

In fiscal year 2016, Alaska and Montana implemented expansion, and Louisiana joined in fiscal year 2017.

Federal vs. State Spending

The federal government has afforded the bulk of the costs for expanding Medicaid in 32 states over the past four years. However, federal funds for expansion will taper off starting in 2017, putting more of the cost back into individual states.

The federal government paid for 62 percent of the $509 billion in Medicaid spending that occurred in fiscal year 2015, according to Kaiser.

As a result, the growth in state spending on Medicaid has remained modest in recent years. Overall, according to Kaiser, state spending on Medicaid has grown by less than 3 percent for two of the last three years—well below the average rise in state tax revenues.

However, the growth in state spending on Medicaid is expected to increase on average by 4.4 percent in 2017, when the federal matching rate for expansion costs drops from 100 percent to 95 percent. This change comes as state tax revenues declined by 2.5 percent in 2016.

States want to keep their Medicaid programs sustainable and keep them from becoming a larger portion of their budgets, meaning annual spending on Medicaid must be at or below annual growth in state revenues, John McCarthy, vice president of the National Association of Medicaid Directors and director of Ohio's Medicaid program, told Bloomberg BNA.

Some states are looking to Medicaid beneficiaries for new revenues to address the added costs.

Seven states reported they have implemented or plan to implement new and increased premiums for Medicaid beneficiaries by the end of 2017, according to the Kaiser report. Medicaid programs are limited in who they charge premiums.

Five states reported to Kaiser that they will charge new copays or increase existing copays for their Medicaid beneficiaries by the end of 2017.

Drug Spending

Even those states that didn't expand Medicaid are contending with growing drug costs, according to the Kaiser report. Nearly every Medicaid director flagged high cost and speciality drugs as a major driver of spending for Medicaid programs.

Many Medicaid directors have complained about the high cost of Sovaldi, a drug approved to treat chronic hepatitis C. A 12-week regiment of the drug is reported to cost $84,000.

States have little influence over the cost of prescription drugs and can't pick and choose which drugs to cover because they're required to cover all federally approved drugs, Smith said.

Most states are refining their pharmacy programs, hoping to take better advantage of rebate programs and managed care organizations to pay less for drugs, he said.

Some are refining how they determine what drugs are medically necessary—the approval process for Medicaid beneficiaries to get prescriptions, Smith said. By being more diligent with approvals, he said, Medicaid programs can reduce the costs of unnecessary prescriptions.

However, McCarthy said, rising drug prices could simply be a reality that Medicaid programs must contend with by reducing other costs or focusing on the long-term benefits of these drugs. He pointed to Sovaldi as a example of an expensive drug that nevertheless reduces the long-term costs associated with treating someone with hepatitis C.

To contact the reporter on this story: Alex Ruoff in Washington at

To contact the editor responsible for this story: Kendra Casey Plank at

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