Medicaid Controls Health Care Costs Better than Other Insurers

By Tara Mancini

Since 2008, we’ve heard reports about growing Medicaid enrollment and consequently, a rise in its cost (which was mainly incurred by the federal government). Of course we now know that the increases in Medicaid enrollment, and subsequently Medicaid spending, coincided with the worst economic downturn since the Great Depression.

And by now, Say Ahhh! readers are familiar with our frequent efforts to get out the facts and to debunk the myths of out-of-control spending that are promulgated by some. That said, given the current threat to Medicaid and CHIP by the House-passed Sequester Replacement Reconciliation Act, it bears repeating that: 1) the enrollment increases in Medicaid have been recession driven 2) Medicaid is cost-effective and does a much better job of controlling health care costs than do other insurers in the health care sector.

Three recent reports, and their accompanying info graphics, help illustrate these points.

The Kaiser Commission on Medicaid and the Uninsured’s Enrollment-Driven Expenditure Growth: Medicaid Spending During the Economic Downturn FFY2007-2010 reveals that the 2.5 percent average annual spending growth in Medicaid is slower than per capita costs in national health expenditures, Medicare, and the private health sector.  With 5.5 percent average annual growth spending, the private sector outpaces all benchmarks with which it is compared and even doubles Medicaid spending.

Urban Institute’s analysis in Medicare, Medicaid and the Deficit Reduction, illustrates that Medicaid per capita expenditures on average were lower than the private sector throughout the last decade.  Compare the private sector’s 9.1% growth in the first half of last decade and 4.5% growth in the latter half of the decade to Medicaid’s per capita growth rates of 2.9% and 2.7%, respectively.  Authors Holahan and McMorrow note that Medicaid’s lower costs are due to the fact that more enrollment was seen among adults and children than the aged and disabled, as the latter group costs more money.  However, continued growth of the disabled population in the program, is one reason for overall expenditure growth.  That is of course, in addition to the two economic recessions experienced in the last decade, during which times, enrollment increased.

Finally,an  analysis from Bloomberg Government finds that Medicaid spending has been mostly flat for the last decade, after adjusting for inflation and population growth.  At both the beginning and the end of last decade, per capital costs average out at about $350, having hit its highest per capita cost of $400 in 2005. Below, a graph summarizes spending for the five states with the highest Medicaid expenditures in comparison to the national average.

In sum, these recent analyses of Medicaid spending exhibit that Medicaid is better at controlling health care costs than other insurers, and increased spending in the program is driven by enrollment.