Chapter 12 : Trends in Medicaid Payments and Users of Covered Services , 1975 - 91 by Penelope Pine ,

The Medicaid program was enacted by Congress under title XIX of the Social Security Act and provides medical assistance to certain low-income families with dependent children and low-income persons who are aged, blind, or disabled. Historically, coverage of low-income families has focused on persons who receive cash assistance through the Aid to Families with Dependent Children (AFDC) program (title IV-A of the Social Security Act), but recent legislation has expanded Medicaid eligibility for low-income families. Coverage of the aged and disabled has focused on individuals receiving cash assistance through the Supplemental Security Income (SSI) program (title XVI of the Social Security Act) and certain SSI­ related groups. The program also may cover medically needy individuals who do not receive cash assistance but have income, after deducting incurred medical expenses, that falls below certain levels. State Medicaid programs must offer certain basic services, including inpatient and outpatient hospital, physician, nursing facility, and home health services. The statute also provides States the flexibility to cover a wide range of other services, including prescription drugs and dental care. Although the Federal Government finances between 50 arid 83 percent of care provided under the Medicaid program for any given State, individual States administer Medicaid within broad Federal requirements and guidelines. Federal guidelines allow States discretion in establishing income and resource criteria for program eligibility; determining the amount, duration, and scope of covered services; and determining provider reimbursement methodologies. This means that the characteristics of State Medicaid programs vary considerably from State to State (Health Care Financing Administration, I992a). Despite State program differences, much is to be gained from the analysis of Medicaid program expenditure and utilization trends. Medicaid can be viewed as a confederation of individual State programs designed to address the health care needs of some of our most vulnerable populations. Changes in the number and type of persons served, the type of services rendered, and the relative cost of serving different eligibility groups inform us of how resources are being distributed to provide health care to low-income persons. It also puts in broader perspective the State­ specific challenges in addressing cost and access issues for Medicaid enrollees. These issues have grown in importance as Medicaid expenditures have risen rapidly. The increase has been most dramatic in recent years. For example, expenditures rose from $47 billion in fiscal year (FY) 1987 to more than $90 billion in FY 1991 (Health Care Financing Administration, 1988, 1992b). These Federal and State outlays for Medicaid, which provided needed health care services to nearly 28 million Americans in FY 1991, are projected to surpass Medicare outlays by FY 1995 (Executive Office of the President, 1991). The State share of these expenditures now represents one of the largest and fastest growing components of most States' budgets. Over the last decade, expenditure growth coupled with constraints on increases in revenue have resulted in budget deficits in many States. Because of Medicaid expansions and other budget pressures, many States are experiencing a severe fiscal crisis (National Association of State Budget Officers, 1991). These pressures have led to Federal and State strategies to contain costs, manage health care delivery, and implement a wide variety of measures designed to increase competition and efficiency, while maintaining quality of care. In addition, these pressures have led many States to seek alternative approaches to shift the burden of financing the program to the Federal Government. Concern about the growth in Medicaid expenditures and calls for program reform have been expressed at many levels (Office of Management and Budget, 1991; Congressional Budget Office, 1992; National Association of State Budget Officers, 1991; Feder, 1992). Against the backdrop of these issues, this chapter presents an overview of trends in Medicaid program payments from 1975 to 1991 by eligibility group and type of service. It extends the analysis of a previous article (Reilly, Clauser, and Baugh, 1990) on Medicaid longitudinal trends. The chapter examines the reasons for growth in total Medicaid expenditures in terms of increases in the numbers and distribution of persons served (Medicaid users) and service intensity (payments per user) after adjusting for increased prices.