Spending Pressures Drive States Toward Program Reinvention

HEHS-95-122: Published: Apr 4, 1995. Publicly Released: Apr 4, 1995.

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Pursuant to a congressional request, GAO reviewed federal and state Medicaid spending trends, focusing on: (1) states' efforts to contain Medicaid costs and expand coverage through waivers of certain federal requirements; and (2) the potential impact of these waivers on federal spending and on Medicaid's overall program structure.

GAO found that: (1) Medicaid accounts for about 6 percent of all federal outlays; (2) federal Medicaid costs will increase from $131 billion to $260 billion by the year 2000, which will be more than the rate of increase for the total federal budget; (3) between 1985 and 1993, federal Medicaid spending increased 16 percent per year, while state spending increased 15 percent per year; (4) federal spending increased more than 25 percent per year in 1992 and 1993, mostly due to states collecting donations and taxes from certain hospitals and then returning them as Medicaid payments; (5) some states have sought waivers from certain program requirements to expand coverage to formerly ineligible clients; (6) it could not determine how managed care will impact patient access to services and the quality of care, since only two states have completed waiver implementation under their new systems; (7) some states will receive more Medicaid funds than others under their approved waivers than they would have under their previous programs; (8) despite negotiated spending caps, the waivers could increase federal Medicaid spending, since more low-income people will receive coverage under state programs; and (9) concerns over the future of Medicaid include who will benefit from savings generated by the shift to managed care, the potential for increased federal Medicaid spending, and limiting programs if they become too costly.

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