Decline in Spending Growth Due to a Combination of Factors

T-HEHS-97-91: Published: Mar 4, 1997. Publicly Released: Mar 4, 1997.

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GAO discussed recent Medicaid spending trends and their potential implications for future outlays, focusing on: (1) the variation in Medicaid spending growth among the states, especially for the most recent 2-year period, that culminated in the 3.3-percent growth rate in fiscal year 1996; (2) key factors that contributed to the decrease from previous years' growth rates; and (3) the implications of these and other factors for Medicaid expenditures in the future.

GAO noted that: (1) GAO found no single pattern across all states that accounts for the recent dramatic decrease in the growth of Medicaid spending; (2) rather, a combination of factors, some affecting only certain states and others common to many states, explains the low 1996 growth rate; (3) several states saw substantial drops in their 1996 growth rates associated with circumstances that are unlikely to recur to dampen spending increases in future years; (4) moreover, the vast majority of states experienced declines in their growth rates that were moderate to limited; (5) the experiences of these states reflect a number of factors at work, including a generally improved economy and state initiatives to limit expenditure growth, such as implementing managed care for primary and acute care services or alternative programs for long-term care; (6) with an improved economy and declining unemployment, the number of people eligible for Medicaid decreased; (7) in addition, a dramatic slowdown in price increases for medical services helped states control costs for certain services provided through Medicaid; (8) while the magnitude of the effect of states' programmatic changes, such as managed care programs and long-term care alternatives, is less clear, there is evidence that they helped to restrain program costs; (9) however, it is likely that the 3.3-percent growth rate is not indicative of the growth rate in the years ahead; and (10) just as a number of factors converged to bring about the drop in the 1996 growth rate, so a variety of factors, including a downturn in the economy, could result in increased growth rates in subsequent years.

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