Recent Spending Experience and the Administration's Proposed Program Reform

T-HEHS-97-94: Published: Mar 11, 1997. Publicly Released: Mar 11, 1997.

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GAO discussed recent Medicaid spending trends and their potential implications for future outlays, focusing on: (1) key factors that explain the Medicaid 3.3-percent growth rate in fiscal year 1996; and (2) the administration's proposal to contain Medicaid cost growth through decreases in disproportionate share hospital (DSH) payments and per capita caps, and to increase state flexibility.

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) leading factors include continued reductions in DSH payments in some states as a result of earlier federal restrictions on the amount of such payments and the leveling off of Medicaid enrollment in other states following planned expansions in prior years; (4) a number of states GAO contacted attributed the lower growth rate to a generally improved economy and state initiatives to limit expenditure growth through programmatic changes, such as managed care programs and long-term care alternatives; (5) while the magnitude of the effect of these programmatic changes is less clear, there is evidence that they helped to restrain program costs; (6) it is likely that the 3.3-percent growth rate is not indicative of the growth rate in the years ahead; (7) just as a number of factors converged to bring about the drop in the 1996 growth rate, so a variety of factors, such as a downturn in the economy, could result in increased growth rates in subsequent years; (8) the administration's proposal for Medicaid reform would further control spending by reducing DSH expenditures and imposing a per capita cap, while providing the states greater flexibility in program policy and administration for their managed care and long-term care programs; (9) these initiatives should produce cost savings; and (10) however, in controlling program spending, attention should be given to targeting federal funds appropriately and ensuring that added program flexibility is accompanied by effective federal monitoring and oversight.

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