Medicaid: Recent Trends in
Beneficiaries and Spending
Specialists in Social Legislation
Technical Information Specialist
Education and Public Welfare Division
March 27, 1992
MEDICAID: FtECENT TRENDS IN BENEFICIARIES
Total (Federal, State and local) Medicaid spending increased by 18 percent
in FY 1990. In FY 1991,it increased an additional 26.9 percent to $92.0 billion.
Recently, Medicaid spending has grown faster than both Medicare and all other
national health spending. In examining Medicaid spending trends from FY 1987
through FY 1991,two striking features emerge. One is the rapidly accelerating
rate of growth in inpatient hospital spending--24 percent in FY 1990 and almost
45 percent more the following year. Second, the rate of growth in Medicaid
spending varied tremendously by State and region of the country, with spending
growing fastest in southern States.
While it is not possible to explain definitively why Medicaid spending has
increased so rapidly, a number of contributing factors can be identified. Among
those discussed in this report are: inflation; rapid increases in the number of
Medicaid beneficiaries; increased reimbursement for selected Medicaid services;
and changes in States' sources for Medicaid revenues.
In FY 1990,the number of beneficiaries was 5.7percent greater than in FY
1989. When beneficiary data for FY 1991 become available, they are expected
to reveal an even greater rate of growth in recipients; continuing growth is
expected through 1997. The number of beneficiaries is rising because Medicaid
eligibility is partly tied to cash welfare programs (Aid to Families with
Dependent Children (AFDC)and Supplemental Security Income (SSI)), which
are growing rapidly. Between 1989 and 1991,the number of families enrolled
in AFDC rose almost 19 percent and SSI enrollment increased 9.5 percent. In
addition, congressionally mandated eligibility expansions for low-income
pregnant women and children, low-income Medicare beneficiaries, and others are
factors in increasing enrollment.
Rising reimbursement for Medicaid services also contributed to growth in
expenditures. Medicaid law requires hospital and nursing home payment rates
to be "reasonable and adequate" to meet the costs of "efficiently and
economically" operated facilities. In a number of States, providers have sued,
claiming that the payments failed to meet this test. As a result of these
lawsuite, some States have been required to increase payments for inpatient
hospital and nursing home services. Payments to hospitals have also risen in
recent years because States have increased payments to hospitals serving a
disproportionate number of low-income people.
The effects of voluntary contributions and provider-specific taxes, new State
revenue sources for the program, are less clear. Some maintain that these
revenue sources allowed States to increase Medicaid spending far more than
they would have otherwise. They contend that these funding sources were
primary contributors to rising Medicaid spending. Whether spending would
have increased so quickly in the last few years without these funding sources is
not easily determined. Although Congress enacted legislation in 1991 phasing-in
limits on use of these revenue sources, they are likely to comprise a substantial
share of total FY 1992 spending.
The authors want to express their appreciation to a number of individuals
who provided data and assistance in the preparation of this report. Their
thanks go to John Mauck, David Evans, Martin Gilbert, John Klemm, Miles
McDermott, and Bill Surine a t Health Care Financing Administration for their
invaluable and timely assistance in providing Medicaid data. Several
Congressional Budget Office analysts, including Jean Hearn, Jan Peakin, Pat
Purcell,.and John Tapogna also provided data, analyeis, and helpful comments.
They also thank David Colby and Anne Schwartz of the Physician Payment
Review Commission and Carl Volpe of the National Governors' Association for
CHAPTER 1. RECENT EXPENDITURE AND BENEFICIARY
TRENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
BACKGROUND ON MEDICAID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
MEDICAID OUTLAYS: RECENT TRENDS AND PROJECTIONS . . 7
MEDICAID BENEFICIARIES: RECENT TRENDS AND
PROJECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CHAPTER 2. RECENT TRENDS: SERVICES AND STATES . . . . . . . .
SERVICE SPENDING TRENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acutecarespending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Care Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STATE SPENDING TRENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CHAPTER 3. FACTORS ASSOCIATED WITH INCREASING MEDICAID
SPENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
HEALTHCAREPRICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
REIMBURSEMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Hospitals and Nursing Facility Services . . . . . . . . . . . . . . . . . . . 22
Effect of the Boren Amendment . . . . . . . . . . . . . . . . . . . . . 23
Effect of Disproportionate Share Payments (DSH) . . . . . . . 27
Quality Assurance in Nursing Homes . . . . . . . . . . . . . . . . . 31
New Funding Sources for Hospital and Nursing
Home Spending: Provider Donations and ProviderSpecificTaxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Physicians' Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Prescription Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Enrollment Increases: Growing Numbers of Cash Welfare
Recipients and Medicaid Program Expansions . . . . . . . . . . 40
Aid to Families With Dependent Children (AFDC)
Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Supplemental Security Income (SSI) Enrollment . . . . . . . . 42
Eligibility Expansions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Pregnant Women and Children . . . . . . . . . . . . . . . . . . 44
Qualified Medicare Beneficiaries (QMBs) . . . . . . . . . . . 46
Aid to Families With Dependent Children-Unemployed
Parents (AFDC-UP) . . . . . . . . . . . . . . . . . . . . . . . 47
OtherFactors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Acquired Immune Deficiency Syndrome (AIDS) . . . . . . . . . 48
MEDICAID: RECENT TRENDS IN BENEFICIARIES
Since the mid-1980s, Congress has enacted a series of measures to broaden
accees to Medicaid or increase payment for Medicaid cervices. Examples of these
measures include: (1) successive expansions of Medicaid eligibility to poor
pregnant women and children; (2) extension of limited Medicaid benefits to poor
and near-poor Medicare beneficiaries; and (3) requirements that State Medicaid
programs increase payments to hospitals serving a disproportionate number of
Congress enacted these and other measures in response to a perceived need
to provide poor people with necessary health care services. For example, the
primary purpose of eligibility expansions for pregnant women was to reduce
unacceptably high infant and neonatal mortality rates.
Medicaid expenditures rose more rapidly over the last several years than
they did in the mid-1980s. In the 4 years between FY 1987 and FY 1991, total
(Federal, State and local) Medicaid spending nearly doubled from $49.3 to $92.0
billion, with most of the growth concentrated in the last 2 years. In FY 1990,
Federal Medicaid outlays grew by 18.8 percent, indicating a sharp upturn in
Medicaid spending after a period of more moderate growth in the mid-1980s. In
FY 1991, the rate of increase in Federal Medicaid spending was even higher--28
These rates of growth have been considerably higher than anticipated,
raising questions about why spending is growing so rapidly and whether the
current rate of growth will continue. This report examines detailed Medicaid
expenditure and beneficiary trends in an attempt to explain this rapid rate of
growth. It presents data on Medicaid epending and beneficiary trends from F Y
1987 through FY 1991 and projections for FY 1992 to F Y 1997. I t also discusses
epending trends for health services covered by Medicaid and variations in State
Although data limitations and the interaction among complex factors
contributing to Medicaid spending preclude a definitive explanation, this report
provides information and analysis about how various factors have affected
Medicaid epending. Major factors include: inflation; Federal or State changes
in reimbursement policies; decisions of the courts; and rising numbers of
The underlying rate of general inflation in the economy and specific price
increases in health services exert considerable pressure on health spending
trends. These factors generally account for more than half of the increase in
national health spending each year. Their effects on Medicaid are probably
lower because Medicaid reimbursement rates are frequently not tied to a cost of
However, changes in reimbursement policies, particularly for inpatient
hospital services, have contributed to rising Medicaid spending. In 1987,
Congrese enacted legislation requiring States to increase payments to hospitals
serving a disproportionate number of low-income patients. Theee supplementary
payments are provided to hospitals that meet State-defined disproportionate
share payments (DSH) criteria. In FY 1992, DSH to hospitals are estimated to
equal $14 billion. Medicaid spending for inpatient hospital services increased
by 24 percent in FY 1990 and almost 45 percent in FY 1991. In 1991, Congress
enacted limita on growth in DSH.
The Administration has cited two new sources of State revenues as major
contributors to rising Medicaid spending: State revenues derived from voluntary
contributions from health care providers and/or taxes on health care providers
(referred to as provider-specific taxes.) Since the funding is from provider
donations or provider-specific taxes, the Administration maintains that these
revenue sources allowed increased Medicaid spending to occur with only small
or no increases in spending from State general revenues. By law, the Federal
Government is required to pay for a share of all Medicaid spending. It is argued
that reliance on provider donations and taxes, along with Federal matching
payments places more of the burden of increased payments on the Federal
Government. This perspective argues that providers receive larger payments,
and the Federal Government pays a larger Medicaid share of spending, while net
State spending remains close to what it was before the donation or tax plan. In
contrast to the Administration's perspective, the States assert that the source
of revenues used for Medicaid spending is irrelevant. Furthermore, the States
assert that these are essential resources in helping them cope with burgeoning
Medicaid spending, some of which has been required by Federal law.
Some of the growth in both inpatient hospital and nursing facility spending
also appears to stem from laws enacted in the early 1980s. The "Boren
Amendment" permitted States to deviate from cost-based reimbursement policies
and required only that payment rates be reasonable and adequate" to meet the
costs of "efficiently and economically" operated facilities. The law did not define
reasonable and adequate payments or efficiently and economically operated
Most States implemented alternative payment systems in the next several
years. Although the Boren Amendment was intended to give States more
flexibility to implement reimbursement systems that would contain costs,
Medicaid providers of inpatient hospital and nursing facility services have also
cited the Boren Amendment in legal challenges to Medicaid reimbursement
rates. Lawsuits filed in many States asserted that rates were inadequate to
meet the costs of efficiently and economically operated facilities.
In many instances, the courts have sided with providers and have ordered
States to revise their Medicaid plans and increase payment rates to comply with
the Boren Amendment. Comprehensive data have not been collected that
measure the financial impact of Boren Amendment suits in recent years.
However, they are expected to have a substantial impact on inpatient hospital
and nursing facility expenditures in future years.
Some of the growth in Medicaid spending is associated with growing
numbers of beneficiaries. These increases stem from two sources: (1)increasing
enrollment in cash welfare programs linked to Medicaid; and (2) Federal laws
requiring expanded Medicaid eligibility for low-income pregnant women and
children and low-income Medicare beneficiaries.
Generally, people receiving or eligible to receive Aid to Families with
Dependent Children (AFDC)and Supplemental Security Income (SSI) are
eligible for Medicaid.' While not all of those eligible for Medicaid actually use
eervices, increasing numbers of eligible beneficiaries undoubtedly contribute to
rising expenditures. From October 1989 to October 1991, AFDC case loads rose
by 18.8 percent, one of most rapid increases in the program's history.
Enrollment in SSI is also growing, although not as quickly. From FY 1989
through FY 1991, the number of SSI enrollees grew 9.5 percent. The recent
growth rate, which is projected to continue through FY 1997, marks a deviation
from a long-standing pattern of very slow growth in SSI enrollment. On a
person by person basis, increasing SSI enrollment is likely to have a stronger
effect on Medicaid spending. Those enrolled in SSI are aged, blind or disabled
and more likely to use the health care system than AFDC enrollees. This is
reflected in higher Medicaid expenditures for SSI enrollees. In FY 1990, per
capita Medicaid expenditures for SSI enrollees were $4,478, compared to $1,880
for AFDC adults and $736 for AFDC children.
Medicaid eligibility expansions mandated by Congress over the last several
years have affected Medicaid expenditures. Beginning in 1984, Congress enacted
a series of Medicaid eligibility expansions for low-income pregnant women and
children. Currently, States are required to extend Medicaid eligibility to
pregnant women and children under age 6 below 133 percent of the Federal
poverty etandard. They are also required to phase-in Medicaid coverage to
children under age 1 9 under 100 percent of the poverty standard during the
1990s. Health Care Financing Administration (HCFA) data indicate t h a t in FY
1990, optional and mandated legislative expansions accounted for about 50
percent of the 1.4 million increase in Medicaid enrollees that year.
To a lesser extent, congressionally mandated eligibility expansions for lowincome Medicare beneficiaries also contributed to rising Medicaid expenditures.
Under current law, States are required to offer limited Medicaid benefits to
Medicare beneficiaries whose incomes are below 100 percent of the Federal
'States may impose some restrictions on the link between SSI eligibility and
poverty standard. States are required to pay Medicare premiums, coinsurance
and deductibles for these individuals.' From May 1991 to February 1992, the
number of Medicare beneficiaries for whom Medicaid paid Medicare Part B
premiums rose 41 percent from 762,741 to 1,078,200.
Qeginning in 1993, Medicaid will be required to phase-in payment for
Medicare premiums only to near-poor Medicare beneficiaries.
CHAPTER 1. RECENT EXPENDITURE AND BENEFICIARY TRENDS
BACKGROUND ON MEDICAID
Medicaid is a Federal-State program that provides medical assistance to
certain low-income persons who are aged, blind, disabled, members of families
with dependent children, and certain other pregnant women and children. Each
State designs and administers its own program within Federal guidelines. As
a result, State Medicaid program vary eubstantially in t e r n of the number of
people covered, the scope of eervices provided, and reimbursement rates for
The Federal Government shares in the cost of Medicaid through grants to
the States. It matches States' payments through a formula tied to States' per
capita incomes. The Federal share (called the Federal medical assistance
percentage or F W ) may range from 50 to 83 percent, with the highest
matching rates in States with the lowest per capita incomes. In FY 1992,
Mississippi has the highest FMAP rate, 79.93 percent, while 12 States, the
District of Columbia and all the territories receive the minimum 50 percent
match.= The Federal match rate for benefits and administration was about 57
percent in FY 1991.
States are responsible for the nonfederal share of Medicaid payments. In
addition to using State funds to finance Medicaid benefits, some States require
local governments to share in the nonfederal part of the costs of the program.
However, States are required to pay at least 40 percent of the nonfederal share
of Medicaid expenditures. AB of September 1991, 14 States required local
governments to pay for a least some portion of Medicaid costs.
Medicaid spending results from entitlements established in law. Each State
administers the program through a single State agency in accordance with a
State plan approved by the Federal Government.' Within Federal guidelines,
State plans define eligibility, coverage, reimbursement and administrative
policies. Individuals who meet eligibility guidelines are entitled to have States
pay for covered services provided to them. In turn, States are entitled to receive
matching payments from the Federal Government for the Federal share of
Medicaid expenditures. The Federal Government is obligated to make payments
to States in accordance with payments made under States' Medicaid plans, so
there is no absolute limit on the amount the Federal Government must pay.
'Federal spending in the territories is subject to annual dollar limits.
'Massachusetts is the only State that operates Medicaid through two
agencies, one responsible for the general program and one Medicaid coverage of
Historically, Medicaid eligibility has been linked to actual or potential
receipt of cash assistance (welfare) under the AFDC program or the Federal SSI
program for poor aged, blind or disabled persons. These beneficiaries are
referred to as the "categorically eligible." States have considerable flexibility in
determining eligibility for AFDC and eome leeway in determining the link
between SSI and Medicaid eligibility. Over the past several years, Congress has
enacted laws gradually extending eligibility for Medicaid to poor people not
eligible for either of these two programs, euch as low4ncome pregnant women
and children and low-income Medicare beneficia~ies.~
Some of these eligibility
expansions were initially optional, but are now required by law.
States are also permitted to extend Medicaid eligibility to "medically needy"
persons-those who fall into one of the categories of groups of persons State
Medicaid programs are required to cover, but whose incomes or resources are
above the cash assistance standards set by the States. The medically needy must
meet eeparate income standards. As of October 1, 1991, 36 States and the
District of Columbia provided some coverage to medically needy groups.
Federal law requires States to offer coverage for some mandatory services
to the categorically eligible. Among others, mandatory services include:
inpatient and outpatient hospital care; physicians' services; laboratory and X-ray
eervices; rural health clinic services; nursing facility services for individuals 21
or older; federally-qualified health center services; early and periodic screening,
diagnosis and treatment (EPSDT)services for individuals under age 21; and
family planning services. States may also offer coverage for a broad range of
optional services, such as prescription drugs; dental services; and eyeglasses.
States with medically needy programs are permitted to offer a smaller range of
eervices to these individuals.
States determine service coverage policies within broad Federal guidelines
and are permitted to place limits on coverage of all eervices except EPSDT. For
example, States may limit the number of covered inpatient hospital days,
physician visits, or prescription drugs.
In general, Federal law grants States wide latitude in establishing
reimbursement eystems and payment rates for many Medicaid services.
However, three broad principles apply to these payments. First, Federal law
requires that "methods and procedures" for making payments ensure that
payments are "consistent with effkiency, economy and quality of care." Second,
in response to concerns that Medicaid payments were too low to attract
'Medicaid coverage for low-income Medicare is limited to payment of
Medicare premiums, coinsurance and deductibles.
providers, Congress required payment rates to be suficient to attract enough
providers so that covered services will be as available to Medicaid beneficiaries
special rules apply to rates for
as they are to the general p ~ p u l a t i o n .Finally,
hospital and nursing facility services.
There is a great deal of variability in States' reimbursement systems and
in the rates paid for Medicaid services. For many services, Medicaid payment
rates are lower than those paid by Medicare or other insurers. Sometimes
States respond to budget crises by delaying payment updates or reducing
MEDICAID OUTLAYS: RECENT TRENDS AND PROJECTIONS
Table 1and figure 1show actual Medicaid outlays (including payments for
benefits and administration) from F Y 1987 through FY 1991. Total Medicaid
spending nearly doubled from $49.3 billion in FY 1987 to $92.0 billion in FY
1991. Growth in total Medicaid spending has been especially rapid in the last
2 years--18.4 percent in FY 1990 and 26.9 percent in FY 1991. Federal Medicaid
outlays grew slightly faster during this period than Medicaid spending by State
and local governments. In F Y 1991, Federal Medicaid spending grew by 27.8
percent, compared to 25.8 percent for State and local governments.
Table 1 and figure 2 also show Congressional Budget Office's (CBO)
projections of Federal Medicaid spending from FY 1992-FY 1997, which were
released in January 1992. CBO projects an average annual rate of increase in
Medicaid spending of 15.7 percent for these 6 years. Their projection that
Federal Medicaid spending will grow 30 percent in FY 1992 is striking,
particularly since it follows on the heels of a 28 percent increase in FY 1991.
The projected rate of growth in FY 1993 is 17 percent, indicating that the surge
in Medicaid spending is expected to continue through next year. After FY 1993,
however, CBO projects more moderate yet still robust growth--around 12
percent a year-through FY 1997.
Assuming that the Federal share of Medicaid spending remains around 57
percent, total Medicaid outlays would grow from a projected $92.0 billion in FY
1991 to $222.4 billion in FY 1997. Federal Medicaid outlays are projected to
increase from $52.5 billion in FY 1991 to $126.1 billion in FY 1997.
In F Y 1966, Federal Medicaid spending accounted for 0.6 percent of the
FederaI budget; by FY 1991, it had grown to 4.0 percent of Federal spending.
Most of the increase occurred between 1966 and 1974, during the program's
early years. Between 1974 and 1985, Medicaid consistently accounted for about
2.4 percent of Federal spending. Since 1985, Federal Medicaid spending has
represented an increasing share of Federal outlays. If Federal Medicaid
epending more than doubles between FY 1991 and F Y 1997, as projected, it will
account for 7.3 percent of Federal spending in FY 1997.
q h i s provision, which had been required by regulation, was enacted into law
in the Omnibus Budget Reconciliation Act of 1989 (OBRA 89).
Projected rates of growth for Medicaid spending are eubstantially higher
than for Medicare. CBO projects that Medicare benefit outlays will increaee an
average of 11.1percent a year, from $128.3 billion in FY 1992 to $217.3 billion
in FY 1997. Baaed on these projections, combined Federal, State and local
Medicaid spending is likely to equal Medicare spending by FY 1994, and surpass
it in future years.
Projected ratee of growth in Medicaid spending are also substantially higher
than for total national health spending (excluding Medicaid). Recently, HCFA
projected national health care expenditures to the year 2000. Theee projections
assume that the economy will grow at modeet ratea with low inflation, and that
current policies and historical spending trenda will continue.? Based on these
assumptiom, national health expenditures (excluding Medicaid) are projected to
grow an average of 9 percent a year from $704 billion in 1992 to $1,27212 billion
'Sonnefeld, Sally T., D.R. Waldo, Jeffrey A. Lemieux, and D.R. McKusick.
Projections of National Health Ekpenditures through the Year 2000. Health
Cum Financing Review, v. 13, no. 1,fall 1991.
'In projecting national health expenditures to 2000, the Health Care
Financing Administration (HCFA)also projected Medicaid expenditures. The
Medicaid projections use different data than those cited in this report. These
projections assume that Medicaid will grow a t an average rate of 12.5 percent
a year from calendar 1992 through 1997.
TABLE 1. Federal and State and Local Medicaid Spending,
Actual Spending F Y 1987-FY1991,
Projected Spending FY 1992-FY1997'
(dollars in billions)
'Projected Medicaid spending is baeed on CBO projections of Federal
Medicaid spending as of Jan. 1992. These projections will be updated in the
summer of 1992. CBO does not project State and local government Medicaid
bFiscal year 1991 Federal outlay information as reported in the Final
Monthly Treasury statement for FY 1991. The Treasury statement does not
provide information on State and local spending. State and local spending
figures reported are preliminary HCFA estimates which assume that the overall
Federal matching percentage is 57.07 percent.
'The CBO does not provide projections for State and local epending. Total
and State and local projections are estimated by Congressional Research Service
(CRS)on the assumption that the Federal share of Medicaid outlays remains at
NOTE: Spending figures reflect Federal outlays and use a slightly different
accounting method than expenditure information which is reported in
Source: Health Care Financing Administration data for 1987-1990.Data
for 1991 from Department of Treasury. Projections for 1992-1997based on CBO
projections as of Jan. 1992.
FIGURE 1. Federal and Total Medicaid Spending
FY 1 9 8 7 t o F Y 1991
Billions of Dollars
Projected Trend in Medicaid Spending
FY 1991 to FY 1997
Billions of Dollars
N&: All figwm .np m j ~ ~ud
W s u b j ~@
t Ih. Nthodr and dat. mod in thoir ulculabonr.
CBO projrcb F d w J spending only.7ot.l rpond~ngurumos Fodual matching porcontlgb Of 57%
Souco: Prmpud by CRS. B u o d on dmla obtained from Un CongrrrmnJ Budgot Oflro. JuLIODP
MEDICAID BENEFICIARIES: RECENT TRENDS
Table 2 shows the number of Medicaid beneficiaries for FY 1987 through
FY 1991 and CBO's staff estimates of beneficiaries for FY 1992 through FY
1997. A beneficiary is defined as a person enrolled in Medicaid who receives a
medical service paid for by Medicaid during that fiscal year. Between 1989 and
1990,Medicaid beneficiaries increased by 5.7 percent. The last time Medicaid
experienced such large increases in beneficiaries was the early 1970s,following
the enactment of major eligibility expansions. Figure 2 displays the historical
trend in beneficiaries, while figure 3 provides the program's projected trend.
TABLE 2. Actual and Projected Number of Medicaid
Beneficiaries, FY 1987-FY1897
.Beneficiary is defined as a Medicaid enrollee who receives a medical semce
paid for Medicaid during the fiscal year.
bEstimated and projected figures were obtained from the CBO in Jan. 1992.
These projections are unpublished staff estimates and are likely to change as
new information becomes available.
'1991 rate of increase is calculated from 1990 actual enrollment.
Source: Health Care Financing Administration Form 25g for actual
beneficiary enrollment for FY 1987-FY 1990, Unpublished staff estimates of
CBO for FY 1991-FY1997,Jan. 1992.
FIGURE 3. Number and Rate of Growth
of Medicaid Beneficiaries,
N 1987 to P/ 1991
Mllllon8 of Benmflclarler
Numbor of Boneflclerles
ncm Fonn a%.
FIGURE 4. Projected Number and Rate of Growth
of Medicald Beneficlarier,
N 1991 to PI 1997
Mllllonm of Bonmflclarlmr
CHAPTER 2. RECENT TRENDS: SERVICES AND STATES
SERVICE SPENDING TREXDS
This section describes eervice expenditure trends from FY 1987 through F Y
1991. Table 3 divides total Federal, State and local) Medicaid expenditures into
two large categories: spending for acute care eervices and spending for longterm care services. As ueed in this report, long term care services include all
covered nursing facility eervices, services provided in intermediate care facilities
for the mentally retarded (ICF/MRB), nursing and other personal care services
provided in an individual'e home, home and community-based waiver (HCBS)
services, and inpatient mental health services. The acute care eervice category
is dominated by three eervices: hospital eervices, physician eervicee, and
prescription druga. All other remaining Medicaid covered services are included
in the "other" acute care services category. Some services in this category
include: other practitioner services; dental services; clinic eervices; laboratory
and radiological services; EPSDT eervices; and rural health clinic services.
Some Medicaid service spending has grown much more quickly than other
service spending. Table 3 highlights a number of important aspects about this
trend. First, payments for acute care services have been growing much more
rapidly than spending for long-term care eervices. In 1987, acute care spending
was 10 percent larger than long-term care spending, but, by 1991, spending for
acute care was 45 percent larger. This reverses a trend during the mid-1980s,
when long term care spending increased a t a faster rate.'
"Chang, Deborah and John Hollahan. Medicaid Spending in the 1980s: The
Access-Cost Containment Trade-off Revisited. Urban Institute Report, m2.
Urban Institute Press, 1990.
TABLE 3. Spending for Selected Medicaid Services, FY 1987-FY1991
(All payment amounts are in thousands)
SubtotalAcute care eerviees
Peraonal care servicee
Mental health services
SubtotalLong term care services
Totel-Medical aaaietance payments
NOTE: All figures are cetimatea and eubject ta data limitatione and methods of calculation. Service epending amounte
do not include adjustments for overpayment or underpayments, or other adjuetments to pnyment amounte. FY 1991
information ie preliminary and subject to change. Payments are for medial eervicea and exclude any adminietrative coets.
Source: Table prepared by CRS baaed on data submitted by the Statee to IICFA. HCFA form 64--Quarterly Medicaid
Statement of Expndituns fir the Medical Assistance Pmgmm.
Acute Care Spending
Much of the growth in acute care spending is attributable to very rapid
growth in inpatient hospital spending. Between FY 1987 and FY 1991, it
increased almost 120 percent, from $11.5 billion to $25.2 billion. For the last
2 of those years, spending for inpatient care grew faster than any other
Medicaid service. In FY 1990, inpatient hospital spending was 24 percent higher
than in FY 1989. In FY 1991, the rate of increase was nearly twice as fast-45
percent. That year, for the first time, Medicaid spending for inpatient hospital
services exceeded spending for nursing facility services.
This dramatic and rapid rise in inpatient hospital spending can be
contrasted with utilization and reimbursement statistics. American Hospital
Association (AHA) data on Medicaid hospital use suggests that the rise in
inpatient hospital spending coincides with greater inpatient use, but not
increased lengths of stays in hospitals. From 1987 through 1990, the latest year
for which AHA data are available, Medicaid hospital discharges increased at an
average annual rate of 5.9 percent. The total number of Medicaid hospital days
increased at a somewhat lower average annual rate of 4.2 percent.'' The result
is that average length of stay for Medicaid patients dropped from 8.6 days in
1987 to 8.2 days in 1990. This suggests that there is some increase in service
use, but not intensity of hospital services over this time period.
In addition, there are indications that Medicaid payment rates have
increasingly fallen below hospitals' costs. A recent Prospective Payment
Assessment Commission (ProPAC) study reported that Medicaid paid 92 percent
of hospitals' costs in treating Medicaid patients in 1980, but that the percentage
of costs paid by Medicaid fell to 72 percent by 1989." However, it should be
noted that the ProPAC study covers a time period that does not include the
most rapid increase in inpatient payments. More timely data on reimbursement
rates and utilization are needed to determine whether the most recent increase
in inpatient hospital payments has been associated with increased access, use
and or increased reimbursement rates.
The trend in spending for outpatient hospital services is similar to inpatient
care, but less pronounced. Spending for outpatient hospital care doubled from
$2,122 billion in FY 1987 to $4,244 billion in FY 1991. It grew 22 percent in FY
1990, nearly a t the same rate as inpatient spending. In FY 1991, however,
'%published American Hospital Association (AHA) data obtained through
personal communication. These data reflect hospital cost-reporting years 1987
to 1990, which do not necessarily coincide with Federal fiscal year data, so they
should not be directly compared to other hospital expenditure data cited in this
"U.S. Prospective Payment Assessment Commission. Medicaid Hospital
Payment. Congressional Report, C-91-02. Oct. 1, 1991. (Hereafter cited as
Prospective Payment Assessment Commission, Medicaid Hospital Payment)
outpatient spending grew at a much slower rate, 28 percent, than inpatient
Medicaid spending for physicians' services rose 81 percent from $2.9 billion
in FY 1987 to $5.5 billion in FY 1991 and consistently accounted for 6 percent
of Medicaid expenditures. The rate of increase in physician spending was more
modest in FY 1988--6.8 percent, but accelerated each year thereafter, reaching
26 percent in FY 1991.
The "other" service category represents spending for all remaining acute
care senrices, as well as payments made by Medicaid for other health insurance,
such as Medicare. In fact, more than 43 percent of the increase in the other
payment category is associated with increased Medicaid payments for Medicare's
part A and part B premiums, coinsurance amounts and deductibles, and
payments for other health insurance.I2 As will be discussed below, over the
last few years Congress has expanded the number of individuals eligible for
these payments. Among others, some additional spending items in this category
include: dental services, other practitioner services, clinic services, laboratory
and radiological services, hospice benefits, transportation semces, physical
therapy and other services.
Long-Term Care Semcee
Spending on long term care services reveals two distinct patterns. First,
although nursing home spending increased from FY 1987 to FY 1991, it grew
more slowly than overall Medicaid spending. It increased from $13.6 billion in
FY 1987 to $20.8 billion in FY 1991, or 54 percent over 4 years. Because
nursing facility spending grew more slowly than other eemces, it accounted for
a smaller share of total Medicaid spending by 1991. However, spending for
nursing facility services grew faster in FY 1991 than in other years--by about
16 percent, suggesting that the rate of nursing home spending may be
accelerating again. Still, the rate of growth in FY 1991 was well below the rate
of increase for both inpatient and outpatient hospital services.
The aecond trend in long-term care spending reflects rapid increases in
spending for community-based aervices. Spending on home and community
based waivers, personal care, and home health services increased more than
twice aa fast as institutional long-term care services.''
'*A State may enroll individuals eligible for Medicaid in a group health plan
if it is cost-effective.
'Wnder the home and community-based services waiver process established
in section 1915(c) of the Social Security Act, States are permitted to cover
services that go beyond medical and medically-related benefits covered under
These services are intended to prevent or postpone the
institutionalization of persons who could otherwise use services in the
community. They include a variety of nonmedical, social and supportive services
STATE SPENDING TRENDS
State Medicaid programs are highly variable in many respects. Some of the
major differences in State programs include: the numbers of persons served,
eligibility criteria, covered services, and reimbursement rates. Overall Medicaid
spending has increased steadily in recent years, but the rate of increase varies
widely across States. For instance, preliminary data from Illinois indicate that
total Medicaid expenditures increased by about only 1.5 percent in FY 1991. In
contrast, Missouri Medicaid spending rose 73 percent the same year. Table 4
provides State-by-State annual rates of change in Medicaid paymenta from 1987
There are two noteworthy aspects about States' Medicaid spending.
Historically, a few populous States have accounted for a large share of the total
Medicaid spending. That trend continued from FY 1987 to FY 1991;spending
in New York, California, Pennsylvania, and Texas accounted for more than 36
percent of all M 1991 Medicaid spending. However, the share of total program
spending represented by these States shrunk between FY 1987 and FY 1991,
because a number of other States experienced very rapid Medicaid spending
Figure 5 highlights States that doubled their Medicaid spending between
1987 and 1991. These States include: Alabama, Arizona, Florida, Kansas,
Louisiana, Massachusetts, Missouri, New Hampshire, North Carolina, South
Carolina, and Wyoming." Figure 6 highlights those States whose annual
growth rate exceeded the U.S. average rate of growth in Medicaid spending each
of the last 4 years. These States include: Alabama, Arizona, Florida, Kansas,
Kentucky, Massachusetts, Mississippi, North Carolina, Tennessee, and Wyoming.
such as case management, homemakerhome health aide services, personal care,
adult day health, habilitation services and respite care.
"Arizona is the only State that does not operate a traditional Medicaid
program. Its Arizona Health Care Cost Containment System (AHCCCS)
operates as a Medicaid demonstration. It was implemented in 1982 for acute
care only. During the last several years, the State has been phasing-in a longterm care program.
TABLE 4. Annual Rates of Change for Total Medicaid Spending,
by State,FY 1987to FY 1991
FY 1991 total
District of Columbia
N e w Hampshire
to 1988 to 1989 to 1990 to 1991
TABLE 4. Annual Rates of Change for Total Medicaid Spending,
by State,FY 1987 to FY 1991-Continued
FY 1991 total
to 1988 to 1989 to 1990 to 1991
NOTE: All rates of change are based on total Medicaid spending (i.e.,
Federal, State and local spending) after all adjustments for overpayments,
collections, etc. The U.S. total includes spending for benefits and administration
in the 50 States and the District of Columbia and excludes spending for all
Based on HCFA form 64--Quarterly report of Medicaid
FY 1991 figures are preliminary and subject to change.
FIGURE 6. States Where Medicaid Spending
More Than Doubled Between 1987-1991
Source: Map prepared by CRS based on data from HCFA Form 64.
FIGURE 6. Sates Where Annual Growth Was Greater
Than U.S. Avemtge Each of the Last Four Years
Source: Map prepared by CRS based on data from HCFA Form 64.
CHAPTER 3. FACTORS ASSOCIATED WITH
INCREASING MEDICAID SPENDING
Increases in Medicaid spending can be explained by a number of factors,
such as: health care price increases; increases in the number of beneficiaries;
Federal or State changes in eligibility and reimbursement policy; and judicial
decisions Setting reimbursement and eligibility. The remainder of this report
is devoted to a discussion of these factors and what is known about their effecta
on Medicaid spending.
HEALTB CARE PRJCES
The underlying rate of general inflation in the economy and specific price
increases in health services (exceeding general inflation) exert considerable
pressure on national health spending trends. For example, analyses of overall
health spending trends show that general inflation and changes in the prices of
health services account for more than half of the increase in health spending
each year during the eighties.
Beginning in the mid-1970s and continuing into the early 19808, both
general inflation and changes in the prices of health services were very high and
contributed to record rates of growth in national health expenditures.16 By
1982, general inflation subsided considerably, coinciding with more moderate
rates of growth in health epending in the next few years.16 In the late 19806,
the relatively low rate of general inflation continued, but the rate of increase in
national health spending accelerated.
The long term effecta of health care inflation on Medicaid were analyzed
last year by the Actuarial Research Corporation. It examined Medicaid spending
trends from 1980-1990and estimated that "medicalprice inflation" accounted for
59 percent of the increase in Federal Medicaid spending over this 10 year
lbNational health expenditures include all public and private spending on
health care, services and supplies related to that care, and funds spent for
construction of health care facilities, as well as public and private
noncommercial research spending.
16For more information about trends in national health spending, see: U.S.
Library of Congress. Congressional Research Service. National Health
Expenditures: Trends from 1960-1989. CRS Report for Congress No. 91-588
EPW, by Kathleen M. King and R.V. Rimkunas. Washington, 1991.
17Department of Health and Human Services--0f'fice of Management and
Budget Medicaid Management Review, Team #4 Report, Part B: Independent
Consultant's Report, Actuarial Research Corporation, p. vii. Because the
Actuarial Research Corporation did not estimate general price inflation
separately, it is assumed to be included in the estimate of medical price inflation.
However, the change in health care prices typically affects Medicaid less
than other payers because Medicaid reimbursement rates are frequently not tied
to an index of the cost of living or eervices. Generally, Medicaid reimbursement
rates are more likely to be affected by States' budgetary considerations than
inflationary pressures. In many States, Medicaid reimbursement rates remain
unchanged until State legislatures authorize payment updates or political
pressure builds for regulatory updates to payment rates. Moreover, it is not
uncommon for States to reduce reimbursement rates, cancel or delay payment
updates during fiscal crises.I8
States design Medicaid reimbursement eystems and set payment rates for
services within broad Federal guidelines. The next section of this report
discusses how recent changes in reimbursement policies have affected payments
for hospital and nursing home care; physicians' services; and prescription drugs
and how these payment policies translated into greater program payments.
Hospitals and Nursing Facility Semces
Before 1980, States were required to use Medicare reimbursement principles
for hospital and nursing facility services. Under these cost-baaed principles,
institutional providers were reimbursed the actual costs of providing care to
Medicaid beneficiaries. In response to criticisms that cost-based reimbursement
principles provided few incentives for providers to perform efficiently and were
inflationary, Congress enacted the "Boren Amendmentmfor nursing facility
services in the Omnibus Reconciliation Act of 1980.
The Boren Amendment freed States from cost-based reimbursement
requirements for nursing homes and directed only that payment rates must be
"reasonable and adequate" to meet the costs of "efficiently and economically
operated facilities" in providing care meeting Federal and State quality and
safety standards. The law did not define reasonable and adequate payments or
efficiently and economically operated facilities. In the Omnibus Budget
Reconciliation Act of 1981 (OBRA 81), Congress applied the Boren Amendment
to hospitals aa well. Hospital inpatient rates must be sufficient to ensure
reasonable access to services of adequate quality. Nearly all States eliminated
cost-based reimbursement principles and established alternative eystems
designed to control costs and encourage e f f i c i e n following enactment of the
Boren Amendment. In October of 1981,16 States were using some alternative
to a retrospective cost-based system for hospital payments. In July 1991, only
I8For a current discussion of States' proposed Medicaid reductions see:
Battle of the (Medicaid) Bulge:
States Gird for Sizeable Cutbacks.
Intergovernmental Health Policy Project, State Health Notes, no. 122, Dec. 16,
four States continued to use a retrospective cost-based system for hospital
The OBRA 81 also required States to "take into account the situation of
hospitals which serve a disproportionate number of low-income patients with
special needs." Some States responded by adopting Medicaid State plan
amendments to make additional "DSH" payments to these hospitals. These
payments were supplementary Medicaid payments for services rendered to
beneficiaries by facilities meeting State established criteria for designation as a
DSH. In some cases, these payments created a potential conflict with a
regulation limiting aggregate Medicaid payments to the amount allowed by
Medicare. Congress responded by enacting a provision in the Consolidated
Omnibus Budget Reconciliation Act (COBRA) of 1985 prohibiting the Secretary
from limiting DSH. This provision is significant because DSH were the only
Medicaid payments the Secretary was not allowed to limit.
Some felt that States' responses to OBRA 81 were insufficient. In some
States, no hospitals qualified for DSH. In other States, additional DSH were not
set as high as some thought necessary. In the Omnibus Budget Reconciliation
Act of 1987, Congress established minimum criteria for DSH. A hospital must
receive additional DSH if: (1)its Medicaid utilization rate is more than one
standard deviation above the average Medicaid utilization rate for all Medicaidparticipating hospitals in the State; or (2) its low-income utilization rate is at
least 25 percent.20 However, this is a minimum criterion. States can use more
liberal definitions, as long as the State's plan is approved by HCFA.
Eflect of the Boren Amendment
While the Boren Amendment permitted States to develop alternative
reimbursement systems, it also established a standard against which to measure
those ~yeterns: States must provide assurances satisfactory to the Secretary of
Health and Human Services that their Medicaid rates are reasonable and
adequate. Over time, Medicaid providers began to sue State Medicaid agencies,
arguing that States had not met the Boren Amendment standards. In 1990, the
U.S. Supreme Court confirmed providers' right to seek judicial review of States'
aseurances of the adequacy of Medicaid rates or adequacy of the rates
themselves under the Boren Amendment in Wilder us. Virginia Hospital
'gProspective Payment Assessment Commission, Medicaid Hospital Payment,
Oct. 1,1991, figure 2-1.
30The low income utilization rate is defined as the sum of two percentages:
(1) Medicaid payment and State and local patient care subsidies as a percentage
of the hospital's total patient revenues; and (2) inpatient charity care charges
(excluding contractual allowances or discounts other than those for indigent
patients ineligible for Medicaid) as a percentage of a hospital's total inpatient
In August 1991, the AHA surveyed State hospital associations and found
that Boren Amendment law euits on hospital payment rates had been filed in
21 States.*' Similarly, the American Health Care Association (AHCA) has
compiled information regarding Boren Amendment suits filed on behalf of
nursing homes. Ae of summer 1991, euits had been filed in 21 States.
Table 5 shows the States in which Boren Amendment suits are pending and
the States in which lawsuits have been resolved. (Cases listed as "resolved"have
either gone to trial or have been settled out of court.)
The AHA reported that Boren Amendment lawsuits had been resolved in
10 States ae of August 1 9 9 1 . ~An AHCA summary of Boren Amendment caaes
obtained in November 1991 reported that suits had been resolved in eight
States.= Many resolutions have favored providers. The thrust of theee
decisions is that States did not generally identify objective standards as to what
constitutes an eficiently and economically operated facility or establish findings
that their rate structures met these standards. In most cases, courts have held
Medicaid State plans invalid and ordered States to revise their State plans to
demonstrate compliance with the Boren Amendment. Typically, the revised
State plans increase payment rates.
21Theseinclude suite filed by State hospital associations, groups of hospitals,
or individual hospitals.
%rice the time of the AHA survey, cases have been settled in Illinois and
New York. In both cases (Illinois Health Care Association us. Bradley and Rye
Psychiatric Hospital Center us. Surles), the Medicaid agency was found in
violation of the Boren Amendment. The Ohio Supreme Court (Ohio Hospital
Association us. Ohio Department of H u m Services) recently held that Medicaid
had reduced ite outpatient hospital reimbursement rates solely for budgetary
reasons, but did not explicitly hold the State in violation of the Boren
Amendment. The State may appeal this decision on the grounds that the Boren
Amendment does not apply to hospital outpatient services.
q i n c e that time, a case has been settled in Massachusetts (Massachusetts
Fedemtion ofNursing Homes, Inc. us. Commonwealth of Massachusetts). In that
case, the court found that the State did not violate the requirement of providing
assurances that the rates satisfy the Boren Amendment.
TABLE 5. States in Which Boren Amendment Suits Have Been
Filed by Hospitals and Nursing Homes
District of Columbia
X (2 cases)
X (2 cases)
TABLE 5. States in Which Boren Amendment Suits Have Been
Filed by Hospitals and Nursing Homes--Continued
'Medicaid lawsuit summary as of Aug. 27,1991,obtained by CRS from the
"Summary of Boren Amendment cases known to the AHCA obtained by
CRS in Nov. 1991.
Ceeea listed as "resolved" have either gone to trial or have been eettled out
d S ~ i tfiled
by State hospital associations.
S u i t s filed by individual hospitals.
'Suits filed by groups of hospitals.
C a s e s that have gone to trial.
bHospitals in North Dakota sued South Dakota Medicaid Department.
Source: Table prepared by CRS based on information from the AHA and
Systematic information about the fiscal effects of Boren Amendment
lawsuits is not readily available. Therefore, it is not possible to quantify the
current or future fiscal effects of Boren Amendment challenges. However, the
greatest impact of these lawsuits will probably occur in future years. Some
States have issued preliminary fiscal estimates of costs they will incur to meet
Boren Amendment standards, but these estimates are not all for the same fiscal
year.% Most are also subject to revision. Nevertheless, they shed some light
on the magnitude of Boren Amendment suits on Medicaid expenditures. In
Washington State, Medicaid recently settled a suit brought by hospitals (MultiCare Medical Center, et.al. us. State of Washington, et.al.)after a judge ruled that
the State's assurances that "its rates were substantively adequate had no factual
basis." The State estimates that it will spend $62 million over the next 2 years
($28 million in State funds and $34 million in Federal funds) to increase average
Medicaid hospital reimbursement rates by 10 percent. Oregon (Oregon
Association of Hospitals us. State of Oregon) recently settled a similar hospital
suit. I t agreed to pay hospitals an additional $65 million between July 1, 1991
and June 30,1993.
In Tioga Pines Living Center, Inc. vs. Indiana State Board of Public
Welfare, an Indiana circuit court judge found that the State's Medicaid nursing
home rates had been unreasonable and inadequate since mid-1987. The State,
which has appealed, estimates that it could pay between $100 million and $150
million to comply with the court's order, which would have constituted between
21 and 27 percent of the State's nursing home spending in F Y 1990. In
Virginia, (Wilder us. Virginia Hospital Association), the State estimates
payments of an additional $120 million from State FY 1993-FY 1996. Michigan,
(Michigan Hospital Association vs. Babcock) estimates costs of $70 million in FY
1991. Its rough estimate of FY 1992 costs is $30 million, with costa in
succeeding years as yet undetermined. Also in Michigan, the costs of a nursing
home suit (Health Care Association of Michigan us. Babcock) are estimated a t
$20-$25 million in FY 1991.
The specter of a Boren Amendment lawsuit, especially in the wake of recent
decisions, may affect States' policy decisions. They may raise reimbursement
rates to avoid a perceived Boren Amendment challenge or may settle lawsuits
to avoid judicial review, which could result in even higher costs to States.
Effkct of Disproportionate Share Payments (DSH)
The National Association of Public Hospitals (NAPH) surveyed States to
determine how they implemented the disproportionate share requirements of
OBRA 87.% Between February 1989 and the summer of 1990, 31 of 47 States
%All Boren Amendment fiscal estimates reported include both Federal and
%National Association of Public Hospitals. Revised State Medicaid Policies
for Dispmportionute Share Hospitals: An Updated Status Report. Washington,
that reported information had an increased number of hospitals qualifying for
DSH. In 10 States, the number of hospitals qualifying for DSH increased by
more than 50 percent.26 Forty-one States reported DSH totalling $569 million
in FY 1989. NAPH reported projected spending of $831 million in FY 1990 and
$1.1billion in FY 1991.27
Based on information provided by States, HCFA recently projected DSH in
FY 1992 a t $14.3 b i l l i ~ n . ~ Table 6 provides State projections of
disproportionate share spending in FY 1992.
a6Theae 10 States are: Alabama, Florida, Georgia, Iowa, Kentucky,
Massachuaetts, Missouri, Ohio, South Carolina and Tennessee.
nBecauee these projections do not include data from several States, including
Michigan (for FY 1991), New York and West Virginia, they underestimate total
disproportionate share payments (DSH).
Bunpublished data obtained by personal communication in Dec. 1991 from
HCFA'e Medicaid Bureau.
TABLE 6. Eetimated Disproportionate Share Payments,
by State,FY 1992
District of Columbia
share payments as
percent of total
TABLE 6. Estimated Disproportionate Share Payments,
by State,F'Y 1992--Continued
share paymente as
percent of total
NOTE: All figures are estimates of FY 1992 payments based on
information supplied by State Medicaid programs in Nov. of 1991. These
estimates are subject to the limits of the data and methods used in their
Source: Unpublished HCFA estimates.
Quality Assurance in Nursing Home8
The Omnibus Budget Reconciliation Act of 1987 (OBRA 87) included
comprehensive provisions designed to improve the quality of care in nursing
home^.^ Most provisions were implemented by regulation on October 1, 1990;
a number of them were expected to substantially increase Medicaid nursing
home expenditures. Among the requirements imposed on nursing homes are the
following: (1)they must complete a comprehensive assessment of residents'
phyeical and mental abilities shortly after their admission to the facility and
update these aseessmenta regularly; (2) they must meet Medicare's higher level
of licensed nurse staff~ng;and (3) they must ensure that nurse aides complete
a training program or competency evaluation program.s0
The OBRA 87 required States to increase Medicaid nursing home rates to
reflect costa incurred by nursing facilities in meeting these requirements. As of
October 30,1990, HCFA had approved increases in Medicaid nursing home rates
ranging from a low of $0.10 per patient day in New York to a high of $4.64 in
New H a m p ~ h i r e .The
~ ~ median rate increase approved was $1.16 per patient
day. No further information is available concerning the aggregate effects of the
OBRA 87 requirements on nursing home expenditures.
New Funding Soume8 for Ho8pitaZ and Nurdng Home Spending:
Provider Donations and Provider-Specific Taxes
In recent years, some States have sought alternative financing mechanisms
to help them cope with rapidly rising Medicaid expenditures. Financing
burgeoning Medicaid spending is especially problematic for States because,
unlike the Federal Government, every State but one is required by law to
balance its budget every year. States have sought to alleviate this increased
fiscal stress, without altering the types of covered services, number of
beneficiaries or reallocating State general funds. Some States have turned to
funds donated by health care providers (called voluntary contributions) or taxes
%ome provisions of Omnibus Budget Reconciliation Act of 1987 (OBRA 87)
were amended by subsequent legislation. For a complete description of all the
law's provisions see: U S . Library of Congress. Congressional Research
Service. Medicam and Medicaid Nursing Home Reform Provisions in the
Omnibus Budget Reconciliation Act of 1987. CRS Report for Congress No. 90-80
EPW, by Richard J. Price (revised). Washington, 1990.
%oat nursing homes either provide the required training on site or
subsidize its cost.
"Unpublished data obtained from the American Association of Homes for the
providers (called voluntary contributions) or taxes impoeed on providers
(referred to as provider-specific taxes) to finance increased Medicaid spending.s2
Prior to 1985, Federal regulations did not permit States to uee donated
funds except for training State personnel to administer Medicaid. In 1985,
however, a new regulation permitted States to uee donated fun& for Medicaid
under the following conditions: (1) the funds had to be transferred to the
Medicaid agency and be under its adminietrative control; and (2) the fun& could
not revert to the donor unlees the donor wae a nonprofit organization and the
Medicaid agency decided independently to use the donor'e f a ~ i l i t y . ~
Following issuance of this rule, some States received voluntary
contributions from Medicaid providers, chiefly hospitals and nursing homes.
These contributione are ueed ae part of the State's share of spending for covered
eervices and matched with Federal funds. Around the time States began using
voluntary contributions to help finance their Medicaid programs, eome States
imposed provider-specific taxes on health care providers. These revenue sources
have become controversial. The Administration contends that there is a
connection between these revenues and increasing reimbursement,
A eimple example will illustrate this point. Assume that a State has a
Federal matching rate of 60 percent. In this example, the State receives a
donation of $40 from a provider. Medicaid pays the provider $100 for services
rendered to Medicaid patients. The Federal ehare is $60 and the State ehare is
$40. Net State spending (i.e., State spending after the donation is taken into
account) is $0. The net payment to the provider-the provider's Medicaid
payment aRer the donation is eubtracted-is $60.
Beginning in 1987, HCFA made repeated efforts to disallow Federal
matchingpayments for both voluntary contributions and provider-specifictaxes.
In HCFA's view, States were unfairly increasing Medicaid expenditures without
meeting the etatutory requirement that States actually pay a t least 60 percent
of the State ehare of Medicaid funds from State funds. In turn, States
maintained that HCFA bad no legal right to scrutinize the eource of State
matching funda. In their estimation, all funda and revenues obtained by the
States belong to them, regardless of the ultimate source from which they were
derived. Furthermore, the States maintain that euch funds are essential to
coping with rapidly rieing Medicaid expenditures.
The reason why voluntary contributions and provider-specific taxes have
been so controversial etems from the Administration's concern that these
revenue sources are contributing disproportionately to rising Federal Medicaid
T o r more information about this iesue, eee: U.S. Library of Congress.
Congreesional Reeearch Service. Medicaid Provider Dorurtions and ProviderSpecific T w s . CRS Report for Congress No. 91-722 EPW,by Merlis, Mark.
%0 Fedend Register 46662, Nov. 12,1985.
expenditures. In the Mid-Session Review of the Budget, the Office of
Management and Budget (OMB) reported that voluntary contributions and
provider tax initiatives accounted for only a small portion of the increase in
Medicaid expenditures from 1980 to 1990. However, OMB stated that they
appeared to constitute a substantial portion of spending increases for FY 1991
and 1992 in the States using such programs and that recent evidence suggested
dramatically increased reliance on themaU
The HCFA has estimated the FY 1992 fiscal impact a t $11.4 billion in total
outlays, of which $6.9 billion are Federal funds and $4.5 billion are from
voluntary contributions and provider-specific taxes.= Table 7 provides
estimates of the size of these donations and taxes. However, two observations
should be made. First, it is impossible to predict whether States would have
incurred the same Medicaid expenditures in the absence of these revenues, or
whether these revenues made additional expenditures possible. Second, the
impact of these revenue sources was projected to grow substantially over time.
A number of States began using these funding mechanisms in FY 1992.
From 1988 to 1990, Congress enacted a series of measures prohibiting
HCFA from implementing regulations banning the use of funds from voluntary
contributions and provider-specific taxes except in certain cases. The last
moratorium, enacted in the Omnibus Budget Reconciliation Act of 1990 (OBRA
901, was scheduled to expire on December 31, 1991. On November 27, 1991,
Congress passed the Medicaid Voluntary Contribution and Provider-Specific Tax
Arnendmenta of 1991, which the President signed into law on December 12,
1991.96 Effective January 1, 1992, States are prohibited from using most
voluntary contributions to claim Federal matching funds. States with voluntary
contribution programs in effect or reported for States' FY 1992 are permitted
to continue them.
Effective January 1,1992, the law prohibits use of Federal funds to match
revenues derived from provider-specific taxes unless these taxes are broad-based
and apply uniformly to all providers of a given type and all business of the
providers within a class of services. Examples of a qualifylng tax include a tax
based on all inpatient days or a head tax on all patients. States with nonbroadbased taxes in effect or approved as of November 22, 1991 are permitted to
continue them temporarily, but the taxes may not be increased. The law also
applies a general limit on using revenues derived from contributions and taxes
to obtain Federal matching funds. It limits the use of voluntary contributions
and revenue from both provider-specific taxes and broad-based taxes during FY
aU.S. Dept. of' Health and Human Services. Office of Management and
Budget. Mid-Session Review of the Budget, Improving Medicaid Estimates:
Report of the HHS-OMBTask Force. July 15, 1991. Washington, 1991. p. 17.
aHCFA, Medicaid Bureau, unpublished data, Dec. 1991 provided to
Congressional Research Service (CRS) through personal communication.
=H.R. 3595, P.L. 102-234.
1993-FY 1995 to the greater of 25 percent of the State share of Medicaid
funding or the amount of donations and taxes collected in State FY 1992.37
Congress also included a provision ultimately limiting DSH in the law on
donations and taxes because the Administration contended that States could
conceivably use these revenue sources to increase DSH. Beginning in Federal
FY 1993, a national limit is imposed on DSH. States' aggregate DSH can not
exceed 12 percent of national (Federal, State and local) Medicaid expenditures.
States whose DSH already exceed the 12 percent limit are permitted to continue
them and are allowed to increase such paymenta as long as they do not exceed
the same percentage of the State's Medicaid expenditures as they accounted for
in F Y 1992. States below the 12 percent cap are permitted to increase DSH
under a formula that ensures total DSH will not exceed the national 12 percent
limit. According to HCFA'e calculations, 17 States will be subject to the 12
percent cap in FY 1993.
Although passage of the recent law will not reduce FY 1992 Medicaid
expenditures, it will constrain States' attempts to expand use of these funding
sourcee in future years.
''See disproportionate share hospitals, below, for a discussion of the
provisions of the Medicaid Voluntary Contributions and Provider-Specific Tax
Amendments of 1991 concerning payments to disproportionate share hospitals.
TABLE 7. Provider Taxes and Donations as a Share
of Total State Medicaid Expenditures, FY 1992
District of Columbia
Taxes & donations
Taxes & as a share of State
donations donations Medicaid spending
TABLE 7. Provider Taxes and Donations as a Share of Total
State Medicaid Expenditures, FY 1992--Continued
Taxes & donatione
Provider Taxes & as a share of State
donations donation8 Medicaid spending
$3,002,915 $1,516,150 $4,519,065
NOTE: All figures are estimates and subject to limitations of data and
methods employed in their calculationa. Estimates are dependent on estimates
of State spending levels in FY 1992. States' estimates are likely to change as
the fiscal year continues. Total amount excludes any spending for Puerto Rico
and other outlying territories. Information for Connecticut is not available.
Source: Based on unpublished HCFA data.
Medicaid payment rates for physicians are subject to the general
requirement that payments be sufXcient to attract enough providers to ensure
that covered services will be as available to Medicaid beneficiaries as they are to
the general population. This requirement, previously established by regulation,
was enacted into law in the Omnibus Budget Reconciliation Act of 1989 (OBRA
89). Payments for physicians' services are not subject to the Boren Amendment.
Medicaid payments to physicians are typically the lesser of the provider's actual
charge or a maximum allowable charge established by the State. Maximum
allowable charges are determined either by historical reasonable charges or a fee
schedule. Most States now use fee schedules; in 1990,42 States paid physicians
on the basis of fee s ~ h e d u l e s . ~
Payments for physicians' services vary widely among the States. In general,
Medicaid programs pay physicians considerably less than either Medicare or
private insurers. In 1989, Medicaid maximum payments averaged 64 percent of
the maximum allowed by M e d i ~ a r e .No
~ ~ comprehensive analyses of the ratio
of Medicaid fees to private insurance fees have been conducted to date, but the
Physician Payment Review Commission (PPRC) has reported that Medicaid fees
for five common services averaged 55 percent of private insurance fees in
Many Medicaid programs do not update physicians' fees every year. The
most current information on fee increases indicates that 35 States increased fees
between 1987 and 1989." However, only 21 States adopted across-the-board
increases, while most of the remaining States implemented targeted increases
for maternity and pediatric services. These increases were designed to address
concerns that low payments contributed to unacceptable infant mortality rates
and inadequate access to primary care for children. Congress also responded to
these concerns in OBRA 89 by establishing specific reporting requirements for
obstetric and pediatric services so the Secretary can determine the adequacy of
State payments for these services.
=Physician Payment Review Commission, Annual Report to Congress,
Washington, D.C., Apr., 1991. (Hereafter cited as Physician Payment Review
Commission, Annual Report to Congress, 1991)
3@Ph~ician Payment Review Commission. Physician Payment Under
Medicaid. No. 91-4, July 1991. Washington, D.C.,1991.
40These five services are: total obstetric care (vaginal delivery); vaginal
delivery; cesarean delivery; tonsillectomy and adenoidectomy (under 12 years);
and repair inguinal hernia (under 5 years). Physician Payment Review
Commission, Annual Report to Congress.
The HCFA instructed States that compliance with the OBRA 89
requirement could be demonstrated by meeting one of three standards: (1)a t
least 50 percent of obstetric and pediatric practitioners are full Medicaid
participants or Medicaid participation is a t the same rate ae Blue Shield
participation; (2) Medicaid payment rates equal a t least 90 percent of the
average payment by private insurers; or (3) other d o c ~ m e n t a t i o n . ~
November 1991, HCFA had approved 34 Medicaid State plan amendments and
rejected 17. Most States have demonstrated compliance by certifyng that a t
least 50 percent of obstetrical practitioners and pediatric practitioners in the
State are full Medicaid participants, rather than raising fees to cloee the gap
between Medicaid and private sector paymente?s However, information
gathered by PPRC shows that some States substantially increased fees for
medical visite and obstetric services after 1989."
Explaining why Medicaid physician expenditures are growing is not a
simple task. Unlike hospitals and nursing facility services, physician payments
are not affected by the same pressures influencing hospitals and nursing homes
discussed above. In addition, some of the data needed to analyze growth in
Medicaid physician expenditures are not available. Although more definitive
explanations of the reasons fueling growth in spending for physicians' services
must await better data, some observations about physician expenditures can be
Increases in the number of beneficiaries may contribute to rising physician
expenditures. In FY 1990, the latest year for which data about beneficiaries are
available, the number of beneficiaries increased by 5.7 percent. The number of
beneficiaries receiving physician services increased by 8.9 percent.
Medicaid payments for physicians' services per beneficiary using such
services also increased almost 30 percent from $181 in FY 1987 to $235 in FY
1990.46 Some part of the increase is probably due to increased fee levels, but
it can not be quantified. While most research on Medicaid physicians' fees has
focused on whether fees are too low to ensure access to care, it is also possible
that the volume and intensity of physician services rendered to Medicaid
beneficiaries are increasing. Some physicians do not treat Medicaid patients, but
those who do may increase the number of services they render, provide higher
'3Fu11 Medicaid participation means that providers are enrolled in Medicaid.
According to the PPRC, few States have attempted to determine whether
physicians enrolled in Medicaid accept all Medicaid patients or what percentage
of their patients are on Medicaid.
"According to the PPRC survey, Medicaid fees for vaginal deliveries equalled
those paid by private insurers in 1989 in only two States--New Hampshire and
"Unpublished PPRC data obtained through personal -ommunication.
46Congressional Research Service (CRS)analysis of HCFA Form 2082.
levels of service than they did previously, or shift the site of service from oflice
settings to outpatient hospital departments, where payments to physicians may
Limited data are available concerning the number of times Medicaid
beneficiaries see a physician in a given year. In 1986, a sample of Medicaid
beneficiaries reported seeing a physician 8.3 times that year?6 By 1989, the
number of reported physician encounters increased very slightly to 8.5. This
increase is not etatietically significant, lruggesting that increasing numbers of
physician encounters is not a contributor to rising physician expenditures.
Regarding changee in the eite of eervice, research has documented that Medicaid
beneficiaries are more likely to receive care in nonoffice based settings in States
with low payment levels for office services. However, wider scale studies of
Medicaid physician practice patterns are needed for a more complete assessment
of volume and intensity of Medicaid physician services.
Medicaid payment for prescription drugs furnished on an outpatient basis
has two components: an amount for drug ingredients and a dispensing fee to
the pharmacies for filling prescriptions. Medicaid regulations establish limits
on payment for acquisition costs, but do not limit dispensing fees, which must
only be "reasonable." Two separate limits apply for drug ingredients-one for
multiple source drugs and one for all other drugs. These limits are intended to
encourage the use of lower cost generic drugs. From FY 1987 to FY 1990
Medicaid payments for prescription drugs increaeed by 48 percent. Concern over
this rate of increase, Congress added another dimension to Medicaid drug
reimbursement-prescription drug rebates.
The OBRA 90 required drug manufacturers to pay rebates to State
Medicaid programs for drugs dispensed and paid for on or after January 1,1991.
In return, Medicaid programs were required to cover all drugs marketed by that
manufacturer, with certain exceptions. Rebate requirements may also apply to
certain nonprescription items such as aspirin if they are covered in a State's
Medicaid plan. Rebates do not apply to products dispensed aa part of a service
provided in a hospital, a physician's or dentist's office. These requirements
apply differently to multiple source drugs and other drugs.
It is too soon to assess the effects of the drug rebate law on prescription
drug expenditures, but some preliminary observations can be made. From
January 1, 1991, when the law took effect, to the end of FY 1991, Medicaid
collected $95.3 million in rebates.'? After the rebate amount is subtracted fiom
FY 1991 drug expenditures, Medicaid drug spending still rose 20.5 percent
46Unpublished data from the Health Interview Survey obtained through
personal communication with the National Center for Health Statistics.
"These data may not include complete information on rebates from all
between FY 1990 and FY 1991. This rate of increase is higher than any year
from FY 1987-FY 1990, indicating that savings from rebates may have been
more than offset by required coverage for new drugs, price increases and
increased drug use.
Enrollment Increaseu: Growing Numbers of Cash Welfare
Rsdpiente and Medicaid Program Erpansions
Increases in Medicaid spending are also affected by increases in the
numbers of program beneficiaries. Recently, the number of beneficiaries has
risen because of increasing enrollment in caeh welfare program linked to
Medicaid. Generally, people receiving AFDC are automatically eligible for
Medicaid. In addition, individuals receiving SSI in most States are also eligible
Aid to Familiee With Dependent Children (AFDC) Enrollment
The AFDC is a Federal-State program that provides cash assistance
payments to needy children in families with only one able-bodied parent and to
other members in the households of such children." States determine "need"
for these benefits and establish their own income and resource eligibility
standards within Federal limitations. As a result of broad Federal guidelines,
States' income eligibility thresholds and AFDC payments vary widely. In
January 1991, monthly AFDC payments for a family of three ranged from a low
of $120 in Missiesippi to a high of $891 in Alaska, with median State payments
a t $357.''
From October 1989 to October 1991, AFDC caseloads rose by 18.8
p e r ~ e n t . This
is one of the most rapid increases in the program's recent
history. While this increase predates the economic downturn of the early
nineties, the recession may exacerbate the increase in the program's ~aseload.~'
But AFDC caseload is not cyclical. Periods of economic growth have not
resulted in eignificant decreases in caseload. Clearly, other factors besides the
Oct. 1, 1990, States were not required to provide benefits to twoparent families who are needy because of unemployment of one of the parents.
See discueeion of Aid to Families with Dependent Children-Unemployed Parents
(AFDC-UP) program below.
'Qata collected by the CRS through a telephone survey of the States. US.
Congress. House. Committee on Ways and Meane. 1991 Gmen Book: Overview
of Entitlement Pmgmms. May 7 , 1991. Washington, GPO, 1991. p. 600-601.
bORates of growth in this paragraph are for the basic AFDC program. AFDC-
UP program which provides cash welfare payments for families with an
unemployed parent are discussed below.
'lU.S. Congressional Budget Office. A Preliminary Analysis of Gmwing
b e l o a d s in AFDC. Staff Memorandum. Dec. 1991.
recession are contributing to increasing AFDC caseloads. Among others, these
factors include an increased number of female headed households, expanded
Medicaid outreach efforts, and other AFDC policy changes.
The CBO projects continuing increases in AFDC enrollment are likely
through FY 1997. Although not all people who are eligible for Medicaid,
particularly through AFDC eligibility, use Medicaid services, increases in AFDC
enrollment will continue to exert preeeure on Medicaid epending.
Prior to 1988, States had the option of providing AFDC coverage to families
who are needy because the principal wage earner waa unemployed. The Family
Support Act of 1988 made this coverage mandatory for all Statee, effective
October 1, 1990. This program is known as AFDC-UP. In order to be eligible
for AFDC-UP, the principal wage earner must have had a recent attachment to
the labor force or have been recently eligible for unemployment compensation.
Prior to the Family Support Act mandate, 31 jurisdictions provided optional
AFDC-UP benefits. Families receiving AFDC-UP cash benefits are automatically
eligible for Medicaid for the duration of their AFDC-UP eligibility. The typical
AFDC family adds three members (one adult and two children) to Medicaid,
while AFDC-UP families usually add four Medicaid enrollees (because they are
While enrollment in AFDC-UP is much lower than AFDC, it rose a t a much
faster rate recently because AFDC-UP enrollment is more closely tied to
economic downturns. In FY 1991, AFDC-UP enrollment was 31 percent higher
than in F Y 1990. Table 8 provides historical trends in AFDC caseload from
1987 through 1991 and projections through 1997.
TABLE 8. Historical and Projected AFDC Caseload,
Average Number of Families, FY 1987-FY1987
Average monthly number of families:
W1 fimrres are estimates in the thousands)
TABLE 8. Historical and Projected AFDC Caseload,
Average Number of Families, FY 1987-F'Y 1997--Continued
Average monthly number of families:
(All figures are estimates in the thousands)
NOTE: The AFDC-UP caseload estimates include estimates of mandated
UP programs. All projected numbers are subject to limitations of the data and
methods employed in their calculations. Projections are subject to change.
Source: Unpublished staff estimates of the CBO. Prepared Jan. 1992.
Suppkmental Security Income (SSZ) EnroLLment
The SSI program is a means-tested federally funded and administered
program that provides monthly cash payments to eligible needy aged, blind and
disabled persons. Unlike AFDC, SSI has uniform, national eligibility guidelines
and uniform payment levels. In 1992, the maximum monthly SSI payment is
$422 for an individual and $633 for a couple.b2 States are generally required
to offer Medicaid eligibility to those receiving SSI benefits. However, States may
use more restrictive eligibility standards for Medicaid than for SSI if they were
using those standards in 1972, prior to the implementation of SSI. States that
have chosen to apply more restrictive eligibility standards are known as "section
209(b)" States. In 1992, 12 209b) States use standards related to income,
allowable resources, definition of disability or inclusion of children under age 18
that may be more restrictive than SSI's."
%oat States supplement Federal Supplemental Security Income (SSI)
benefits. The result is a combined Federal SSVState supplemented benefit
against which countable income is compared in determining eligibility and
benefit amounts. Thus, both eligibility and payment amounts vary by State.
v h e s e States are: Connecticut, Hawaii, Illinois, Indiana, Minnesota,
Missouri, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, and
TABLE 9. Supplemental Security Income Recipients, 1987-1995
(All figures are estimates in the thousands)
NOTE: All projected numbers are subject to limitations of the data and
methods employed in their calculations. Projections are subject to change.
Source: Unpublished staff estimates of the CBO,Jan. 1992.
After many years of very slow growth, the number of SSI enrollees began
a more rapid increase a t the end of the 1980s. From FY 1989 through FY 1991,
the number of enrollees grew 9.5 percent; enrollment is expected to grow at
about 4.5 percent a year through FY 1997. There are a number of reasons for
the recent rapid growth in the program and the expected rates of growth in the
future. Some of the growth in the number of SSI beneficiaries can probably be
attributed to disabled individuals who lose their labor force attachment during
However, the short-term effect of the recession on SSI enrollment is not the
major reason for the enrollment increases. At least for disabled applicants, there
has been both an increase in the number of people applying for SSI and the
number of approved applications. These increases have been observed for both
disabled adults and children. Enrollment increases for disabled children are
contemporaneous and subsequent to a recent Supreme Court decision that
requires retroactive determinations of eligibility back to 1980 for disabled
children." There has been a significant increase in the number of SSI
"On Feb. 20,1990 the U S . Supreme Court (Zebley vs. Sullivan) affirmed the
Court of Appeals (Third Circuit) decision which required the Social Security
Administration to reevaluate childhood claims for disability because the child's
functional status was not considered in determining the severity of impairment.
New regulations on childhood disability have been issued in response to this
decision. Wedem1 Register, Dec. 12, 1990 and Feb. 11,1991.)
childhood disability decisions and an increase in the number of children found
eligible for SSI by virtue of disability. An additional 125,000 children are
expected to become SSI eligible as a result of this decision.
Although the projected 4.5 percent rate of growth in SSI enrollment
through 1997 is fairly moderate, it could have a significant impact on Medicaid
expenditures because SSI beneficiaries are generally more expensive to serve
than AFDC enrollees. In FY 1990, per capita expenditures were $4,478 for SSI
enrollees. By comparison, FY 1990 per capita expenditures for AFDC a d d &
were $1,880 and $736 for AFDC childreneU
Since the mid-19806, Congress has enacted a number of Medicaid eligibility
expansions. Most have been geared toward increasing Medicaid access for
pregnant women and children, but there have been a number of other
significant eligibility expansions. These include: requiring States to pay
Medicare premiums, coinsurance and deductibles for low-income beneficiaries;
requiring provision of cash assistance and Medicaid eligibility to two-parent
families where the principal wage earner is unemployed; requiring coverage for
special needs children regardless of the income and resources of foster or
adoptive parents; requiring provision of emergency services, pregnancy-related
services, and eervices to children under age 18 for aliens who are otherwise
eligible. The next section of this report discusses available data concerning the
largest Medicaid eligibility expansions.
Pregnant Women and Children. Since the mid-1980s, Congress has enacted
a series of measures increasing Medicaid access for poor pregnant women and
children. It has also permitted streamlined eligibility determinations for
pregnant women so they gain access to prenatal care as early in their
pregnancies as possible. The most significant feature of these expansions was
that they broke the historical link between Medicaid eligibility and cash welfare
payments and instead tied Medicaid eligibility to Federal poverty standards for
pregnant women and children. States are currently required to provide
Medicaid to pregnant women and children under age 6 below 133 percent of the
poverty standard. They are also required to phase-in Medicaid coverage to
children under age 19, born after September 31,1983, below 100 percent of the
poverty standard during the 1990s.
Reliable data are not available to determine how many pregnant women
and children have enrolled in Medicaid as a result of these continuing eligibility
expansions. The paucity of data results both from the incremental nature of the
expansions and the fact that HCFA did not adjust data collection 6y8te.m to
capture the new eligibility categories until FY 1989. States reported that
349,566 children and 324,559 pregnant women enrolled in FY 1990 as a result
"Congressional Research Service calculations from HCFA Form 2082 data
for FY 1990. Data on expenditures for SSI enrollees are weighted to reflect the
proportion of aged, blind and disabled enrollees.
of the legislative expansions that took effect after January 1, 1988.& These
numbers include both pregnant women and children under 100 percent of the
poverty threshold (the standard that States were required to use in FY 1990) as
well as those enrolled in States offering optional eligibility to those whose
incomes exceeded 100 percent of poverty.
A number of States have taken advantage of optional e x p a n ~ i o n s . ~For
example, as of January 1990, States were required to cover pregnant women and
children up to 75 percent of the Federal poverty standard. Forty six States
exceeded that level; the national average was 127 percent of the poverty
standard. In addition, 41 States exceeded the minimum age for coverage of
children (which was 1year then), and the average State covered them up to 3.7
years. Most States also took advantage of the flexibility granted them in
Federal law to streamline Medicaid eligibility applications for pregnant women.
It is difficult to assess the extent to which pregnant women and children
have enrolled in Medicaid as a result of the expansions and how accurately
HCFA enrollment data capture the numbers of new Medicaid beneficiaries. In
1988, the National Governors' Association and the Alan Guttmacher Institute
projected the number of pregnant women and children who would be Medicaid
eligible a t different poverty thresholds." Although both organizations noted
limitations in their estimating methods, their projections are useful in gauging
how enrollment data compare with projections. At 100 percent of the poverty
standard (the standard used in FY 19901, the National Governors' Association
estimated that 327,737 pregnant women and an equal number of children
(assuming a live birth for each pregnancy) who did not already have Medicaid
would be eligible. The Alan Guttmacher Institute estimated that 361,000
additional pregnant women not already covered by Medicaid would be eligible
a t 100 percent of poverty.
The General Accounting Ofice (GAO) conducted a survey between 1989
and 1990 to determine how many of newly eligible pregnant women enrolled in
9 o u r c e : HCFA Form 2082.
"This discussion is derived from General Accounting Office's (GAO) report:
U.S. General Accounting Office. Medicaid Expansions: Coverage Improves but
State Fiscal Problems Jeopardize Continued Progmss. GAO/HRD 91-78, June
1991. Washington, 1991. (Hereafter cited as GAO, Medicaid Expansions, 1991)
See this report for a complete discussion of State actions regarding optional
uNewacheck, Paul W. Estimating Medicaid-Eligible Pregnant Women and
Childmn Living Below 185 Percent of Poverty. Washington, National Governors'
Association, 1988; and Torres, A d a , and A S . Kenney. Expanding Medicaid
Coverage for Pregnant Women: Estimates of the Impact and Cost. Family
Planning Perspectives, v. 21, no. 1, Jan./Feb. 1989.
Medi~aid.~'In the 10 States-surveyed, GAO found that between two-thirds and
three quarters of potentially eligible women enrolled in Medicaid within 2 years
of the expansions. However, there was a great deal of variability in enrollment
data across States. Some States enrolled only a little more than a third of the
eligible population, while others enrolled nearly all the women estimated to be
eligible. Enrollment growth was greatest in States that took advantage of
streamlined eligibility processes and did not require beneficiaries to meet asset
Pregnant women and children enrolling in Medicaid in FY 1990 as a result
of the eligibility expansions accounted for about 50 percent of the 1.4 million
increase in beneficiaries that year.w Judging how they contributed to rising
expenditures is a more difficult proposition. GAO examined this issue and
reported that it was unable to isolate the separate influence of individual
mandates on Medicaid outlays from FY 1984-FY 1989.6' However, GAO also
noted that the States did not perceive expansions targeting women and children
as the primary factor in rising Medicaid expenditures. GAO further reported
that States perceived Federal mandates implemented after 1989 (including the
qualified Medicare beneficiaries (QM3s) mandate discussed below) to be more
costly than earlier expansions.
Moreover, eome States were able to replace existing State and local
spending with Federal Medicaid funds, thus generating a savings in State
spending. For example, another GAO study found that one third of the States
were able to substitute Federal for State funds for maternal and child health
Medicaid expansions because the States were already providing these servi~es.~'
Qualified Medicare Beneficiaries (QMBs). Prior to the enactment of the
Medicare Catastrophic Coverage Act (MCCA) of 1988, States had the option of
offering Medicaid coverage to aged and disabled persons with family income up
to 100 percent of the Federal poverty level: States choosing this option could
provide basic Medicaid coverage or could cover only Medicare premiums,
coinsurance and deductibles.
The MCCA required States to pay Medicare premiums (both Parts A and
B),coinsurance and deductibles for Medicare beneficiaries whose incomes are
69U.S. General Accounting Office. Pmrrcrtal Care: Early Success in
Enrolling Women Made Eligible by Medicaid Expansions. GAOPEMD 91-10.
comparison assumes that all the 674,125 enrollees reported on the
HCFA 2082 for FY 1990 were new enrollees. While this assumption is plausible
for pregnant women, some of the children may have been Medicaid enrollees in
61GA0,Medicaid Expansions, 1991, p. 26 and 31.
%AO, Medicaid Expansions, 1991.
below 100 percent of the Federal poverty standard and whose resources are at
or below twice the resource standard used for the SSI p r ~ g r a m .Beneficiaries
eligible for these expanded benefits are known as QMBs. This expanded
coverage was to be phased-in between 1989 and 1992. Medicare beneficiaries
with incomes below 85 percent of the poverty level were covered in 1989, with
coverage of beneficiaries below 100 percent of poverty slated for implementation
The OBRA 90 accelerated phased-in coverage for those under 100 percent
of the poverty etandard. It required coverage of those under the poverty
standard by 1991, instead of 1992. It also provided limited Medicaid coverage for
the first time to near-poor Medicare beneficiaries. Coverage of Medicare
premiums only will be required for those below 110 percent of the poverty
standard in 1993 and 1994, and to those below 120 percent of the poverty
standard in 1995 and thereafter.a
Data are not available to trace the number of QMBs from the time the
mandate was implemented. The earliest available data, from FY 1990, indicate
that 132,131aged Medicare enrollees became Medicaid eligible through the QMB
provision during FY 1990. However, this is an underestimate because not all
States reported QMB eligibles ~ e p a r a t e l y .The
~ most current data regarding
QMBs are Medicare Part B premium data from May 1991 to February 1992. In
May 1991, States reported payment of Medicare Part B premiums for 762,741
people. By February 1992, that number had grown by 41 percent to
1,078,200.66 These data also understate the actual number of QMBs because
they do not include QMB eligibles from four States (Florida, Michigan,
Mississippi, and Nebraska) and, according to HCFA, may not reflect accurate
State reporting of the total number of QMBs.
Aid to Families With Dependent Children-UnemployedParents (AFDC-UP).
The number of new AFDC-ZIT beneficiaries resulting from the mandate is
relatively small. During F Y 1991, an additional 22,000 families became eligible
for AFDC-UP in States implementing the mandate. Partly as a result of the
recent recession, an additional 55,000 families are expected to be program
beneficiaries in FY 1992.
aA 209(b) State which used an income level lower than the SSI level on
J a n u q 1,1987, was allowed an extra year to phase-in coverage of persons up
to 100 percent of poverty. These States were required to cover persons a t or
below 95 percent of poverty in 1991 and at or below 100 percent of poverty in
% 1992, the poverty standard for a family of three was $11,750.
Vource: HCFA Form 2082, FY 1990.
ssUnpublished data provided through personal communication from Medicare
premium billing data provided by the Bureau of Data Management and Strategy,
Acquired Immune Defkiency Syndrvme (MDS)
Although not a major contributor to Medicaid spending trende, Medicaid
expenditures for AIDS have risen sharply in the last several yeare and are
projected to increaee rapidly for the foreseeable future. Medicaid hae emerged
as the moat important eingle source of coverage for penone with AIDS and may
play a growing role in funding treatment for other pensone who are infected
with the human immunodeficiency virus 0but who have not been diagnoeed
as having AIDS. Recently, the Office of the Actuary in HCFA estimated that
total (Federal and State) Medicaid expenditures for beneficiaries with AIDS rose
from $390 million in FY 1987 to $2.1 billion in FY 1991. By FY 1997, npending
is projected to nearly double to $3.8 b i l l i ~ n . ~
g6Unpublishedestimates of the Officeof the Actuary, Health Care Financing
Administration, Feb. 6, 1992.