Medicaid Much More Financially Efficient Than Estimated by CBO; Quality of Outcomes Maintained

ANCOR is sharing this Health Affairs blog post coauthoredby former Center for Medicare and Medicaid Services (CMS) Administrator Marilyn Tavenner because it highlights how Medicaid is a lean yet high-performing program – in fact, the program has been 30 percent less costly in the past 10 years than previously estimated by the Congressional Budget Office (CBO). Because providers of disability supports receive most (over 90 percent) of their funding from Medicaid, it is important that they are aware of how the program’s performance actually compares to federal estimates. This is particularly so since those estimates are often used to inform policy-makers’ budgetary and funding decisions.

As written in the blog:

“While most analysts have focused their attention on Medicare delivery system reforms or the growth in cost-sharing in private insurance, looking at today from the vantage point of history suggests that the real health policy star of the past decade has been the often-unheralded Medicaid program.

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The CMS actuaries overestimated total national health expenditures (NHE) for 2019 by about 15 percent.  The ACA was expected to have only modest effects on NHE, so the pre- and post-ACA predictions of NHE are quite similar.  The forecast errors for private spending and out-of-pocket (OOP) spending are slightly smaller than the NHE error.  In their post-ACA forecast, the actuaries correctly anticipated that changes made by the ACA in Medicare would reduce the rate of growth in spending, and by 2019, actual spending is projected to be only about 10 percent lower than had been anticipated in 2010.

By far the largest forecast errors were for Medicaid spending.  Total Medicaid spending in 2019 is now expected to be 21.5 percent lower than the actuaries anticipated before incorporating the effects of the ACA Medicaid expansion, which, the actuaries now estimate, increased enrollment in the program by at least 11 million between 2014 and 2016.  Medicaid spending is projected to be more than 30 percent below the estimates that incorporated the effect of the ACA.  Prior analyses have documented that Medicaid spending growth per enrollee has been much slower than private spending growth, and that overall Medicaid growth, including the effects of the expanded enrollment, has been only a little faster than Medicare or private spending growth.  The forecast error in Exhibit 1 is much larger than this retrospective comparison of growth rates would lead one to expect, because even in their pre-ACA forecast, the CMS actuaries predicted Medicaid spending to grow much more rapidly (7.9 percent per year) than either private (5.1 percent) or Medicare spending (6.9 percent).  Medicaid’s moderate post-2009 growth stands out even more sharply in light of earlier expectations.

The exceptionally positive performance of Medicaid, relative to projections, is notable because changes that could not have been anticipated at the time of the earlier forecasts trended in the direction of making the program more costly.  The most important of these, of course, was the Medicaid expansion, which increased enrollment in expansion states through the enrollment of the newly-eligible (with costs borne almost entirely by the federal government) and in both expansion and non-expansion states through woodwork effects (with costs shared under the existing match formula). But unanticipated technological changes over this period also imposed unexpected costs on the program.  The CMS actuaries had anticipated that Medicaid and other programs would benefit from drugs going off patent over their 2010-2019 projection period, and had incorporated this assumption in their estimates.  They did not anticipate the introduction of extremely costly new drugs to treat Hepatitis C, which placed very large, unexpected burdens on Medicaid spending.

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The evidence suggests that neither access to care nor quality of care for Medicaid beneficiaries declined over this period.  A comprehensive review suggests that, if anything, Medicaid expansion led to improvements in access and quality of care, and that care improved over this period for nursing home patients.  State budget pressures seem to have concentrated the minds of lawmakers and providers – they have been adept at controlling Medicaid spending, while ensuring that the program offers adequate coverage to their residents.

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Looking to the future, CMS again projects that Medicaid spending will accelerate in the 2020-2027 period, increasing to a 7 percent annual rate by 2026, about a percentage point faster than private insurance, though slower than Medicare.  If those forecasts are right, the current appetite for Medicaid-based reform may cool.  But we are optimistic that the Medicaid model will continue to produce results that beat expectations.”