Medicaid Cost Containment Measures in 2005 Legislative Sessions

Medicaid, which currently accounts for nearly 16 percent of state general fund budgets, has been the fastest growing category of state spending in recent years. For FY 2006, it is budgeted to grow 7.8 percent (8.2 percent when total state funds are considered). This follows last year's increase of 14 percent. More information on state Medicaid spending is available in NCSL's report State Budget Actions: FY 2005 and FY 2006.

Because Medicaid represents such a fast-growing segment of the budget, several states took action in their 2005 sessions to restrict the rate of spending growth. In some cases, state officials were able to slow the rate of growth to levels well below the national average. In five states, cost containment measures allowed officials to reduce FY 2006 funding levels below FY 2005 expenditures.

Mississippi (-19.2 percent) changed its prescription drug policy, implemented some copayments and modified eligibility consideration to save funds. Missouri (-1.4 percent) made optional services subject to appropriation, eliminated the Medical Assistance for the Working Disabled program and changed certain income guidelines. New Hampshire (-1.3 percent) authorized changes that involve long-term care services, estate recovery and asset transfers, all of which are expected to have a long-term effect. Tennessee's Medicaid budget (-0.5 percent) is constructed around the disenrollment of three optional adult categories so that the state can maintain funding for the medically needy (another optional adult category). Although Kentucky also reported a decline (-0.6 percent), that largely was driven by double-digit spending in the prior year that was not expected to continue at the same level in FY 2006.

Some other states were able to keep Medicaid growth below the national average. Maryland (4.2 percent increase) reduced the rate of increase for nursing home and managed care payments and bolstered efforts to reduce fraud and abuse. In Pennsylvania (2.7 percent increase), the current budget reflects $350 million in savings from a number of cost containment measures, including limits on benefits for adult recipients, a statewide preferred drug list, lower pharmacy reimbursement rates, and a cap on rate increases for managed care organizations and nursing facilities. Ohio's actions included new cost-sharing arrangements for dental and vision care, certain prescription drugs and non-emergency services.

Many states also proposed or implemented new Medicaid waivers. For additional information on state Medicaid reform, go to http://www.ncsl.org/programs/health/1115waivers.htm

The attached summarizes cost containment measures adopted during 2005 legislative sessions. While it may not include all state actions (some are implemented through administrative rules, for instance), it does provide a sample of the kinds of measures legislatures enacted to control Medicaid costs.

Posted June 2006.
Email statebudget-info@ncsl.org for more information.

Visitor counts for this page.