Medicaid 101Bagels & Briefing

Presented byOffice of Legislative Research and General Counsel

January 30, 2007

Intensity

Economy-wideInflation

MedicalInflation

Population

40%

25%

22%

13%

Average Annual Growth,2000--03 = 8.2%

Factors

Cost DriversFactors Affecting Growth in Personal Health Care Expenditures

(U.S., 2000-2003)

National Center for Health Statistics, "Health, United States, 2005 W ith Chartbook on Trends in the Health of Americans" (Hyattsville, M aryland: 2005), Table 121, p. 362, accessed 6/13/06 at http://ww w.cdc.gov/nchs/hus.htm. "Intensity" is "theresidual percent of growth which cannot be attributed to price increases or population growth [and] represents changes in use or kinds of services and supplies."

Significance Policy Roles Program Design Cost Horizon

What can be done to contain costs?

Cost DriversMedicaid vs. Personal Health Care Expenditures Growth

Significance Policy Roles Program Design Cost Horizon

What can be done to contain costs?

Based on health expenditure data from Centers for Medicare and Medicare Services. See "All Payers" and "Medicaid" files within "Health Expenditures by State of Provider, 1980-2004 (Preliminary, May 2 006)," accessed 12/06/06 athttp://www.cms.hhs.gov/NationalHealthExpendData/05_NationalHealthAccountsStateHealthAccounts.asp. "Health expenditures" means "Personal health care expenditures" and includes all payers. "Personal he alth care expenditures" excludes governmentadministration, net cost of private health insurance, government public health activities, and research and construction investment.

Annual Expenditures

133180 190 200 206

271

462514

552604

637675

749797

865

986

1,096

1,271

1,437

1,554

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

326

144

413

121

166

175

110

121

6849

73

3932

5238

5250

86

5665

6103512

10

Annual Change

Medicaid is Growing RapidlyUtah Medicaid Expenditures and Annual Growth Rates, 1984-2006

(Total State and Federal Funds, In Millions; Administration Excluded)

Utah Departm ent of Health, Division of Health Care Financing, 10/04, 9/13/05.

Why is understanding Medicaid important?

Significance Policy Roles Program Design Cost Horizon

5%9%

24%

5%

3%

31%

21%27%

12%

11%7% 9%

5% 6%11%

7%9%

14%11%

16%13%

8%

Annual Growth Rate

12%

10%

11%

5 yr.

10 yr.

15 yr.

20 yr.

AverageAnnualGrowthRates

11%

2007

1,58527

2%

10%

10%

9%

11%Utah Department of Health, Division of Health Care Financing, October 2004 and September 13, 2005. Data on file at the Office of Legislative Research and General Counsel. FY 07 data from the Governor 's Office of Planning and Budget, June 12, 2006. Rate changes calculated byOLRGC. Following supplemental appropriations during the 2006 Annual General Session, the FY 06 total was revised downward from$1,558M to $1,554M and the FY 06 amount for administration (not included in the total) was revised upward from $63.4M to $69.6M (GOPB). The FY 07appropriation for administration is $71.4M (GOPB).

Why is understanding Medicaid important?

Significance Policy Roles Program Design Cost Horizon

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

-10%

-5%

0

5%

10%

15%

20%

25%

30%

35%

General Fund+ School Funds

Sales & Use Tax

Medicaid

Medicaid is Growing Faster Than Sales Taxand Combined General and State School Fund Revenues

Five-Year Moving Average Annual Growth in Revenue and Medicaid General Fund Expenditures

M edicaid data: Utah Department of Health, D ivision of Health Care Financing, October 2004 and September 13 and 19, 2005; data on file at the Office of Legislative Research and General Counsel; adminis tration excluded; 2006 expenditures reflectoriginal appropriations and do not include supplemental appropriations made during the 2006 Annual General Session. Revenue data: State of Utah, "2006 Economic R eport to the G overnor," pp. 81-82, ava ilable athttp://governor.utah.gov/dea/ERG2006.html. All growth rates and indices calculated by OLRGC. Graph values for each year are the average annual growth rates for the five most recent years.

11.1% (15-YearMedicaid Rate)

$822 M!

9.4% (10-YearMedicaid Rate)

$703 M!

4.6% (10-YearNonMedicaid Rate)

$448 M!

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

0

200

400

600

800

1,000

1,200

1,400

Why is understanding Medicaid important?

Significance Policy Roles Program Design Cost Horizon

Medicaid is Growing RapidlyActual and Projected Medicaid General Fund Expenditures

(In Millions; Administration Excluded)

$55M

$287 M

Utah D epartment of Health, D ivision of Health Care Financing, October 2004 and September 13 and 19, 2005. Data on file at the Office of Legislative Research and General Counsel. 2006 figure does not i nclude supplemental appropriations madeduring the 2006 Annual General Session. Projections are based on historical expenditure rates only and do not explicitly account for many factors that could affect spending. "10-Year NonM edicaid Rate " refers to the rate of growth in expendituresfrom the General Fund and School Funds for programs other than M edicaid.

!

!

61%

Expenditures

Optional

Mandatory 44%

42%

9%

6%

OptionalExpenditures

Elderly

Disabled

ChildrenAdults

100%

86%

Significance Policy Roles Program Design Cost Proposals

Enrollees

29%Optional

Mandatory

Elderly and Disabled Enrollees Account for86% of Optional Services Spending

(U.S., 2001)

What can be done to contain costs?

Kaiser Commission on M edicaid and the Uninsured, "M edicaid Enrollment and Spending by ‘M andatory’ and ‘Optional’ Eligibility and Benefit Categories" (W ashington, D .C., June 2005), 17, accessed 9/14/05 athttp://www.kff.org/medicaid/7332.cfm.

COST CONTAINMENT

WHY

Budget

Adequacy

Demographics

31%Increase in ratio of 65+ to under 65

2005--20

Governor's Office of Planning and Budget, "2006 Econom ic Report to the Governor" (Salt Lake City, UT: January 2006), 24. Change calculated by Office of Legislative Research and General Counsel.

COST CONTAINMENT

WHY

Budget

Adequacy

Demographics

6.4Increase in nonworkers per worker

2005--2020

Governor's Office of Planning and Budget, "2006 Econom ic Report to the Governor" (Salt Lake City, UT: January 2006), 27.

COST CONTAINMENT

WHY

Adequacy

Budget

Demographics

HOW

Relative Limit

X% of General Fundor state-funded budgets

Congressional Research Service, Mem o from Christine Scott to the Honorable Jeff Bingaman, June 13, 2005 (W ashington, D.C.), 3-5, from data by the National Association of State Budget Officers, "State Expenditure Report". CRS m em o accessed 11/2/06 at http://www.apse.org/docum ents/CRSMedicaid.pdf. Figures are the state-funded portion of Medicaid as a percentage of the state-funded portion of the total state budget.

State-funded Medicaidas a Percentage

of State-funded Budgets

StatesRange

35%--3%

UT (6%)148%--6%

1211%--9%

US (13%)1314%--12%

217%--15%

520%--18%

1+21%

Includes state funds only

UTAH STATE LEGISLATURE

OFFICE OF LEGISLATIVE RESEARCH & GENERAL COUNSEL

MICHAEL E. CHRISTENSEN

Director

M. GAY TAYLOR

General Counsel

Utah State Capitol Complex

House Building, Suite W210

PO Box 145210

Salt Lake City, Utah 84114-5210

(801) 538-1032 • fax 538-1712

http://le.utah.gov

MEMORANDUM

TO: Senator Sheldon L. KillpackRepresentative Merlynn T. Newbold

FROM: Mark Andrews, Policy AnalystDATE: November 14, 2006SUBJECT: Medicaid Growth Trends

As requested, I am providing a summary of information presented at the Medicaid InterimCommittee's November 10, 2006 meeting along with some additional estimates.

THE PASTAlthough Medicaid grows at various rates from year to year, the long-term growth rate inGeneral Fund appropriations is 11%. On the other hand, the long-term growth rate in totalGeneral Fund appropriations is 5.5%.

Given this difference in growth rates, Medicaid is doubling as a percentage of total GeneralFund appropriations every 14 years. In FY 91, Medicaid appropriations accounted for 6.6%($59M) of General Fund appropriations. By FY 07 that figure had more than doubled to14.5% ($316M).

THE FUTURENo Change Projected forward at these growth rates, Medicaid will account for 31%($1,500M) of total General Fund appropriations in FY 22. If these assumptions held in thevery long term (which is not likely for various reasons), by 2045 (38 years) Medicaid wouldaccount for 100% of total General Fund appropriations.

1% Point Reduction If the long-term average annual rate of growth in General Fundappropriations for Medicaid were reduced by one percentage point from 11% to 10%, in FY22 Medicaid would account for 27% ($1,300M) of total General Fund appropriations and theFY 22 appropriation would be 13% lower than it would be otherwise. This would amount toa total reduction in payments over the period FY 08–22 of as much as ($1,000M).

Medicaid Constant at 14.5% of the General Fund If the long-term average annual rate ofgrowth in General Fund appropriations for Medicaid were reduced by ½ from 11% to 5.5%,in FY 22 Medicaid would still account for 14.5% ($706M) of total General Fundappropriations and the FY 22 appropriation would be 53% lower than it would be otherwise. This would amount to a total reduction in payments over the period FY 08-22 of as much as($4,600M).

Note: This memo wasdistributed as part of theMedicaid InterimCommittee's November 14report to the ExecutiveAppropriation Committee.