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Medicaid Managed Care Spending in 2016

This week, Andrew Fairgrieve and Greg Nersessian reviewed Medicaid spending data collected in the annual CMS-64 Medicaid expenditure report. In federal fiscal year (FFY) 2016, Medicaid expenditures across all 50 states and 6 territories exceeded $548 billion, with nearly half of all spending now flowing through Medicaid managed care programs.

Total Medicaid Managed Care Spending

Total Medicaid managed care spending (including the federal and state share) in FFY 2016 across all 50 states and 6 territories was $269 billion, up from $238 billion in FFY 2015. This figure includes spending on comprehensive risk-based managed care programs as well as prepaid inpatient health plans (PIHPs) and prepaid ambulatory health plans (PAHPs). PIHPs and PAHPs refer to non-comprehensive prepaid health plans that provide only certain services, such as dental services or behavioral health care. Fee-based programs such as primary care case management (PCCM) models are also counted in this total. However, comprehensive risk-based managed care organizations (MCOs) account for 95 percent of the total. Below we highlight some key observations:

  • Total Medicaid managed care spending grew 13.1 percent in FFY 2016, the lowest year-over-year growth rate since FFY 2009.
  • This slowing of spending growth, down from 27.8 percent and 31.2 percent in FFY 2014 and FFY 2015, respectively, is likely due to the deceleration of states expanding Medicaid after two years of significant activity.
  • In dollar terms, the increase from FFY 2015 to FFY 2016 was $31.07 billion.
  • Medicaid managed care spending has increased at an 18 percent compounded annual growth rate (CAGR) since FFY 2007, compared to 6.5 percent growth in total Medicaid spending.
  • Medicaid managed care spending represented 49.1 percent of total Medicaid spending in FFY 2016. Since FFY 2009, the year prior to the passage of the Affordable Care Act (ACA), Medicaid managed care spending as a percentage of total Medicaid spending has nearly tripled.

Medicaid MCO Expenditures as a Percentage of Total Medicaid Expenditures FFY 2007-2016 ($M)

Source: CMS-64

The data breaks down the state and federal share of Medicaid expenditures, which illustrates the impact that the Medicaid expansion, which has been 100 percent federally funded in the states in which it has been adopted, has had on the sources of funding.

As the table below indicates, 63.1 percent of FFY 2016 spending was contributed by federal sources, which is 5.7 percentage points higher than the pre-Medicaid expansion share in FFY 2013.

Federal vs. States Share of Medicaid Expenditures, FFY 2012-2016

Source: CMS-64

State-specific Growth Trends

Fourty-four states report MCO spending on the CMS-64 report of which five states (Alabama, Idaho, North Carolina, Oklahoma and North Dakota) utilize a PCCM and/or PIHP/PAHP models exclusively. Of the remaining 39 states that contract with risk-based MCOs, average spending growth in FFY 2016 increased 24 percent. On a percentage basis, Iowa experienced the highest year-over-year growth in Medicaid managed care spending at 233 percent, which was attributable to the roll-out of its managed care program that began in April 2016. Mississippi, West Virginia, Illinois, and Indiana all saw Medicaid managed care spending growth of more than 75 percent, with Oklahoma and Louisiana growing more than 40 percent.

The chart below provides additional detail on Medicaid managed care spending growth in states with risk-based managed care programs in FFY 2015. Interestingly, all states experienced year over year growth in spending except Pennsylvania and Tennessee, which experienced very slight (<1 percent) reductions.

Medicaid Managed Care Spending Growth on a Percentage Basis by State FFY 2015-16

Source: CMS-64

Looking at year-over-year spending growth in dollar terms, Illinois’ expansion of Medicaid managed care to roughly two-thirds of all Medicaid beneficiaries drove a $4 billion increase in managed care spending from FFY 2015 to FFY 2016. New York also saw growth just under $4 billion. Other states with significant year-over-year spending increases in dollar terms included Pennsylvania ($3.4 billion) and Florida ($1.9 billion). All other states saw year-over-year spending growth of less than $2 billion.

Medicaid Managed Care Spending Growth on a Dollar Basis by State FFY 2015-16 ($M)

Source: CMS-64

The percentage of Medicaid expenditures directed through risk-based Medicaid MCOs increased by more than 10 percentage points in seven states from FFY 2015 to FFY 2016. Iowa led the pack with a 28.9 percentage point increase to 42.3 percent of Medicaid spending, followed by a 27.5 percentage point increase in Mississippi and a 20.4 percentage point increase in West Virginia.

Medicaid MCO Expenditures as a Percentage of Total Medicaid Expenditures in States with a 10 percent or Greater Increase From FFY 2015 to FFY 2016 ($M)

Source: CMS-64

The table below ranks the 39 states with risk-based comprehensive Medicaid managed care programs by the percentage of total Medicaid spending that is through Medicaid MCOs. Puerto Rico reported the highest such percentage at 97.9 percent, followed by Kansas at 93.1 percent and Hawaii at 88.9 percent. We note that in many states, there are certain payment mechanisms which may never be directed through managed care such as supplemental funding sources for institutional providers and spending on retroactively eligible beneficiaries. Thus, the maximum acheivable penetration rate in each state will vary and may be below that achieved in other states. Nevertheless, we note that there are a number of large states where the penetration rates are currently below two-thirds of the total enrollment that are committed to moving as much program administration and spending through managed care as they can. These include Michigan, New Jersey, Ohio, New York, California, Texas, and Illinois. Accordingly, we expect that in FFY 2017 we will see continued growth in Medicaid MCO penetration, though likely at a more moderate pace.

Medicaid MCO Expenditures as a Percent of Total Medicaid Expenditures, FFY 2015-2016

Source: CMS-64

Non-MCO Expenditures

Despite the rapid growth in Medicaid managed care over the last ten years, program spending still represented just about half of total Medicaid expenditures in FFY 2016. So where is the remaining FFS spending (approximatley $279 billion) going? First, as noted above, there are many states/territorires with Medicaid managed care programs where certain beneficiaries or services are carved-out of the program, and these are typically associated with high-cost populations. The total amount of non-MCO spending in these 39 states in FFY 2016 was around $236 billion. If we were to assume for the sake of argument that “full penetration” was 85 percent of total Medicaid spending, then we estimate that an additional $161 billion in current FFS spending could shift to a managed care model just in the states that already employ managed care for a subset of services and/or beneficiaries.

Next, there are 17 states/territories that did not utilize a comprehensive risk-based managed care model in FFY 2016. Two of these states, Oklahoma and North Carolina, are planning to implement such a model in the next several years. In general, the 17 states/territories that do not utilize managed care today are smaller states, North Carolina being the largest at $12 billion of Medicaid spending in FFY 2016. Total Medicaid spending across all 17 non-managed care states was $46.2 billion. The 17 states/terrirtories that did not employ a risk-based comprehensive Medicaid managed care model in FFY 2016 were Alabama, Alaska, American Samoa, Arkansas, Connecticut, Guam, Idaho, Maine, Montana, Northern Mariana Islands, North Dakota, North Carolina, Oklahoma, South Dakota, Vermont, Virgin Islands and Wyoming.

Finally, in terms of spending by service line, the largest remaining fee-for-service (FFS) category is inpatient services, at $71 billion or 25.4 percent of FFS spending. This amount is split fairly evenly between regular FFS payments (47 percent of total) and supplemental/DSH funding sources (53 percent). Measured as whole, however, we estimate long term care services and supports (including nursing facility, waiver and other home and community based services) represent the largest FFS funding category, at $118 billion or 42.3 percent of the total.

Fee for Service Medicaid Expenditures by Service Line, FFY 2016

Source: CMS-64

Finally, we note that while the CMS-64 report provides valuable detail by service line for all FFS expenditures, it does not capture how spending directed to Medicaid MCOs is allocated by category of service. As such, it is not possible to calculate total spending by service line, a challenge that will only intensify as more spending runs through MCOs.

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