This week, our In Focus section reviews Medicaid spending data collected in the annual CMS-64 Medicaid expenditure report. After submitting a Freedom of Information Act request to the Centers for Medicare & Medicaid Services (CMS), we have received a draft version of the CMS-64 report that is based on preliminary estimates of Medicaid spending by state for federal fiscal year (FFY) 2019. We expect the final version of the report will be completed by the end of 2020 and posted to the CMS website at that time. Based on the preliminary estimates, Medicaid expenditures on medical services across all 50 states and six territories in FFY 2019 exceeded $594 billion, with over half of all spending now flowing through Medicaid managed care programs. In addition, total Medicaid spending on administrative services was $29.5 billion, bringing total program expenditures to $623.5 billion.
Total Medicaid Managed Care Spending
Total Medicaid managed care spending (including the federal and state share) in FFY 2019 across all 50 states and 6 territories was $313.5 billion, up from $306.6 billion in FFY 2017. 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 not counted in this total. Below we highlight some key observations:
- Total Medicaid managed care spending grew 2.2 percent in FFY 2019, the lowest year-over-year growth rate since at least FFY 2007.The rate of growth has decelerated in each of the last four years.
- This slowing of managed care spending growth, down from a peak of 31.4 percent in FFY 2015, is due in large part to fewer additional states expanding Medicaid under the Affordable Care Act (ACA) as well as fewer states implementing Medicaid managed long-term care (MLTC) programs than in recent years.
- In terms of dollars, the increase from FFY 2017 to FFY 2018 was $6.8 billion compared to $9.8 billion from FFY 2017 to FFY 2018.
- Medicaid managed care spending has increased at a rate of 14.6 percent compounded annual growth rate (CAGR) since FFY 2007, compared to a 5.4 percent growth in total Medicaid spending.
- Medicaid managed care spending represented 52.8 percent of total Medicaid spending in FFY 2019. Compared to FFY 2018, the penetration rate increased by 0.6 percentage points, the second consecutive year in which the spending penetration rate has increased by less than one percentage point.
The data breaks down the state and federal share of Medicaid expenditures, which illustrates the impact that the Medicaid expansion, which was initially 100 percent federally funded in the states where it was implemented, has had on the sources of funding.
As the table below indicates, 64.7 percent of FFY 2019 spending was contributed by federal sources, which is 7.3 percentage points higher than the pre-Medicaid expansion share in FFY 2013, and 2.0 percentage points higher than FFY 2018 despite the matching rate for Medicaid expansion enrollees declining from 94 percent to 93 percent as of January 1, 2019.
State-Specific Growth Trends
Forty-seven states and territories report managed care organization (MCO) spending on the CMS-64 report of which four states (Alabama, Alaska, North Carolina and Oklahoma) utilize a PIHP/PAHP model exclusively. Of the remaining 43 states and territories that contract with risk-based MCOs, average MCO spending in FFY 2019 increased 2.2 percent. On a percentage basis, Idaho experienced the highest year-over-year growth in Medicaid managed care spending at 152 percent, although the state’s total spending is still just under $300 million. Among states with more mature programs, Washington experienced the fastest growth in FFY 2019 at 42 percent, likely impacted by the state’s carve-in of behavioral health services in certain regions, followed by Pennsylvania at 21.9%, which was attributable to implementation of managed long term care.
The chart below provides additional detail on Medicaid managed care spending growth in states with risk-based managed care programs in FFY 2018. Interestingly, 18 states reported year-over-year declines in Medicaid managed care spending compared to 17 in FFY 2018 and six in FFY 2017.
Looking at year-over-year spending growth in dollar terms, Pennsylvania experienced the largest increase in Medicaid managed care spending at $3.8 billion. Other states with significant year-over-year spending increases in dollar terms included California ($3.6 billion) and Washington ($2.6 billion) The chart below illustrates the year over year change in spending across the 27 states with increases.
The percentage of Medicaid expenditures directed through risk-based Medicaid MCOs increased by more than 5 percentage points in six states from FFY 2018 to FFY 2019. The managed care spending penetration rate rose 15.8 percentage points in Washington, and 13.5 percentage points in Arkansas.
The table below ranks the states and territories by the percentage of total Medicaid spending that is through Medicaid MCOs. Puerto Rico reported the highest percentage at 98.6 percent, followed by Hawaii at 94.7 percent and Kansas at 93.9 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. As a result, the maximum achievable penetration rate in each state will vary and may be below that achieved in other states. The Medicaid managed care spending penetration rate is greatly influenced by the degree to which states have implemented managed long-term services and supports (MLTSS) programs.
Despite the rapid growth in Medicaid managed care over the last ten years, program spending still represented just over half of total Medicaid expenditures in FFY 2019. So where is the remaining fee-for-service (FFS) spending (approximately $281 billion) going? First, as noted above, there are many states/territories 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 42 states in FFY 2019 was $241 billion. If we were to assume for the sake of argument that “full penetration” was 85 percent of total Medicaid spending, then HMA estimates that an additional $205 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.
Fifteen states/territories did not utilize a comprehensive risk-based managed care model in FFY 2019. In general, the 14 states/territories that do not utilize managed care today are smaller states, North Carolina being the largest at $13.6 billion of Medicaid spending in FFY 2019. Total Medicaid spending across all 14 non-managed care states was $42.7 billion. The 14 states/territories that did not employ a risk-based comprehensive Medicaid managed care model in FFY 2018 were Alabama, Alaska, American Samoa, Connecticut, Guam, Maine, Montana, Northern Mariana Islands, North Carolina, Oklahoma, South Dakota, Vermont, Virgin Islands and Wyoming.
In terms of spending by service line, the largest remaining FFS category is inpatient services, at $62 billion or 23.1 percent of FFS spending. This amount is split fairly evenly between regular FFS payments (47 percent of total) and supplemental/Disproporate Share Hospital (DSH) payments (53 percent). Measured as a whole, HMA estimates long-term services and supports (including nursing facility, home and commmunity-based waiver waiver and other home and community based services) represent the largest FFS funding category.
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. Therefore, it is not possible to calculate total spending by service line, a challenge that will only intensify as more spending runs through MCOs.