This week, our In Focus section reviews preliminary 2020 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), HMA 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) 2020. Based on the preliminary estimates, Medicaid expenditures on medical services across all 50 states and six territories in FFY 2020 exceeded $649.4 billion, with over half of the total now flowing through Medicaid managed care programs. In addition, total Medicaid spending on administrative services was $29.7 billion, bringing total program expenditures to $679.1 billion.
Total Medicaid Managed Care Spending
Total Medicaid managed care spending (including the federal and state share) in FFY 2020 across all 50 states and six territories was $359.6 billion, up from $313.5 billion in FFY 2019. 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 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 14.7 percent in FFY 2020. Previously, the rate of growth was decelerating in each of the previous four years.
- Managed care spending growth was is due in large part to the COVID-19 pandemic and the resulting higher Medicaid enrollment.
- In terms of dollars, the increase from FFY 2019 to FFY 2020 was $46.1 billion compared to $6.8 billion from FFY 2018 to FFY 2019.
- Medicaid managed care spending has increased at a rate of 14.7 percent compounded annual growth rate (CAGR) since FFY 2007, compared to a 5.8 percent growth in total Medicaid spending.
- Compared to FFY 2019, Medicaid managed care spending as a percent of total Medicaid spending in FFY 2020 increased by 2.6 percentage points to 55.4 percent.
The data also shows how the state and federal share of Medicaid expenditures has changed over time, in part because states have picked up a larger share of the cost of Medicaid expansion.
As the table below indicates, 67.6 percent of FFY 2020 spending came from federal sources, which is 10.2 percentage points higher than the pre-Medicaid expansion share in FFY 2013, and 3.0 percentage points higher than FFY 2019.
State-specific Growth Trends
Forty-seven states and territories report managed care organization (MCO) spending on the CMS-64 report, including four states (Alabama, Alaska, North Carolina, and Oklahoma) that utilize a PIHP/PAHP model exclusively. North Carolina and Oklahoma will be implementing a Medicaid managed care program in 2021. Of the remaining 43 states and territories that contract with risk-based MCOs, average MCO spending in FFY 2020 increased 14.7 percent. On a percentage basis, Idaho experienced the highest significant year-over-year growth in Medicaid managed care spending at 75.2 percent, although the state’s total spending is still just $515 million. Among states with more mature programs, New Hampshire experienced the fastest growth in FFY 2020 at 31.5 percent, which could be due in part to the Medicaid expansion population transition from the Exchange to the Medicaid managed care program, followed by Washington at 30.6 percent, likely impacted by the state’s carve-in of behavioral health services in new regions in 2020. Additionally, all states were heavily impacted by COVID-19.
The chart below provides additional detail on Medicaid managed care spending growth in states with risk-based managed care programs in FFY 2020. Only three states reported year-over-year declines in Medicaid managed care spending, compared to 18 states in FFY 2019 and 17 in FFY 2018.
Looking at year-over-year spending growth in dollar terms, New York experienced the largest increase in Medicaid managed care spending at $8 billion. Other states with significant year-over-year spending increases in dollar terms included Pennsylvania ($6 billion), California ($2.9 billion) and Washington ($2.7 billion). The chart below illustrates the year over year change in spending across the 43 states with increases.
The percentage of Medicaid expenditures directed through risk-based Medicaid MCOs increased by more than 5 percentage points in eight states from FFY 2019 to FFY 2020. The managed care spending penetration rate rose 17.3 percentage points in Washington, 11.7 percentage points in Pennsylvania, and 11.5 percentage points in Louisiana.
The table below ranks the states and territories by the percentage of total Medicaid spending through Medicaid MCOs. Iowa reported the highest percentage at 96.7 percent, followed by Hawaii at 95.2 percent and Kansas at 93.6 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 2020. So where is the remaining fee-for-service (FFS) spending (approximately $290 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 the 43 states with risk-based managed care in FFY 2020 was $248.6 billion. Assuming an average “full penetration” of 85 percent of total Medicaid spending, then HMA estimates that an additional $211.3 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 2020. In general, the 15 states/territories that do not utilize managed care today are smaller states, North Carolina being the largest at $14.8 billion of Medicaid spending in FFY 2020. Total Medicaid spending across all 15 non-managed care states/territories was $47.5 billion. The 15 states/territories that did not employ a risk-based comprehensive Medicaid managed care model in FFY 2020 were Alabama, Alaska, American Samoa, Connecticut, Idaho, 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 home and community-based services at $68.6 billion, which accounts for 23.7 percent of FFS spending. Inpatient hospital services represent 22.6 percent of FFS spending at $65.5 billion.
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 MCO spending by service line, a challenge that will only intensify as more spending runs through MCOs.