Growth in Medicaid spending and enrollment slowed substantially in state fiscal year (FY) 2012 as the economy began to improve. Total Medicaid spending increased 2% on average across all states, down from a growth rate of 9.7% in FY 2011, according to the 12th annual 50-state Medicaid budget survey by the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured. The 2012 rate is among the lowest rates of spending growth ever recorded for the Medicaid program (in 2006, spending grew by 1.3%). Total Medicaid spending in FY 2012 is estimated at $459 billion.

States’ efforts to hold down Medicaid costs are also contributing to the spending slowdown. During the recession, Americans lost jobs and health insurance and Medicaid enrollment climbed sharply, while slumping tax revenues meant that states struggled under the weight of the program’s costs. Stimulus funds provided by the American Recovery and Reinvestment Act (ARRA) increased the federal government’s contribution to state programs. However, those funds expired on June 30, 2011, just prior to the start of FY 2012 in most states, and the state share of Medicaid spending rose by 27.5% to make up for lost federal funds. States stepped up their cost control efforts in response, which likely contributed to the spending slowdown, according to the Kaiser survey.

For FY 2013, state legislatures have authorized total Medicaid spending growth, including both state and federal shares, of 3.8% on average across states. Although this rate is higher than the FY 2012 rate of 2%, it would still represent one of the lowest rates of spending growth. State-only Medicaid spending is expected to grow by 2.3% in FY 2013, slower than total Medicaid spending growth and much slower than in FY 2012, when states confronted the end of the enhanced federal funds under ARRA. About one-third of state Medicaid officials are projecting a Medicaid shortfall in FY 2013, down from half who made the same projection for FY 2012. Ten states are budgeting for an overall decrease in Medicaid spending, according to the survey report.

Enrollment in Medicaid grew at an average rate of 3.2% rate across states, down from 4.4% a year earlier. For FY 2013, states expect Medicaid enrollment to grow at an even slower rate of 2.7%. In FY 2012 Medicaid eligibility levels remained stable in most states, as maintenance-of-eligibility protections in the Affordable Care Act (ACA) limited states from restricting Medicaid eligibility standards, methodologies, or procedures. Despite tight budgets, 32 states made enhancements to eligibility standards and renewal processes during FY 2012, and 21 states have plans to do so in FY 2013.

However, these modest growth rates may change in 2014, when millions of people are due to become eligible for Medicaid under ACA provisions. As passed, the ACA would expand Medicaid beginning in January 2014 to nearly all adults with incomes up to 133% of the federal poverty level ($14,856 per year for an individual in 2012). The Congressional Budget Office has estimated that across all states the ACA changes would add 17 million new enrollees to Medicaid by 2016.

As states move into FY 2013, curbing costs will remain a strong focus of Medicaid programs, according to the Kaiser survey. In FY 2012, 48 states implemented at least one new policy to control Medicaid costs, and 47 planned to do so in FY 2013. The most typical Medicaid spending cuts in FY 2012 were to reimbursement rates for hospitals and doctors and to optional benefits, such as dental, vision, and drug coverage. Forty-five states cut or froze reimbursement rates, according to the survey, and 18 scaled back benefits. Many states also expanded the use of managed care for their Medicaid populations. Provider rate restrictions were the most commonly reported cost containment strategy. However, with improvements in the economy, some states were able to restore cuts in FY 2012 or make targeted efforts in FY 2013 to boost provider rates and benefits. States also continue to expand community-based long term care through both traditional programs and also new options in the ACA.

Medicaid programs are engaged in a range of delivery system changes. Twenty states reported expanding their use of managed care in FY 2012, and over two-thirds of states plan to do so in FY 2013. In addition to managed care, states are moving ahead with care coordination strategies for persons with chronic conditions, including the nine million persons who are dually eligible for Medicare and Medicaid. For this population, which accounts for a disproportionate share of spending, states are using health homes, patient-centered medical homes, and other ways to improve care and outcomes.

States continue to move ahead with efforts to implement the ACA, according to survey findings. Nearly every state is in the process of upgrading eligibility systems. States are also making decisions about what type of health insurance exchange will operate in their state, as well as how to proceed with the Medicaid expansion, which the recent Supreme Court decision effectively made optional for states. States will also be watching to see if debate about reduction of the federal deficit results in cuts in federal financing or major structural changes to Medicaid.

The 12th annual Kaiser survey, which was conducted with Health Management Associates, looked at budgets provided by Medicaid officials in all 50 states and the District of Columbia. The 126-page report on the survey findings, Medicaid Today; Preparing for Tomorrow: A Look at State Medicaid Program Spending, Enrollment and Policy Trends, is available online at www.kff.org/medicaid/8380.cfm. In addition to describing policy changes in reimbursement, eligibility, benefits, delivery systems, and long-term care, the report includes an appendix with four case studies of program change in Massachusetts, Ohio, Oregon, and Texas.