We’ve previously warned that proposals to change the formula for federal Medicaid funding for states to a fixed dollar amount per Medicaid beneficiary — known as a “per capita cap” — would mean cuts in federal funding for all states. The change would hit some states particularly hard due to substantial differences in per-beneficiary spending and how fast such costs grow over time. A recent Government Accountability Office (GAO) analysis backs up our warning.
GAO’s analysis shows that states vary widely in how much they spend per beneficiary, consistent with our own analysis and that of the Kaiser Family Foundation. GAO estimated average spending in 2008 for each state for different groups of beneficiaries — a child, a person with a disability, a senior, and a non-disabled, non-elderly adult — using federal expenditure and enrollment data. As one would expect, overall, on average, Medicaid spending on people with disabilities and on seniors was significantly greater than spending on other adults and on children.
But spending on these enrollment groups varied considerably among states. For example, Medicaid spending per child beneficiary was $5,877 in Vermont and $1,702 in California. And average Medicaid spending per senior beneficiary was $28,564 in Montana and $9,882 in Alabama.
House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Senate Finance Committee Ranking Member Orrin Hatch (R-UT), who requested the GAO analysis, responded to the findings by reiterating their proposal to establish a per capita cap, under which the federal government would no longer cover a fixed share of each state’s overall Medicaid costs but instead would limit each state to a fixed dollar amount per beneficiary.
Rep. Upton and Sen. Hatch previously argued that a per capita cap would “normalize” Medicaid spending across states, implying that states with higher-than-average spending per beneficiary have inflated costs. In reality, states with relatively low Medicaid spending per beneficiary would likely fare disproportionately worse than higher-spending states under such a cap, because they would receive relatively less funding due to federal funding formulas that are typically based on current spending per beneficiary.
GAO tried to identify the factors driving this spending variation. It concluded that while some factors were within the states’ control, such as optional benefits offered and optional eligibility levels, many significant factors were clearly not, including geographic variation in health care wages, differing enrollee service needs, and demographic differences among states such as the percentage of enrollees who are seniors. In other words, just as overall health care spending and utilization among the states vary, so does Medicaid spending per beneficiary. As a result, nothing in GAO’s report indicates that states with higher spending per beneficiary were somehow “overspending” relative to those with lower spending per beneficiary.
GAO’s findings don’t justify proposals to alter Medicaid’s financing structure. They do, however, emphasize that while all states would face cuts in federal funding under proposals like a per capita cap, some states would disproportionately face larger ones.