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National Health Expenditures and Federal Funding of Medicaid

February 8, 2017

 

 

2015 National Health Expenditures Summary

 

In December 2016, the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) issued a study of 2015 National Health Expenditures (NHE).  According to the study, overall health spending grew by 5.8 percent in 2015 to $3.2 trillion or about $10,000 per U.S. citizen, and accounted for 17.8 percent of the Gross Domestic Product (GDP).

 

The study attributed 2015 expenditure growth primarily to increased use and intensity of services as millions gained health coverage, as well as continued significant growth in spending for retail prescription drugs, which increased nine percent in 2015, compared to 12.4 percent in 2014, and 2.3 percent in 2013.  The study also noted that over a two-year period, 20 million individuals either gained private health insurance coverage or enrolled in the Medicaid program, primarily as the result of the Affordable Care Act (ACA).  The share of the overall population with health coverage increased from 86 percent in 2013 to 91 percent in 2015.

 

"Our significant progress in reducing the nation's uninsured rate, while providing strong protections for Americans if they get sick, would not be possible without the Affordable Care Act," said CMS Acting Administrator Andy Slavitt.  "As millions more Americans have obtained health insurance, per-person cost growth remains at historically modest levels."

 

As in all prior years, the three most significant components of total healthcare spending in 2015 were:

  • Hospital care, which grew 5.6 percent to $1.036 trillion or 32 percent of total NHE
  • Professional services, which grew 6.3 percent to $635 billion or 26 percent of total NHE
  • Retail sales of medical products, including prescription drugs which, as mentioned above, grew by nine percent to $325 billion or 10 percent of total NHE

 

In terms of funding sources in 2015:

  • Private health insurance paid the largest share, growing by 7.2 percent to $1.076 trillion or 32 percent of total NHE
  • Medicare spending grew by 4.5 percent to $646 billion or 20 percent of total NHE
  • Medicaid spending grew by 9.7 percent to $554 billion or 17 percent of total NHE
  • Out-of-pocket spending grew by 2.6 percent to $338 billion or 10 percent of total NHE

 

Focus on Medicaid Spending

 

With the future of the ACA in question, and as recent headlines highlight potential reductions in federal funding to states unwilling to comply with executive orders, information relating to the federal component of Medicaid funding becomes of greater interest.

 

The amount of federal matching funds for state Medicaid expenditures is computed using Federal Medical Assistance Percentages (FMAPs) published by the Secretary of Health and Human Services each year as required by the Social Security Act.  FMAPs for the fiscal year ending September 30, 2017 published early last year show that 14 states have the lowest federal participation at 50 percent, while nine states have greater than 70 percent federal participation.  These FMAPs do not include the Children’s Health Insurance Program “enhancement” prescribed under Title XI.

 

Medicaid Spending in Fiscal 2015

 

As mentioned above, the states and federal government collectively spent $545 billion for Medicaid in fiscal 2015.  This represents an 11.6 percent increase from fiscal 2014.  CMS said this was the fastest growth in more than a decade, due primarily to Medicaid expansion under the ACA.

 

The federal government alone spent $350 billion for Medicaid in fiscal 2015, a 16 percent increase over the year prior, and CMS attributed this increase, in large part, to Medicaid expansion under the ACA.  The states paid $204 billion, or about 37 percent of all Medicaid spending, in fiscal 2015.

 

Medicaid provided healthcare assistance for an estimated 70 million enrollees in fiscal 2015, according to the study, which included 9.1 million newly-eligible adults in the first full fiscal year of the ACA eligibility expansions.  CMS estimated that enrollment grew by 7.6 percent between FY 2014 and FY 2015.

 

Components of average spending per enrollee in 2015 of $7,492 are as follows:

  • $3,389 for children
  • $14,323 for aged adults
  • $6,365 for newly-eligible adults
  • $4,986 for other adults 
  • $19,478 for enrollees with disabilities  

 

CMS estimated that per enrollee spending increased four percent between fiscal 2014 and 2015, reflecting a large increase in newly-eligible adults.

 

Medicaid Spending in Fiscal 2016 and Beyond

 

According to a CMS report released last week, total Medicaid spending increased to $576 billion in fiscal 2016.  The federal portion increased by 4.5 percent to $363 billion, holding steady at 63 percent of total Medicaid.

 

In fiscal 2016, average Medicaid enrollment is estimated to have increased 3.1 percent to 72.2 million enrollees.  CMS attributed nearly all of the growth in enrollment to newly-eligible adults.

 

Looking to the future, the CMS report stated that:

  • Medicaid spending is projected to increase at an average annual rate of 5.7 percent and to reach $957.5 billion by 2025.
  • Enrollment is projected to increase at an average annual rate of 1.5 percent over the next decade and reach 81.6 million in 2025.
  • Medicaid spending for adults newly-eligible under the ACA is projected to amount to $806 billion by 2025.  CMS said most of this spending—$741 billion, or about 92 percent—is projected to be paid by the federal government.
  • CMS said it expects per enrollee costs for newly-eligible adults to decrease by 6.3 percent in 2017 and 3.3 percent in 2018.

 

Summary

While the broad role of the federal government in funding healthcare services and driving related public policy will most likely not change to any significant degree in the foreseeable future, the new administration has made it clear it is taking a fresh look at all public policies and is not afraid to disrupt the status quo if it is believed to be in the best interest of the country.  While a new administration is always a concern for a heavily regulated industry such as healthcare, at 17 percent of GDP and with significant financial assistance being provided to the individual states by the federal government, our industry is sure to attract attention in the coming years.  While the future may seem to defy prediction at this point, making strategic planning efforts especially difficult, it is critical in times of uncertainty to stay informed regarding all key factors that could have an impact on our future, and we hope that this article has contributed to that end.

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