MEDICAID

Assessment of 

Variation among 

States in Per-Enrollee 

Spending

Report to Congressional Requesters

June 2014

GAO-14-456

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-456, a report to 

congressional requesters

June 2014

MEDICAID

Assessment of Variation among States in Per- Enrollee Spending

Why GAO Did This Study

Federal Medicaid expenditures totaled 

about $267 billion in fiscal year 2013. 

With the expansion of Medicaid under 

the Patient Protection and Affordable 

Care Act and rising health care costs, 

the Congressional Budget Office 

projects that such expenditures will 

grow to about $576 billion by fiscal 

year 2024. GAO was asked to examine 

variation among states in Medicaid 

spending and factors that influence 

such spending, and state approaches 

to setting rates per enrollee for 

Medicaid managed care plans.

This report examines (1) Medicaid 

spending per enrollee by state; 

(2) selected factors that influence 

Medicaid spending per enrollee, by 

state; and (3) how states account for 

factors that influence expected perenrollee spending when setting rates 

for Medicaid managed care plans. 

GAO analyzed Medicaid enrollment 

and combined federal and state 

expenditure data provided by CMS for 

fiscal year 2008, and examined 

illustrative examples of factors that 

have been reported to influence health 

care spending, such as age, disability 

status, and scope of benefits received. 

GAO used 2008 data because they 

allowed a comparable view of 

spending per enrollee and factors that 

influence spending per enrollee—as 

2008 was the most recent year for 

which certain data on factors 

influencing spending were readily 

available. GAO also interviewed 

officials in three states and five 

consulting firms with experience setting 

Medicaid managed care rates.

The Department of Health and Human 

Services provided technical comments 

on a draft of this report, which GAO 

incorporated as appropriate.

What GAO Found

Estimates of Medicaid spending developed from Centers for Medicare & 

Medicaid Services (CMS) data sources suggest wide variation among states in 

Medicaid spending per enrollee, overall and for each of four main eligibility 

groups—children, adults, disabled, and aged.

Estimated Medicaid Spending per Enrollee, by State, Federal Fiscal Year 2008

Notes: Spending per enrollee includes federal and state spending on regular Medicaid payments for 

covered services, as well as supplemental payments, such as payments to hospitals for low-income 

patients, but does not include administrative costs. Estimates also do not reflect states’ subsequent 

changes to the spending originally reported for this year. Enrollment is measured in terms of full-yearequivalent enrollees, regardless of scope of benefits. Massachusetts was excluded because of errors 

in fiscal year 2008 CMS data for this state.

Although estimates of spending per enrollee are based on the best data readily 

available from CMS, these data do not permit full assessment of state spending 

variation. Limitations include the difficulty of determining spending on services 

enrollees received during a particular time period and lack of complete, accurate 

information about supplemental payments. GAO has previously recommended 

that CMS take steps to improve states’ reporting of supplemental payments and 

that Congress consider requiring CMS to take such steps.

Certain factors that influence overall per-enrollee Medicaid spending, such as 

distribution of enrollees among eligibility groups, enrollee health service needs, 

and scope of benefits offered, varied widely by state. For example, in calendar 

year 2008, the percentage of enrollees in higher-need eligibility groups—

individuals who are disabled or aged—ranged from about 15 percent to 

38 percent across states. 

States consider a range of demographic and health factors to predict expected 

spending per enrollee when setting Medicaid managed care rates. According to 

consulting firm officials, states often consider detailed information on enrollee 

heath status, particularly for aged and disabled enrollees.

View GAO-14-456. For more information, 

contact Carolyn L. Yocom, Director, Health 

Care, (202) 512-7114, yocomc@gao.gov.
Page i GAO-14-456 Medicaid Spending Variation

Letter 1 

Background 6

CMS Data Suggest Wide Variation among States in Medicaid 

Spending per Enrollee, but Data Limitations Hinder a More 

Complete Assessment 10

States Varied Widely on Program Characteristics and Other 

Factors That Influence Medicaid Per-Enrollee Spending 22

States Account for a Range of Demographic and Health Factors 

When Setting Medicaid Managed Care Rates 29

Concluding Observations 33

Agency Comments 34

Appendix I Data and Methodology for Estimates of Medicaid Spending per 

Enrollee 36

Appendix II Estimated Medicaid Spending per Enrollee by State 40

Appendix III Total Medicaid Spending and Adjustments and Collections by State 42

Appendix IV Estimated Medicaid Spending per Enrollee, by State, Using Two 

Possible Methods to Distribute DSH Payments 45

Appendix V State DSH Payments as a Percentage of Total State Medicaid 

Spending and Effect on Overall Spending per Enrollee 48

Appendix VI Distribution of State Medicaid Enrollees by Eligibility Group 51

Appendix VII Selected Factors That Are Known to Influence Health Care 

Spending, by State 53

Contents
Page ii GAO-14-456 Medicaid Spending Variation

Appendix VIII GAO Contacts and Staff Acknowledgments 57

Related GAO Products 58

Tables

Table 1: Estimated Medicaid Spending per Enrollee for All 

Enrollees and for Each Eligibility Group, by State, Fiscal 

Year 2008 40

Table 2: Total Medicaid Spending and Adjustments and 

Collections Reported in Fiscal Year 2008 43

Table 3: Estimated Medicaid Spending per Enrollee Using Two 

Possible Methods to Distribute Disproportionate Share 

Hospital (DSH) Payments, by Eligibility Group and State, 

Fiscal Year 2008 46

Table 4: Disproportionate Share Hospital (DSH) Payments as a 

Percentage of Total State Medicaid Spending and Overall 

Spending per Enrollee Excluding and Including DSH 

Payments, Fiscal Year 2008 48

Table 5: Distribution of Medicaid Enrollees by Eligibility Group and 

State, Calendar Year 2008 51

Table 6: State Variation on Selected Factors That Can Influence 

Health Care Spending for Aged Medicaid Enrollees, 

Fiscal or Calendar Year 2008 53

Table 7: State Variation on Selected Factors That Can Influence 

Health Care Spending for Children and Adults, Fiscal or 

Calendar Year 2008 55

Figures

Figure 1: Estimated Medicaid Spending per Enrollee, by State, 

Fiscal Year 2008 11

Figure 2: Estimated State Medicaid Spending per Enrollee, by 

Eligibility Group, Fiscal Year 2008 13

Figure 3: Estimated Medicaid Spending per Enrollee in New 

Hampshire Using Two Possible Methods of Distributing 

Disproportionate Share Hospital (DSH) Payments, Fiscal 

Year 2008 21
Page iii GAO-14-456 Medicaid Spending Variation

Figure 4: Percentage of Medicaid Enrollees Who Were Disabled 

or Aged, Highest and Lowest Five States, Calendar Year 

2008 23

Figure 5: Percentage of Aged Medicaid Enrollees Receiving LongTerm Care Services, Highest and Lowest Five States, 

Fiscal Year 2008 25

Figure 6: Variation across States in the Percentage of Adult 

Medicaid Enrollees Who Received Only Family Planning 

Benefits, Calendar Year 2008 28

Abbreviations

CDC Centers for Disease Control and Prevention

CMS Centers for Medicare & Medicaid Services

DSH Disproportionate Share Hospital

FFS fee-for-service 

FMAP Federal Medical Assistance Percentage

HHS Department of Health and Human Services

MACPAC Medicaid and CHIP Payment and Access Commission

MAX Medicaid Analytic eXtract

MSIS Medicaid Statistical Information System

OACT Office of the Actuary

PCI per capita income

PPACA Patient Protection and Affordable Care Act

T-MSIS Transformed-MSIS

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Page 1 GAO-14-456 Medicaid Spending Variation

441 G St. N.W.

Washington, DC 20548

June 16, 2014

The Honorable Orrin G. Hatch

Ranking Member

Committee on Finance

United States Senate

The Honorable Fred Upton

Chairman

Committee on Energy and Commerce

House of Representatives

In fiscal year 2013, Medicaid, the federal-state health coverage program 

for certain low-income individuals, had over 70 million enrollees and 

expenditures totaling about $460 billion.1 Of these expenditures, the 

federal government financed about $267 billion, with the rest financed by 

the states. With the expansion of Medicaid under the Patient Protection 

and Affordable Care Act (PPACA) and rising health care costs, increased 

Medicaid enrollment and spending are expected over the next 10 years—

with federal Medicaid expenditures projected to grow to about $576 billion 

by 2024.2

States and the federal government are interested in better understanding 

and controlling Medicaid program spending. At the state level, this 

interest is reflected in payment reform proposals and strategies such as 

Prior studies have shown considerable differences among 

states both in total Medicaid spending and in average spending per 

enrollee. Much of the state variation in total Medicaid spending can be 

attributed to differences in enrollment, but the reasons for variation in 

average spending per enrollee are not as well understood.

 

1

States administer their individual Medicaid programs subject to approval and oversight by 

the Centers for Medicare & Medicaid Services (CMS), a federal agency within the 

Department of Health and Human Services (HHS). Medicaid serves certain categories of 

low-income individuals, such as children, pregnant women, parents, persons with 

disabilities, and persons aged 65 and older.

2

See Congressional Budget Office, Updated Budget Projections: 2014 to 2024

(Washington, D.C.: April 2014). Under PPACA, states are permitted to expand eligibility 

for Medicaid to nonpregnant, nonelderly adults whose income does not exceed 

133 percent of the federal poverty level and will receive enhanced federal funding for 

this newly eligible population. As of April 1, 2014, 26 states and the District of Columbia 

had decided to implement this expansion.
 

Page 2 GAO-14-456 Medicaid Spending Variation

the use of managed care service delivery systems, in which states seek 

to control costs by contracting with health plans to cover services 

provided to Medicaid enrollees for a fixed, or capitated, monthly rate per 

enrollee.3 At the federal level, Medicaid has been the focus of proposals 

to reform the structure of Medicaid financing and change the methods 

used to allocate funds across states. Some of these proposals would limit 

the amount of federal funding states receive, while other proposals aim to 

control spending by reducing the variation in average state spending per 

enrollee.4

As we have emphasized in prior work, to help ensure that Medicaid funds 

are allocated equitably, any new approach to program financing must 

take into account that the costs of providing Medicaid services can differ 

across states, due to a variety of factors.5

Given concerns regarding Medicaid spending and the interest in program 

financing reform, you asked us to examine the variation among states in 

Medicaid spending and factors that influence state spending on Medicaid 

services for enrollees. In addition, because states have experience 

examining the factors that affect per-enrollee Medicaid spending in order 

These factors include the size 

of the Medicaid population and certain factors that influence states’ costs 

of providing Medicaid services per enrollee, such as differences in the 

health service needs of enrollees and the cost of delivering health care. 

Such considerations have some parallels to how states set managed care 

capitation rates to take into account that the costs of providing Medicaid 

services can differ among plans depending on the health service needs 

and other characteristics of individuals enrolled in each plan.

 

3

See National Conference of State Legislators, Payment Reform (Denver, Colo.: 2013).

4

For example, a fiscal year 2012 appropriations bill passed by the House would have 

made Medicaid a block grant program, and other recently proposed legislation would 

place per capita caps on federal Medicaid funding. Under block grant proposals, the 

federal government generally provides states fixed grant amounts indexed to grow at a 

specified rate over time. In general, such block grants would not otherwise increase to 

reflect changes in states’ Medicaid costs and enrollment. Under per capita cap proposals, 

the federal government generally provides states with a specified amount of funding per 

enrollee, but enrollment and overall spending are not necessarily limited.

5

For example, we previously reported that the formula used under the current financing 

structure is an incomplete measure to equitably allocate federal funding among states and 

that available data sources could be used to more equitably allocate funding. See GAO, 

Medicaid: Alternative Measures Could Be Used to Allocate Funding More Equitably, 

GAO-13-434 (Washington, D.C.: May 10, 2013).
 

Page 3 GAO-14-456 Medicaid Spending Variation

to set capitation rates for health plans in their managed care programs, 

you asked us to examine states’ approaches to setting these rates. In this 

report, we (1) examine what Centers for Medicare & Medicaid Services 

(CMS) data show about the variation among states in Medicaid spending 

per enrollee; (2) describe the variation among states in factors that 

influence Medicaid spending per enrollee; and (3) describe how states set 

capitation rates for Medicaid managed care plans to account for factors 

that influence plans’ expected spending per enrollee.

To examine what CMS data show about the variation among states in 

Medicaid spending per enrollee, we developed estimates for federal fiscal 

year 2008 using Medicaid enrollment data and combined federal and 

state expenditure data provided by the CMS Office of the Actuary 

(OACT).6 We chose fiscal year 2008 so that our estimates of Medicaid 

spending per enrollee were for the same year as the most readily 

available data on certain factors that influence this spending. We obtained 

from OACT (1) Medicaid enrollment data showing the number of full-yearequivalent enrollees, by state and eligibility group, which OACT 

calculated from enrollment data in the Medicaid Statistical Information 

System (MSIS),7 and (2) Medicaid expenditure estimates broken out by 

state, eligibility group, and service type, which OACT estimated using 

enrollment and expenditure data from MSIS and expenditure data from 

the CMS-64 data system. Our estimates of per-enrollee spending based 

on these data include supplemental payments to providers that are not 

linked to individual enrollees, including Disproportionate Share Hospital 

(DSH) payments, but do not include administrative costs.

8

 

6

In this report, we use “fiscal year” to refer to the federal fiscal year, and references to 

Medicaid spending refer to combined federal and state expenditures. 

In our 

estimates of per-enrollee spending, we distributed DSH payments among 

eligibility groups based on each group’s share of state spending for 

services provided in the types of facilities eligible to receive DSH 

payments. We also explored an alternative method of distributing DSH 

payments among eligibility groups. (See appendix I for more information 

7

Both enrollment and expenditure data include all enrollees, regardless of the scope of 

benefits offered.

8

Federal Medicaid law requires states to make DSH payments to qualifying hospitals that 

serve large numbers of Medicaid and uninsured low-income patients. Data in CMS’s 2010 

Actuarial Report on the Financial Outlook for Medicaid indicate that, nationally, 

administrative costs represented about 5 percent of Medicaid outlays in fiscal year 2009.
 

Page 4 GAO-14-456 Medicaid Spending Variation

about the methodology used by OACT to generate its estimates and our 

use of the OACT estimates to develop estimates of spending per 

enrollee.) To assess the reliability of the data, we reviewed 

documentation for these data sources, interviewed CMS officials 

knowledgeable about the data, and compared our estimates to those from 

other data sources. On the basis of this assessment, we excluded states 

with significant errors or omissions in fiscal year 2008 data from certain 

analyses.9

To describe the variation among states in factors that influence Medicaid 

spending per enrollee, we analyzed differences among states on selected 

indicators of enrollee health service needs and the geographic costs of 

delivering health care services. We focused on indicators that have been 

reported to influence health care spending and were readily available 

from previously published sources of Medicaid data and other federal 

data, such as U.S. Census Bureau or Centers for Disease Control and 

Prevention (CDC) data. For indicators drawn from Medicaid data, we 

relied to the extent possible on the Medicaid Analytic eXtract (MAX) 2008 

Chartbook, the most recent year available.

We determined that for the rest of the states, the data were 

sufficiently reliable for our purposes.

10 For certain Medicaid 

indicators that were not published in the MAX 2008 Chartbook, we 

obtained data directly from the MSIS 2008 Annual Person Summary File 

and the MSIS 2008 State Summary DataMart.11

 

9

We excluded Massachusetts from all analyses of state Medicaid spending because, 

according to CMS officials, the state’s fiscal year 2008 enrollment data included 

information on many individuals who were not eligible for Medicaid and were instead 

covered with state funds. We excluded Maine from analyses of state Medicaid spending at 

the eligibility-group level (children, adults, disabled, and aged), because the state was 

unable to accurately report spending by service category, which OACT uses to estimate 

state spending by eligibility group. See appendix I for more information on OACT’s 

methodology.

We focused our review 

on 2008 fiscal or calendar year data for greater comparability with the 

readily available MAX data. We did not attempt to identify causal links 

10See CMS, Medicaid Analytic eXtract 2008 Chartbook, research conducted by 

Mathematica Policy Research (Washington, D.C.: 2012). MSIS data are available in 

several formats. MAX files are considered to have the highest-quality MSIS data, but also 

have delayed availability.

11The MSIS Annual Person Summary files include enrollment data and annual 

expenditure data for each person by type of service. The MSIS State Summary DataMart 

files include aggregated summary information on Medicaid enrollees, such as the number 

of enrollees in particular age or eligibility groups.
 

Page 5 GAO-14-456 Medicaid Spending Variation

between state Medicaid spending and factors that influence spending, nor 

did we analyze all factors that may influence such spending. To assess 

the reliability of the data, we reviewed documentation for these data 

sources and interviewed CMS officials knowledgeable about the data. On 

the basis of this assessment, we excluded four states—Arizona, New 

Mexico, Wisconsin, and Maine—from analyses related to long-term care 

service use.12 We excluded one state—Massachusetts—from all analyses 

based on the MSIS 2008 Annual Person Summary File or MSIS 2008 

State Summary DataMart.13

To describe how states set Medicaid managed care capitation rates to 

account for factors that influence plans’ expected spending per enrollee, 

we reviewed documents from consulting firms, states, and CMS, as well 

as information from other sources, regarding how states establish 

Medicaid managed care capitation rates. We also interviewed officials at 

five consulting firms that have worked with at least 40 states to establish 

state Medicaid managed care capitation rates.

Otherwise, we determined that the data were 

sufficiently reliable for our purposes.

14 In addition, we 

interviewed officials from three states regarding their experiences 

establishing such capitation rates,15

 

12In Arizona, New Mexico, and Wisconsin, more than 2 percent of all enrollees—and 

therefore likely a higher percentage of aged enrollees—received long-term care services 

through managed care plans and therefore were not represented in the fee-for-service 

data used to identify enrollees who had received long-term care services during the year. 

Maine was unable to accurately report spending by service category, such as long-term 

care services.

and interviewed CMS officials about 

the managed care data that CMS receives from states. Our review 

focused on how states account for factors influencing Medicaid spending, 

and we did not examine other aspects of the rate setting process, such as 

documenting the actuarial soundness of rates.

13According to CMS officials, fiscal year 2008 MSIS data for Massachusetts mistakenly 

included information on many individuals who were not eligible for Medicaid and were 

instead covered with state funds; however, the problem was corrected in MAX.

14We interviewed representatives from the following consulting firms: Deloitte Consulting 

LLP, Mercer Government Human Services Consulting, Milliman, Optumas, and 

PricewaterhouseCoopers LLP. We included the District of Columbia as a state.

15We selected three states—Arizona, Florida, and New York—that have a high proportion 

of their Medicaid population, including individuals in the aged or disabled eligibility groups, 

enrolled in managed care plans.
 

Page 6 GAO-14-456 Medicaid Spending Variation

We conducted this performance audit from February 2013 to June 2014 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Each state administers its Medicaid program in accordance with its own 

Medicaid plan—which must be reviewed and approved by CMS—and 

determines, among other things, the groups of individuals covered, 

services provided, and the service delivery system, such as fee-forservice (FFS) or managed care. Within broad federal requirements, states 

have flexibility in deciding which individuals to cover and the range of 

medical services to provide in their Medicaid programs. For example, 

states must cover certain groups of individuals, such as children and 

pregnant women, but may elect to cover these groups above the required 

minimum income levels. States’ Medicaid programs generally must cover 

a set of mandatory services, including those provided by primary and 

specialty care physicians, as well as services provided in hospitals, 

clinics, and other settings. States may also elect to cover additional 

optional benefits and services, such as home- and community-based 

services or rehabilitative services.16

 

16One study estimated that, nationally, optional populations accounted for about 

30 percent of Medicaid enrollment in 2007, while optional services—primarily long-term 

care services—accounted for about 33 percent of Medicaid expenditures. See Kaiser 

Commission on Medicaid and the Uninsured, January 2012 Update: Medicaid Enrollment 

and Expenditures by Federal Core Requirements and State Options (Washington, D.C.: 

Kaiser Family Foundation, 2012).

Subject to federal requirements, 

states have discretion in establishing the amount, duration, and scope of 

the mandatory and optional services covered in their Medicaid programs 

and may place appropriate limits on services based on certain criteria; 

thus, states may limit the number of visits or the days of care that are 

provided. In some cases, not all Medicaid enrollees are eligible for all 

covered services, such as those who receive only family planning benefits 

Background
 

Page 7 GAO-14-456 Medicaid Spending Variation

through demonstration waivers, or those who only qualify to receive 

assistance with Medicare premiums and cost sharing.17

States and the federal government share in the financing of the Medicaid 

program, with the federal government matching most state expenditures 

for Medicaid services on the basis of a statutory formula known as the 

Federal Medical Assistance Percentage (FMAP).18 States pay health care 

providers or managed care plans for covered services provided to 

Medicaid enrollees, and then submit claims to CMS in order to receive 

federal matching funds for these payments. In addition to payments made 

directly to providers or managed care plans for services provided to 

enrollees, most states receive federal matching funds for other types of 

Medicaid payments, known as supplemental payments. For example, 

federal Medicaid law requires states to make DSH payments to qualifying 

hospitals that serve large numbers of Medicaid and uninsured low-income 

patients. States are required to report to CMS separate data on the two 

types of DSH payments: payments to inpatient hospitals and payments to 

inpatient mental health facilities.19

 

17Under Section 1115 of the Social Security Act, states may apply for and receive CMS 

approval for demonstration waivers that allow states to deviate from their traditional 

Medicaid program. Specifically, states may receive a waiver for certain Medicaid 

requirements and approval to claim federal matching funds for items not otherwise 

covered by Medicaid. For example, states may apply for a Section 1115 demonstration 

waiver in order to provide only family planning benefits for individuals—typically women of 

childbearing age—who are not otherwise eligible for Medicaid. In addition, most Medicaid 

enrollees who are aged 65 and older or disabled are also eligible for Medicare, the federal 

health insurance program that covers seniors aged 65 and older, disabled persons, and 

individuals with end-stage renal disease. While many of these enrollees, referred to as 

“dual-eligibles,” qualify for the full range of Medicaid benefits provided in their state, others 

qualify only to receive assistance for Medicare premiums and cost-sharing.

States also make other supplemental 

18The FMAP is calculated using a statutory formula based on the state’s per capita 

income (PCI) in relation to the national PCI: FMAP = 1.00 – 0.45 (State PCI / U.S. PCI)

and may range from 50 to 83 percent. The federal government pays a larger portion of 

Medicaid expenditures in states with low PCI relative to the national average, and a 

smaller portion for states with higher PCIs. 

19Under federal law, states may only claim federal matching funds for DSH payments 

made to qualifying hospitals up to the states’ DSH allotments, which are based on a 

statutory formula and vary across the states. Individual hospitals may only receive DSH 

payments up to their hospital-specific limit. States also make DSH payments out of their 

allotment to institutions for mental disease and other mental health facilities that provide 

inpatient services. However, federal law limits the total amount of federal matching funds 

that states may claim for DSH payments made to these mental health facilities. 42 U.S.C. 

§ 1396r-4.
 

Page 8 GAO-14-456 Medicaid Spending Variation

payments, which we refer to as non-DSH supplemental payments, to 

hospitals and other providers that, for example, serve high-cost Medicaid 

enrollees.20

CMS maintains two readily available sources of data on state Medicaid 

spending: the CMS-64 data set and MSIS.

Unlike regular Medicaid payments, supplemental payments 

are not necessarily made on the basis of claims for specific services to 

individual enrollees.

21

• The CMS-64 data set contains aggregate state data on programbenefit and administrative spending by quarter, such as each state’s 

total quarterly expenditures for inpatient hospital services or 

prescription drugs. The CMS-64 data set also contains information on 

spending not linked to specific enrollees, such as DSH and other 

supplemental payments, but no information on spending for individual 

enrollees or on the services they received under Medicaid.

MSIS also contains state 

enrollment data. These two data sources have different roles and 

structures, and taken together have the potential to provide a robust 

picture of Medicaid spending.

22

 

20Unlike DSH payments, non-DSH supplemental payments are not required to be made 

under federal law or regulations. One type of non-DSH supplemental payment, also 

known as upper payment limit payments, can be made to providers above the standard 

Medicaid payment rates but within the upper payment limit, which is the estimated amount 

that Medicare pays for comparable services. In addition, under upper payment limit 

arrangements, payments are subject to aggregate limits by provider type, but there are not 

firm dollar limits on individual providers or at the state level. See 42 C.F.R. §§ 447.272, 

447.321. Some states also receive CMS approval to make supplemental payments to 

hospitals and other providers under Section 1115 demonstration waivers. These 

supplemental payments are governed by the terms and conditions of the individual 

demonstration waiver and may be subject to firm dollar limits and other requirements.

States 

submit the CMS-64 quarterly data in order to obtain reimbursement 

for the federal share of Medicaid expenditures. CMS reviews the 

CMS-64 submissions, and the data are the most reliable accounting 

of total Medicaid spending available. However, because the CMS-64 

21States also maintain data that could be used to analyze per-enrollee spending, such as 

encounter data used by some states to develop managed care capitation rates. However, 

states’ data are not suitable for purposes of examining spending across states as such 

data may not be fully comparable across states.

22State Medicaid agencies are required to submit the quarterly expenditure data by means 

of the Quarterly Medicaid Statement of Expenditures for the Medical Assistance Program, 

also known as the form CMS-64, within 30 days of the end of each quarter. 42 C.F.R. 

§ 430.30. The data are stored in the Medicaid Budget and Expenditure System.
 

Page 9 GAO-14-456 Medicaid Spending Variation

does not include enrollee-specific data it cannot be used on its own to 

assess per-enrollee spending. The CMS-64 data system is 

programmed to produce two reports that summarize states’ total

spending for a given fiscal year; the reports differ primarily in their 

treatment of states’ subsequent adjustments to their reported 

spending.

• MSIS is a national enrollment and claims data set and the federal 

source of Medicaid spending data that can be linked to specific 

enrollees on the basis of their medical claims for care.23 Unlike the 

CMS-64 data set, however, MSIS only contains information about 

Medicaid expenditures that are tied to specific enrollees, and thus 

does not include some provider payments such as DSH or non-DSH 

supplemental payments. Although CMS reviews these data for 

reliability and uses them for policy analysis, program utilization, and 

forecasting spending, it does not use these data to determine the 

federal share of states’ Medicaid expenditures, nor do states use the 

data to manage the daily operations of their Medicaid programs. CMS 

is in the process of implementing a project to improve and expand 

MSIS, but the time frames for completion are uncertain.24

Estimates of per-enrollee Medicaid spending can be obtained by 

combining the more reliable aggregated spending data from the CMS-64 

with detailed enrollee-level information available from MSIS. For example, 

estimates of overall Medicaid spending per enrollee for a given fiscal year 

can be obtained by dividing total Medicaid expenditures, as shown in the 

 

23States are required to have in operation a mechanized claims-processing and 

information-retrieval system based on certain federal requirements. See 42 U.S.C. 

§ 1396b(r). For all claims filed on or after January 1, 1999, states have been required to 

electronically transmit claims data, including detailed individual enrollee encounter data, in 

a format consistent with MSIS. See 42 U.S.C. § 1396b(r)(1)(F).

24This project will result in a new data system known as Transformed–MSIS, or T-MSIS. 

The goals of T-MSIS include improving the timeliness, quality, and level of detail of the 

MSIS data and providing a link to the CMS-64 data in order to support improved program 

and financial management, evaluations, fraud identification, and program efficiency. 

T-MSIS data are not intended to replace the CMS-64 data. T-MSIS is scheduled to be 

implemented July 1, 2014. In September, 2013, the HHS Office of Inspector General 

reported that CMS had made some progress in implementing T-MSIS with 

12 volunteer states, but raised concerns about the completeness and accuracy of T-MSIS 

data upon national implementation. See Department of Health and Human Services Office 

of Inspector General, Early Outcomes Show Limited Progress for the Transformed 

Medicaid Statistical Information System, OEI-05-12-00610 (Washington, D.C.: September 

2013).
 

Page 10 GAO-14-456 Medicaid Spending Variation

annual state summary reports available from the CMS-64 data system, by 

total state Medicaid enrollment as derived from MSIS. In addition, through 

a more complex process, estimates of per-enrollee spending can be 

developed for particular eligibility groups. For example, the CMS-64 

expenditures can be distributed among the four major Medicaid eligibility 

groups—children, adults, disabled, and aged—based on MSIS 

expenditure patterns by eligibility group.25

Estimates of Medicaid spending per enrollee developed from CMS data 

sources suggest wide variation among states. However, due to certain 

data limitations, these estimates do not permit full assessment of 

differences in per-enrollee spending among states.

CMS data suggest wide variation among states in Medicaid spending per 

enrollee, both overall and for each of the four major Medicaid eligibility 

groups—children, adults, disabled, and aged. Estimates based on 

expenditure data from CMS-64 annual summary reports and enrollment 

and expenditure data from MSIS indicate that overall spending per 

enrollee ranged from about $3,800 in California to about $11,700 in 

Rhode Island in fiscal year 2008.26

 

25For examples, see CMS, 2012 Actuarial Report on Financial Outlook for Medicaid 

(Baltimore, Md.: 2012), and Medicaid and CHIP Payment and Access Commission 

(MACPAC), March 2013 Report to the Congress on Medicaid and CHIP (Washington, 

D.C.: March 15, 2013).

(See fig. 1 for a general comparison of 

per-enrollee spending levels across states, and table 1 in appendix II for 

specific state-by-state estimates.)

26These spending estimates include federal and state spending on regular Medicaid 

payments made to providers and managed care plans for covered services, as well as 

DSH and non-DSH supplemental payments, but do not include administrative costs. 

Enrollment is measured in terms of full-year-equivalent enrollees. Both enrollment and 

expenditure data include all enrollees, regardless of the scope of benefits offered.

CMS Data Suggest 

Wide Variation among 

States in Medicaid 

Spending per 

Enrollee, but Data 

Limitations Hinder a 

More Complete 

Assessment

CMS Data Suggest Wide 

Variation in Spending per

Enrollee
 

Page 11 GAO-14-456 Medicaid Spending Variation

Figure 1: Estimated Medicaid Spending per Enrollee, by State, Fiscal Year 2008

Notes: Estimates of spending per enrollee include federal and state spending on regular Medicaid 

payments to providers and managed care plans for covered services provided to enrollees, as well as 

Disproportionate Share Hospital (DSH) and non-DSH supplemental payments, but do not include 

administrative costs. Estimates also do not reflect states’ subsequent changes, including adjustments 

or collections, to the spending originally reported for this year. Enrollment is measured in terms of fullyear-equivalent enrollees. Both enrollment and expenditure data include all enrollees, regardless of 

the scope of benefits offered. For purposes of this analysis, we include the District of Columbia as a 

state. We excluded Massachusetts because of errors in fiscal year 2008 CMS data for this state.
 

Page 12 GAO-14-456 Medicaid Spending Variation

These data also suggest wide variation among states in spending per 

enrollee by eligibility group. (See fig. 2.) For example, estimated perenrollee spending for disabled enrollees ranged from about $9,000 in 

Alabama to over $32,000 in New York; and per-enrollee spending for 

aged enrollees ranged from about $10,000 to about $30,000 for these two 

states. (See table 1 in appendix II for state-by-state estimates.) The 

variation in estimated per-enrollee spending was smaller for the adult and 

child eligibility groups than for the disabled and aged groups, but was still 

substantial. For example, in fiscal year 2008, the estimates indicate that 

Vermont spent more than three times as much per child and per adult as 

California (about $5,900 versus about $1,700 for children, and about 

$5,700 versus about $1,500 for adults).
 

Page 13 GAO-14-456 Medicaid Spending Variation

Figure 2: Estimated State Medicaid Spending per Enrollee, by Eligibility Group, Fiscal Year 2008

Notes: Spending per enrollee includes federal and state spending on regular Medicaid payments to 

providers and managed care plans for covered services provided to enrollees as well as 

Disproportionate Share Hospital (DSH) and non-DSH supplemental payments, but does not include 

administrative costs. Estimates also do not reflect states’ subsequent changes, including adjustments 

or collections, to the spending originally reported for this year. Enrollment is measured in terms of fullyear-equivalent enrollees. Both enrollment and expenditure data include all enrollees, regardless of 

the scope of benefits offered. We excluded Massachusetts from all calculations and Maine from 

calculations at the eligibility group level because of errors or omissions in fiscal year 2008 data for 

these states. Average state spending per enrollee represents the sum of each state’s spending per 

enrollee divided by the number of states. For purposes of this analysis, we include the District of 

Columbia as a state. Each box in the figure denotes the dollar range for states in the second and third 

quartiles in spending per enrollee. The horizontal line between the boxes denotes the median, the 

diamond denotes the average, and the vertical lines extending above and below each box denote the 

highest and lowest quartile state spending per enrollee.
 

Page 14 GAO-14-456 Medicaid Spending Variation

Although these estimates of spending per enrollee are based on the best 

data readily available from CMS Medicaid data sets—expenditure data 

from annual summary reports from the CMS-64 data set and expenditure 

and enrollment data from MSIS—they do not permit a full assessment of 

variation in per-enrollee spending among states, due to certain limitations 

of the CMS-64 data. These limitations include (1) the difficulty of 

determining spending on services received by enrollees during a specific 

time period, and (2) the lack of complete, accurate information about 

supplemental payments. These limitations constrain the accuracy of perenrollee spending estimates based on these data, particularly at the 

eligibility group level, and thus hinder a complete assessment of how 

spending varies among states.

The first data limitation is that annual summary reports currently available 

from the CMS-64 data system do not accurately reflect spending on the 

services that were provided to enrollees during the year. This is because, 

in these annual reports, the spending originally reported for the year is not 

updated to account for adjustments to that spending, or collections, that 

states report in subsequent years.

27

While these reports provide accurate records of the amount of 

expenditures states reported to CMS in a fiscal year to claim their federal 

matching funds—the programmatic purpose for which they were 

designed—the treatment of adjustments and collections in these reports 

limits the accuracy of estimates of per-enrollee spending based on these 

data. For example, in one of the two summary reports that provide data 

on states’ total spending by type of service, all adjustments reported by a

state that year are summed by type—for example, adjustments increasing 

For example, if a state reports 

spending $500 million for nursing facility care in a given year, but then 

adjusts that amount up by $50 million, it is not possible to ascertain from 

the annual reports that the state’s actual spending for this care in this

year was $550 million.

 

27Adjustments are made by states to correct overpayments, underpayments, or reporting 

errors to spending reported in prior quarterly reports. Collections include reimbursement 

from private or public insurance plans or other third parties that are liable for some portion 

of enrollees’ health care costs, as well as recoveries made through efforts to reduce 

waste, fraud, and abuse. The annual summary reports “roll up,” or aggregate, the dollar 

amounts states reported in their quarterly reports for the year.

Data Limitations Hinder 

Assessment of State 

Variation in Spending per 

Enrollee

Difficulty of Determining 

Spending on Services 

Received during a Specific 

Time Period
 

Page 15 GAO-14-456 Medicaid Spending Variation

claims—and reported as separate line items.28 The reported sums may 

include adjustments applicable to spending for the current year as well as 

prior years.29 As a result, neither including nor excluding the adjustments 

in the total spending shown in the report for a given year will yield an 

accurate picture of states’ spending on the services provided to enrollees 

that year.30 Collections received by the states that apply to previous year 

claims are also reported as a line item in the summary reports for the year 

in which they were reported rather than the year of the claims to which 

they apply.31

Because the amount of adjustments and collections relative to current 

year spending is not consistent across states and fluctuates over time in 

some states, estimates of per-enrollee spending based on these annual 

summary reports, in combination with MSIS data, are not comparable 

across states or over time. The large amount of adjustments and 

collections reported by some states in fiscal year 2008 suggests that the 

states’ actual spending for the services received by enrollees that year 

could differ significantly from estimates that do not account for these 

changes. For example, adjustments and collections represented 

24 percent of reported spending for California in fiscal year 2008 and 5 to 

9 percent of reported spending for five other states.32

 

28This report is called the CMS-64 Base Financial Management Report. The other annual 

summary report that provides data on states’ total spending by type of service is called the 

CMS-64 Net Services Financial Management Report.

(See table 2 in 

appendix III for state-by-state data on total spending and adjustments and 

collections.)

29These sums may also include adjustments to spending for Medicaid expansion 

programs under the State Children’s Health Insurance Program as well as for the 

traditional Medicaid program.

30In the other summary report, the CMS-64 Net Services Financial Management Report, 

the adjustments are applied to the current year’s spending, by type of service, and 

program. For example, if a state reported negative adjustments totaling $20 million to its 

spending on inpatient care services during the prior fiscal year, that $20 million would be 

subtracted from the state’s current reported spending for that service, rather than being 

subtracted from its spending on inpatient care services for the prior year.

31As they do for adjustments, states must also submit a separate form to report collections 

but are not required to indicate the time period in which the original claims were paid.

32For California and the other five states (Alaska, Georgia, Indiana, Mississippi, and Utah), 

most of the difference is due to adjustments rather than collections. According to CMS 

officials, some states consistently report more adjustments than others.
 

Page 16 GAO-14-456 Medicaid Spending Variation

The effect of the adjustments and collections may be magnified when perenrollee spending is estimated separately by eligibility group. To the 

extent that certain eligibility groups account for a disproportionate share 

of the spending that a state subsequently adjusts, failure to apply those 

adjustments to the original spending will disproportionately affect 

estimates of the spending for services provided to that group of enrollees. 

For example, because aged or disabled enrollees account for a greater 

share of spending for institutional long-term care, an adjustment to 

spending for that care will affect estimates of spending for aged or 

disabled enrollees more than those for children or adults.

While the CMS-64 annual summary reports do not apply adjustments or 

collections to spending for the relevant time periods, the information 

needed to apply most of these changes is available in the CMS-64 data 

system. In fiscal year 2008, adjustments accounted for most of the 

changes states reported to their spending—particularly in states where 

adjustments and collections were highest relative to total spending—and 

states are required to report not only the dollar amount of adjustments, 

but also the time period to which they apply.33

 

33When states submit their quarterly CMS-64 expenditure reports, they must also submit 

an additional form or forms detailing any adjustments to spending reported for prior 

periods. In each form, the state indicates the amount of adjustment, positive or negative, 

by type of service, and the federal match that was claimed for that spending.

(For collections, states are 

required to report only the dollar amount.) Although this detailed 

information about adjustments is available in the CMS-64 data system, 

CMS officials told us that the system has not been programmed to 

produce a report that updates reported spending to account for

subsequent adjustments. To manually extract and compile this 

information in order to apply adjustments to the correct time period of 
 

Page 17 GAO-14-456 Medicaid Spending Variation

spending would be a laborious process that could involve compiling 

information from dozens of reports.34

The second data limitation is the lack of complete and accurate 

information about states’ use of supplemental payments, and the 

consequent uncertainty about whether and how these payments should 

be included in estimates of Medicaid spending per enrollee, particularly at 

the eligibility group level. This information gap is partly due to historical 

differences in the reporting requirements for the two types of 

supplemental payments: DSH and non-DSH. CMS requires states to 

report DSH payments as a separate line item in their CMS-64 reports, but 

the agency did not require states to separately report non-DSH 

supplemental payments until fiscal year 2010.35 As we have previously 

reported, state reporting of non-DSH payments in the CMS-64 was 

incomplete in 2010,36

 

34The number of forms states must submit to report adjustments—and which would 

therefore need to be reviewed to manually apply adjustments to the appropriate time 

period—partly depends on the time period over which the original spending occurred. 

According to CMS officials, states report any adjustments to previously reported spending 

on separate forms by the quarter—or, in the case of spending from fiscal year 2008 or 

before, by the year—in which the spending was originally reported. For example, if a state 

needed to correct amounts reported throughout fiscal years 2009 and 2010, it would need 

to submit at least eight prior period adjustment forms—four for each year. The number of 

forms required also depends on whether the original spending was for the traditional 

Medicaid program operated under the Medicaid state plan, for programs operated under 

waivers, or both, because adjustments to spending for waiver programs must be reported 

separately for each waiver. CMS officials also told us that states report most adjustments 

within 2 years, but may report some adjustments, including those resulting from federal 

audits, 3 or more years after the original spending occurred. In such a case, adjusting a 

state’s reported spending for a given year could involve compiling a dozen or more 

subsequent quarterly reports.

and according to CMS officials, reporting is still 

incomplete, as some states continue to fold at least some non-DSH 

35In addition, while states were required to submit annual audits and reports on DSH 

payments in 2010, there are not similar reporting requirements for non-DSH supplemental 

payments. We have previously recommended that CMS take steps to improve states’ 

reporting of supplemental payments and that Congress consider requiring CMS to take 

such steps. See GAO, Medicaid: More Transparency of and Accountability for 

Supplemental Payments Are Needed, GAO-13-48 (Washington, D.C.: Nov. 26, 2012).

36GAO, Medicaid: States Reported Billions More in Supplemental Payments in Recent 

Years, GAO-12-694 (Washington, D.C.: July 20, 2012).

Lack of Complete, Accurate 

Information about 

Supplemental Payments
 

Page 18 GAO-14-456 Medicaid Spending Variation

supplemental payments into the spending reported for related services.37

As a result, it is not possible to exclude non-DSH supplemental payments 

from the spending reported in the CMS-64 prior to fiscal year 2010, or to 

fully exclude these payments from the spending reported in the following 

years. Since some states appear to use non-DSH supplemental 

payments more than DSH payments, while others appear to do the 

reverse,38

Even if it were possible to exclude both types of payments from estimates 

of per-enrollee spending, it is not clear that it would be appropriate to do 

so. Some researchers have suggested that supplemental payments 

should not be included, or should not be included in their entirety, in 

estimates of spending for Medicaid enrollees because these funds are 

intended to offset providers’ uncompensated care costs not only for 

Medicaid enrollees but also for uninsured low- income individuals.

excluding one type of supplemental payment from estimates of 

per-enrollee spending while including another would skew comparisons 

among states. For this reason, we included DSH payments in our 

estimates of per-enrollee spending.

39

 

37For example, some non-DSH supplemental payments to hospitals may be included with 

spending for inpatient or outpatient care. According to HHS officials, CMS has held 

training for states on completing the CMS-64 form and are continuing to work with states 

to help ensure accurate reporting of non-DSH supplemental payments on the CMS-64. 

Officials also noted that, in 2013, CMS began requiring states to annually submit data to 

demonstrate that Medicaid provider payments, including certain types of non-DSH 

supplemental payments, are below federal limits. CMS anticipates these submissions will 

assist the agency to identify errors in state reporting.

However, it could also be argued that these payments should be included 

in estimates of per-enrollee spending because it is possible that states’ 

use of these payments may relate to how much they pay providers 

directly for the services furnished to enrollees. For example, if hospitals 

have higher uncompensated care costs in states with lower base 

payment rates, this would make these facilities eligible for larger DSH 

payments.

38Data from fiscal year 2013 suggest that many states that reported higher DSH payments 

reported lower non-DSH supplemental payments and vice versa.

39See Debra Lipson, Margaret Colby, Tim Lake, Su Liu, and Sarah Turchin, Value for the 

Money Spent? Exploring the Relationship between Medicaid Costs and Quality

(Washington, D.C.: Mathematica Policy Research, 2010), p. 6. Another argument for 

excluding these funds is that some states have used these payments to inappropriately 

increase federal Medicaid matching payments. See GAO, High Risk Series: An Update, 

GAO-11-278 (Washington, D.C.: February 2011), p. 163.
 

Page 19 GAO-14-456 Medicaid Spending Variation

Including supplemental payments in estimates of spending per enrollee 

by eligibility group requires judgment as to the share of payments that 

should be attributed to each group. For fiscal year 2008, this judgment 

concerns only DSH payments, as non-DSH supplemental payments were 

folded into payments for services rather than separately reported. Our 

analysis found that how DSH payments are distributed among eligibility 

groups can significantly affect estimates of spending per enrollee by 

eligibility group, particularly for states with relatively high DSH 

payments.40

• One possible method is to distribute DSH payments among eligibility 

groups based on each group’s share of spending for relevant 

services—for example, to distribute inpatient hospital DSH payments 

based on states’ reported spending for services provided in these 

facilities (hospital inpatient and outpatient services).

We examined two possible distribution methods, each of 

which has advantages and disadvantages.

41 This method is 

intended to assign to each eligibility group a share of DSH payments 

that reflects that group’s relative use of services at the types of 

facilities that are potentially eligible for these payments. However, 

because states report spending on hospital inpatient and outpatient 

services only for enrollees who receive care on an FFS basis, this 

method may disproportionately assign inpatient DSH dollars to 

eligibility groups that are less likely to be enrolled in comprehensive 

managed care programs.42

 

40On average, DSH payments represented about 4 percent of states’ overall spending in 

fiscal year 2008, but that percentage varied significantly and, in three states (Louisiana, 

New Hampshire, and New Jersey), these payments represented more than 15 percent of 

overall spending. See table 3 in appendix IV and table 4 in appendix V for more detailed 

information about DSH payments in fiscal year 2008.

If, for example, none of a state’s disabled 

and aged enrollees are in comprehensive managed care, while all of 

the state’s child and adult enrollees are, the only FFS claims in MSIS 

for hospital inpatient and outpatient care would be for disabled and 

aged enrollees. Accordingly, under this method, all inpatient DSH 

41This is the general approach that the Medicaid and CHIP Payment and Access 

Commission (MACPAC) used to distribute DSH payments among eligibility groups in its 

estimates of spending per enrollee. See Medicaid and CHIP Payment and Access 

Commission, Report to the Congress on Medicaid and CHIP (Washington, D.C.: June 

2012), p. 138.

42In the CMS-64, spending for enrollees in capitated managed care plans is reported as 

payments to managed care organizations or prepaid health plans, not as payments for 

specific types of services.
 

Page 20 GAO-14-456 Medicaid Spending Variation

funds would be assigned to these two eligibility groups, regardless of 

the amount of hospital inpatient and outpatient services children and 

adults received that were covered under managed care capitation 

payments.

• A second possible method is to distribute DSH payments among 

eligibility groups based on each group’s share of total spending, 

including both FFS claims and capitation payments. This method 

takes into account spending for enrollees in managed care plans, but 

assigns DSH dollars to eligibility groups based partly on their

spending for services that are not provided in facilities eligible for DSH 

payments. For example, the share of inpatient hospital DSH payments 

assigned to the aged eligibility group under this method would be 

based not only on their spending for inpatient and outpatient hospital 

services, but also on their spending for institutional long-term care, 

which constitutes a larger proportion of their overall spending.

For some eligibility groups in some states, the inclusion of DSH payments 

substantially increases estimates of spending per enrollee for fiscal year 

2008. The amount of that increase varies depending on which of the two 

methods described above is used to distribute DSH payments. In three 

states, estimates of spending per enrollee for some groups differed by 

more than $1,000 depending on the distribution method used. For 

example, in New Hampshire—the state for which the choice of distribution 

method makes the greatest dollar difference—the difference in Medicaid 

spending per enrollee for adults in fiscal year 2008 was $2,123—$8,508 

using the first method and $6,385 using the second method (see fig. 3, 

and see table 3 in app. IV for state-by-state estimates).
 

Page 21 GAO-14-456 Medicaid Spending Variation

Figure 3: Estimated Medicaid Spending per Enrollee in New Hampshire Using Two 

Possible Methods of Distributing Disproportionate Share Hospital (DSH) Payments, 

Fiscal Year 2008

Notes: Spending per enrollee includes federal and state spending on regular Medicaid payments to 

providers and managed care plans for covered services provided to enrollees as well as DSH and 

non-DSH supplemental payments, but does not include administrative costs. Estimates also do not 

reflect states’ subsequent changes, including adjustments or collections, to the spending originally 

reported for this year. Enrollment is measured in terms of full-year-equivalent enrollees. Both 

enrollment and expenditure data include all enrollees regardless of the scope of benefits offered.

The first method distributes DSH payments among eligibility groups based on each group’s share of 

spending for services delivered in the types of facilities that are potentially eligible for DSH payments. 

The second method distributes DSH payments among eligibility groups based on each group’s share 

of total non-DSH spending.
 

Page 22 GAO-14-456 Medicaid Spending Variation

We found that the distribution of enrollees among the four major Medicaid 

eligibility groups (children, adults, disabled, and aged)—a program 

characteristic known to influence overall per-enrollee Medicaid 

spending—varied widely between states. Additionally, states varied on 

other selected factors that influence Medicaid spending for each of the 

four eligibility groups, including enrollee health services needs, scope of 

benefits offered, and the cost of delivering health services.

The distribution of enrollees across the disabled, aged, adult, and child 

eligibility groups varies widely by state. For example, the percentage of 

enrollees in the higher-need disabled and aged eligibility groups ranged 

from about 15 percent in Arizona to 38 percent in West Virginia in 

calendar year 2008.43

 

43See Medicaid Analytic eXtract 2008 Chartbook, Table 3.2.

(See fig. 4, and see table 5 in app. VI for full 

information on all states.)

States Varied Widely 

on Program 

Characteristics and 

Other Factors That 

Influence Medicaid 

Per-Enrollee 

Spending

Distribution of Enrollees 

across Medicaid Eligibility 

Groups Varies by State
 

Page 23 GAO-14-456 Medicaid Spending Variation

Figure 4: Percentage of Medicaid Enrollees Who Were Disabled or Aged, Highest 

and Lowest Five States, Calendar Year 2008

Notes: State average represents the sum of state percentages of enrollees who were disabled or 

aged divided by the number of states. For purposes of this analysis, we include the District of 

Columbia as a state.

Differences across states in the distribution of Medicaid enrollees across 

eligibility groups occur due to multiple factors, such as the age distribution 

and rate of disability within each state’s Medicaid-eligible population, as 

well as Medicaid eligibility rules. State-specific data on the characteristics 

of the population in poverty—a proxy for the Medicaid-eligible 

population—illustrate variation in age and disability rates. For example, 

calendar year 2008 U.S. Census Bureau American Community Survey 

data show that the percentage of the population in poverty who were 

aged 75 or older ranged from 1 percent in Alaska to 9 percent in North 

Dakota, while the percentage of the working-age population in poverty 

who reported a disability ranged from 17 percent in Utah to 39 percent in 

Maine. In addition, one state may have a higher percentage of aged or 

disabled Medicaid enrollees than another due to a variety of 
 

Page 24 GAO-14-456 Medicaid Spending Variation

circumstances, such as having a higher income eligibility limit for aged or 

disabled individuals than another state, or conversely, having lower 

income eligibility limits for other groups.

Differences between states in the distribution of enrollees among the four 

major eligibility groups do not fully explain the variation among states in 

overall per-enrollee Medicaid spending, as states also vary in spending 

for each of the four eligibility groups. Although the Medicaid eligibility 

group itself is a key indicator of enrollees’ average health service needs, 

the needs of individual enrollees within each group can differ 

substantially. As a result, the proportion of each Medicaid eligibility group 

that requires and uses higher-cost health services can vary by state. For 

example, the aged eligibility group includes a broad age range of 

individuals aged 65 and older. The chances of needing long-term care 

services, some of the most costly services covered by Medicaid, are 

higher for older enrollees within the aged eligibility group, and some 

states have a higher percentage of older enrollees than others. The 

proportion of enrollees in the aged eligibility group who were aged 85 and 

older ranged from 16.6 percent in Nevada to 38.9 percent in South 

Dakota in fiscal year 2008, according to our analysis of MSIS data. 

Across states with available data, the proportion of aged enrollees 

receiving long-term care services ranged from 18.4 percent in Florida to 

65.6 percent in Iowa.44

 

44Four states did not have reliable data available on the proportion of aged enrollees 

receiving long-term care services. Specifically, in Arizona, New Mexico and Wisconsin, 

more than 2 percent of all enrollees—and therefore likely a higher percentage of aged 

enrollees—received long-term care services through managed care plans and therefore 

were not represented in the FFS data used to identify enrollees who received long-term 

care services during the year. Maine was unable to accurately report its spending by 

service category. We also excluded a fifth state, Massachusetts, from this analysis 

because of errors in fiscal year 2008 CMS data.

(See fig. 5, and see table 6 in app. VII for full 

information on all states.)

Health Service Needs, 

Benefits, and Cost of 

Delivering Services Vary 

by State
 

Page 25 GAO-14-456 Medicaid Spending Variation

Figure 5: Percentage of Aged Medicaid Enrollees Receiving Long-Term Care 

Services, Highest and Lowest Five States, Fiscal Year 2008

Notes: Four states were excluded because they did not have reliable data available on the proportion 

of aged enrollees receiving long-term care services. Specifically, in Arizona, New Mexico, and 

Wisconsin, more than 2 percent of all enrollees—and therefore likely a higher percentage of aged 

enrollees—received long-term care services through managed care plans and therefore were not 

represented in the fee-for-service data used to identify enrollees who received long-term care 

services during the year. Maine was unable to accurately report its spending by service category. A 

fifth state, Massachusetts, was excluded because of errors in fiscal year 2008 data. State average 

represents the sum of state percentages of aged enrollees receiving long-term care services divided 

by the number of states. For purposes of this analysis, we include the District of Columbia as a state.

Furthermore, the proportion of enrollees in specific eligibility groups who 

received long-term care services in institutional settings, which are 

typically more costly than home- and community-based services, also 
 

Page 26 GAO-14-456 Medicaid Spending Variation

varied among states.45 Among states with available data, the proportion 

of aged enrollees who received institutional care ranged from 8.2 percent 

in Alaska to 46.1 percent in North Dakota.46

The health service needs of Medicaid enrollees in the child and adult 

eligibility groups also vary by state. For example, research has 

documented that foster children have more health problems, especially 

mental health problems, than the general population or the population of 

poor children, and thus tend to generate higher health care spending.

(See table 6 in app. VII for full 

information on all states.) The setting in which long-term care services are 

provided may reflect factors other than or in addition to enrollees’ health 

services needs, including state policy choices such as funding for homeand community-based services.

47

Across states, the proportion of the child eligibility category that is 

composed of children enrolled in Medicaid on the basis of being in foster 

care ranged from about 1 percent in Mississippi to about 11 percent in 

Nebraska in fiscal year 2008, according to our analysis of MSIS data. 

Among adults, certain indicators of greater health service needs and 

costs, such as obesity and tobacco use, also vary by state.48

 

45Our analysis of MSIS data showed that, on average, states spent $41,752 per enrollee 

for those receiving long-term care services in institutional settings in fiscal year 2008, 

compared to an average of $20,736 per enrollee for those receiving long-term care 

services in home- and community-based settings.

Across 

46See Medicaid Analytic eXtract 2008 Chartbook, Table A3.5. Four states did not have 

reliable data available on the proportion of enrollees receiving institutional care services. 

Specifically, in Arizona, New Mexico, and Wisconsin, more than 2 percent of all 

enrollees—and therefore likely a higher percentage of aged enrollees—received long-term 

care services through managed care plans and therefore were not represented in the FFS 

data used to identify enrollees who were ever institutionalized during the year. Maine was 

unable to accurately report its spending by service category.

47Our analysis of MSIS data showed that, for children who received services, states spent 

an average of about $8,056 per foster care child in fiscal year 2008 compared to an 

average of about $2,055 per non-foster-care child.

48One study found that, across all payers, per capita medical spending was $1,429 (about 

42 percent) higher for obese people than for people of normal weight in 2006. The authors 

noted that costs attributable to obesity are due almost entirely to costs of treating diseases 

that obesity promotes, such as diabetes. See Eric A. Finkelstein, Justin G. Trogdon, Joel 

W. Cohen, and William Dietz, “Annual Medical Spending Attributable to Obesity: Payerand Service-Specific Estimates,” Health Affairs, 28, no. 5 (2009). The Congressional 

Budget Office found that annual per capita health care spending for current or former 

smokers was 11 to 16 percent higher than for people who have never smoked, depending 

on their ages, in 2008 dollars. See Congressional Budget Office, Raising the Excise Tax 

on Cigarettes: Effects on Health and the Federal Budget (Washington, D.C.: June 2012).
 

Page 27 GAO-14-456 Medicaid Spending Variation

states, calendar year 2008 CDC Behavioral Risk Factor Surveillance 

System data show that adult obesity rates ranged from 19 percent in 

Colorado to 33 percent in Mississippi, and tobacco use rates ranged from 

10 percent in Utah to 26 percent in Kentucky and West Virginia. (See 

table 7 in app. VII for full information on all states.)

The scope of benefits offered to enrollees within the same eligibility group 

is another factor that influences Medicaid spending, and this also varies 

across states. Expenditures for enrollees with limited benefits are 

considerably lower than for those enrollees who are entitled to the full 

range of benefits offered by their state. For example, average perenrollee spending was $205 for enrollees receiving only family planning

services in calendar year 2008, compared with $5,281 for enrollees 

eligible for the full range of benefits offered in the state.49 As a result, 

inclusion of spending data for enrollees with limited benefits, such as 

those receiving only family planning benefits, lowers a state’s estimated 

average spending for an eligibility group as a whole. The proportion of 

enrollees with limited benefits can vary widely by state: the percentage of 

adult enrollees with only family planning benefits varied from 0 percent in 

27 states to over 41 percent in 3 states in calendar year 2008.50

 

49See Medicaid Analytic eXtract 2008 Chartbook, Figure 2.10. These spending figures do 

not include DSH payments or other supplemental payments.

(See 

fig. 6, and see table 7 in app. VII for full information on all states.)

50See Medicaid Analytic eXtract 2008 Chartbook , Table A7.2.
 

Page 28 GAO-14-456 Medicaid Spending Variation

Figure 6: Variation across States in the Percentage of Adult Medicaid Enrollees 

Who Received Only Family Planning Benefits, Calendar Year 2008

Note: For purposes of this analysis, we include the District of Columbia as a state.

The overall scope of benefits for enrollees receiving full benefits also 

varies by state. States may vary the amount, duration, or scope of 

benefits they are required to offer. States may also choose which, if any, 

optional benefits to offer. For example, dental services are an optional 

benefit for adults. State dental coverage for adults ranges from no 

coverage to full coverage. Dental services add to total per-enrollee 

spending for the adult eligibility group in states that cover such services 

for adults.

Another factor that influences state Medicaid spending per enrollee and 

varies across states is the cost of delivering health services to enrollees. 

The cost to states of delivering health services includes not only medical 

equipment and supplies, but also costs that vary considerably by location 

due to different labor market and real estate market factors. Of these, 

personnel costs represent the greatest proportion of total health service 

costs. In a previous report, we calculated the average 2009 through 2011 
 

Page 29 GAO-14-456 Medicaid Spending Variation

wages, by state, for health care workers, and used the differences 

between states in average wages to estimate how the costs of providing 

health care services varied by state.51 The most conservatively calculated 

estimates showed an 18 percentage point difference between states in 

the cost of delivering health services.52

States consider a range of factors when setting Medicaid managed care 

capitation rates to account for differences among plans in expected 

spending per enrollee. The number and complexity of factors considered 

varies based, in part, on the populations and benefits covered through 

managed care, as well as on state experience with managed care. States’ 

considerations offer insight into the range of factors that influence perenrollee spending at the state level and that contribute to the variation 

among states in such spending.

Officials from two consulting firms told us that some states are able to set 

sufficiently accurate rates—particularly for children and adults—by 

dividing enrollees into categories, known as rate cells. States pay distinct 

rates for enrollees in each cell based on the historical average spending 

for enrollees in the rate cell. The goal is for each rate cell to contain 

enrollees expected to generate relatively similar expenses; thus, states 

divide enrollees into rate cells based on eligibility and demographic data 

associated with health service needs and costs of delivering services, 

such as Medicaid eligibility group, age, gender, and geographic area. For 

example, states may divide children into multiple age group cells, and 

each of these rate cells may further differ depending on geographic area. 

The number of rate cells can vary widely across states. Officials from one 

 

51We did not assess differences among states in actual Medicaid FFS provider payment 

rates for specific services. To the extent that payment rates are driven by the costs of 

delivering health care services, differences across states in average wages for health care 

workers would translate into corresponding differences in payment rates. For more 

information on state Medicaid provider payment rates, see GAO, Medicaid: Use of Claims 

Data for Analysis of Provider Payment Rates, GAO-14-56R. (Washington, D.C.: Jan. 6, 

2014.)

52See GAO-13-434, pp. 24-27. The most conservatively calculated health services cost 

index assumed that personnel accounted for 50 percent of the total cost to provide health 

services—the minimum proportion of costs attributed to personnel in Medicare’s 

prospective payment systems for a variety of services. The differences among states were 

greater based on an index that assumed that personnel account for a higher percentage 

of total costs.

States Account for a 

Range of 

Demographic and 

Health Factors When 

Setting Medicaid 

Managed Care Rates
 

Page 30 GAO-14-456 Medicaid Spending Variation

consulting firm noted that states may use as few as 10 or more than 50 

rate cells depending on their analysis of prior costs for enrollees in each 

cell.

Beyond demographic information, some states consider additional factors 

in establishing rate cells, such as receipt of high-cost services or the 

scope of benefits to which enrollees are entitled. For example, some state 

and consulting firm officials noted that states may establish separate rate 

cells for those with certain high-cost health needs, such as enrollees who 

are in neonatal intensive care, living with the human immunodeficiency 

virus or acquired immunodeficiency syndrome, dependent on ventilators, 

or in long-term care. Some states establish separate rate cells for children 

who are eligible for Medicaid on the basis of foster care, due to the 

greater health needs of foster children compared to other children.53

In addition to establishing rate cells, states that cover aged and disabled 

enrollees under managed care generally use risk adjustment to set rates 

based on detailed encounter data that provide information on enrollee 

health status, such as medical diagnoses or pharmacy prescriptions.

In 

addition, states that offer different benefit packages to enrollees in 

specific eligibility groups may further divide such enrollees into distinct 

rate cells.

54

 

53Children in foster care, most of whom are eligible for Medicaid, are an especially 

vulnerable population because often they have been subjected to traumatic experiences 

involving abuse or neglect and they may suffer from multiple, serious mental health 

conditions. See GAO, Children’s Mental Health: Concerns Remain About Appropriate 

Services for Children in Medicaid and Foster Care, 

The risk adjustment process generally uses health status information, 

along with demographic factors, to predict the extent to which a particular 

enrollee is expected to require higher or lower spending than an average 

enrollee in the same rate cell. This information is used to proportionally 

adjust payments to managed care plans upward or downward. 

Specifically, plans enrolling a greater than average proportion of 

individuals who are expected to have costly health service needs receive 

proportionally higher payments, while plans enrolling a lower proportion of 

such individuals receive proportionally lower payments, and the state’s 

overall payment remains unchanged. The types of health status data that 

GAO-13-15 (Washington, D.C.: 

Dec. 10, 2013). 

54For example, encounter data may specify an enrollee’s diagnosed health conditions or 

prescribed medications that may be used to infer such conditions.
 

Page 31 GAO-14-456 Medicaid Spending Variation

can be incorporated in the risk adjustment process include diagnosed 

medical conditions, such as hypertension or asthma, along with other 

factors, such as age or gender. Some states also consider other types of 

health data in the risk adjustment process. For example, officials from one 

consulting firm told us that, for long-term care enrollees, some states are 

developing methods to incorporate assessments of frailty or ability to 

perform activities of daily living, such as the ability to walk or dress 

without assistance. Officials from two consulting firms told us that risk 

adjustment is particularly important for enrollees with the most variation in 

health service needs, such as disabled or aged enrollees, for whom age 

or other demographic factors are poor predictors of service use.

According to state and consulting firm officials, states that use risk 

adjustment tend to be those with more managed care experience, 

because these states (1) tend to use managed care to cover the disabled 

and aged eligibility groups whose health service needs vary more and for 

whom risk adjustment therefore is most important; and (2) are more likely 

to have made the data improvements necessary to use risk adjustment.55

Risk adjustment requires detailed encounter data to measure health 

status;56 however, some states do not have reliable and accurate 

encounter data.57

 

55One consulting firm official told us that states with small populations in managed care 

may decide that the data and other challenges and costs involved with implementing risk 

adjustment outweigh the benefits.

Some of these officials said it has generally taken 

states about 3 to 4 years to transition to risk adjustment from rate setting 

based solely on rate cells, due to the need to educate providers and plans 

56States initially base managed care rates on FFS data, but need to transition to 

encounter data after enrollees have been in managed care for several years because the 

FFS data become outdated.

57Some of the state and consulting firm officials told us that some managed care plans do 

not provide states with the complete or accurate encounter data that states are required to 

submit to CMS in MSIS. Some consulting firm officials suggested that states build 

incentives into their plan contracts to encourage plans to report accurate data. In addition, 

PPACA gives the Secretary of Health and Human Services the authority to withhold a 

state’s federal Medicaid matching funds if the state does not report enrollee encounter 

data to MSIS, as required by HHS. 42 U.S.C. § 1396b(i)(25). A CMS official recently 

indicated that CMS has prioritized obtaining and validating states’ encounter data in MSIS. 

In a prior report, we found that CMS planned to emphasize the need for more complete 

encounter data because the agency has determined that states’ encounter data that do 

not include pricing information are not sufficient for setting rates. See GAO, Medicaid 

Managed Care: CMS’s Oversight of States’ Rate Setting Needs Improvement, 

GAO-10-810 (Washington, D.C.: Aug. 4, 2010).
 

Page 32 GAO-14-456 Medicaid Spending Variation

about appropriately reporting encounter data and due to other 

considerations, such as changes to information technology systems and 

the potential need to phase in rate changes.58

Despite states’ use of multiple factors to predict health service needs for 

rate setting purposes, the need for certain services remains difficult to 

predict, and many states find it necessary to exclude such services from 

capitation rates—instead they may provide one-time payments for such 

services or exclude them from the package of services that managed 

care plans provide. For example, officials from several states and 

consulting firms mentioned that some states pay plans an additional fixed 

amount per enrollee to cover maternity-related services. Officials from two 

consulting firms also noted that some states use additional payments for 

enrollees who need certain high-cost services, such as organ transplants 

or neonatal intensive care. Alternately, states may exclude or “carve out” 

certain services or specific enrollee populations from coverage, rather 

than accounting for these costs in capitation rates. Officials from several 

states and consulting firms noted examples of services that some states 

exclude, such as maternity care or mental health, or enrollee populations 

that some states exclude, such as those receiving substance abuse 

treatment or children with special needs. States may use FFS or specific 

benefit plans, such as mental health or pharmacy plans, to cover these 

services or enrollees.

In the event that rates significantly differ from the actual average perenrollee spending of managed care plans, states have also adopted 

various risk mitigation strategies to minimize the losses or gains that may 

be incurred by either the state or managed care plans. These strategies 

include

• reinsurance—requiring managed care plans to obtain private or statefinanced insurance against unexpected expenses that may be 

significantly higher than the capitation rate payments they receive 

from the state, and

• risk corridors—limiting the losses or gains that states or managed 

care plans can incur, such as limiting the profits that a managed care 

 

58State officials told us that since the state transitions to risk adjustment may have 

resulted in plans receiving higher or lower payments, they have phased in risk-adjusted 

rate changes over several years to allow plans to adapt to potential payment changes.
 

Page 33 GAO-14-456 Medicaid Spending Variation

plan could receive if capitation payments were significantly higher 

than plan spending.

Without these strategies, states risk paying more than necessary if 

capitation rates are too high, and managed care plans may not be willing 

to participate in a state’s Medicaid program if rates are too low. Officials 

from one firm told us that rates based on poor data have resulted in 

states paying plans too much, or conversely, plans losing money on state 

Medicaid contracts.

Officials from one state and one consulting firm told us that states’ 

reliance on risk mitigation strategies generally decreases as their 

managed care programs mature and the accuracy of their capitation rates 

increases. However, such strategies can continue to play an important 

role in the event of changes in circumstances, such as changes in the 

enrollee population due to economic conditions. For example, officials 

from one state with a long history of managed care experience told us 

that the state had considered dropping its risk corridors, but decided they 

still were necessary to limit managed care plan profits because the 

current adult Medicaid population—which increased during the recent 

recession—was healthier on average than the prior population on which 

rates were based.59

Understanding the variation among states in Medicaid spending is 

important for program oversight and for informing potential financing 

reform strategies. While the variation in overall spending among states is 

driven in large part by each state’s Medicaid enrollment, it is also due to 

differences in spending per enrollee. The reasons for spending 

differences are not well understood, and some reasons for the differences 

may be within states’ control—such as the extent to which states offer 

optional or limited benefits to enrollees. However, spending variation may 

also be due to different circumstances faced by states, such as 

geographic cost differences or the extent of enrollee health service 

needs, which are largely outside of states’ control. The variety of 

 

59For more information on how economic changes may affect Medicaid enrollment, see 

GAO, Medicaid: Prototype Formula Would Provide Automatic, Targeted Assistance to 

States during Economic Downturns. GAO-12-38, (Washington, D.C.: Nov. 10, 2011); and 

Medicaid: Improving Responsiveness of Federal Assistance to States during Economic 

Downturns. GAO-11-395 (Washington, D.C.: Mar. 31, 2011).

Concluding 

Observations
 

Page 34 GAO-14-456 Medicaid Spending Variation

demographic and health status indicators that states use to predict 

spending per enrollee when setting Medicaid managed care rates 

illustrates the complex array of factors potentially at play.

The ability to reliably calculate each state’s per-enrollee Medicaid 

spending is a prerequisite for understanding the extent of and reasons for 

variation among states in such spending. Better information about 

Medicaid expenditures is needed in order to do so. GAO has previously 

recommended that CMS take steps to improve states’ reporting of 

supplemental payments, among other steps to improve accountability and 

transparency for supplemental payments, and that Congress consider 

requiring CMS to take such steps. CMS has taken some steps to improve 

state reporting of these payments and is in the process of implementing a 

project to improve and expand MSIS. Until better information about 

Medicaid spending per enrollee is available, it will not be possible to 

quantify the effects of particular drivers of spending growth, to identify 

spending that is unnecessary for covering the health service needs of 

Medicaid enrollees, or to evaluate the effectiveness of potential 

approaches to curtailing Medicaid spending and how such approaches 

may affect program objectives.

We provided the Secretary of Health and Human Services with a draft of 

this report. The Department of Health and Human Services provided 

technical comments, which we incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Administrator of CMS 

and other interested parties. In addition, the report will be available at no 

charge on the GAO website at http://www.gao.gov. 

Agency Comments
 

Page 35 GAO-14-456 Medicaid Spending Variation

If you or your staffs have any questions about this report, please contact 

me at (202) 512-7114 or yocomc@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made major contributions to this report 

are listed in appendix VIII.

Carolyn L. Yocom

Director, Health Care
Appendix I: Data and Methodology for 

Estimates of Medicaid Spending per Enrollee

Page 36 GAO-14-456 Medicaid Spending Variation

This appendix describes the methodology we used to examine what 

Centers for Medicare & Medicaid Services (CMS) data show about 

variation among states in Medicaid spending per enrollee. We developed 

state-specific estimates of Medicaid spending per enrollee for fiscal year 

2008 using Medicaid enrollment data and combined federal and state 

expenditure data provided by the CMS Office of the Actuary (OACT). 

Specifically, we obtained from OACT (1) enrollment data showing the 

number of full-year-equivalent enrollees, by state and eligibility group, 

which OACT calculates using data in the Medicaid Statistical Information 

System (MSIS); and (2) expenditure data broken out by state, eligibility 

group, and service category. Both enrollment and expenditure data 

include all enrollees, regardless of the scope of benefits offered.

OACT develops its expenditure estimates using data from two sources—

the CMS-64 data system and MSIS—in order to exploit the different 

strengths of these two sources. CMS-64 data are regarded as the most 

accurate and comprehensive source of information on state Medicaid 

expenditures, in part because these data are reviewed by CMS and used 

to reimburse states for their federal shares of Medicaid expenditures. The 

CMS-64 data system provides expenditure data at the aggregate level, 

such as a state’s total expenditures for such categories of services as 

inpatient hospital services and prescription drugs, as well as data on 

expenditures that are not linked to specific enrollees, such as 

Disproportionate Share Hospital (DSH) payments and other supplemental 

payments, which we refer to as non-DSH supplemental payments.1

 

1

State Medicaid agencies are required to submit these aggregate expenditure data 

30 days after a quarter has ended by means of the Quarterly Medicaid Statement of 

Expenditures for the Medical Assistance Program—also known as the form CMS-64—

within the Medicaid Budget and Expenditure System. CMS uses the data to compute the 

federal financial participation for each state’s Medicaid program costs. Federal Medicaid 

law requires states to make DSH payments to qualifying hospitals that serve large 

numbers of Medicaid and uninsured low-income patients. States also make other 

supplemental payments to hospitals and other providers that, for example, serve high-cost 

Medicaid enrollees.

However, the CMS-64 data system provides no information on the 

amount of spending attributable to specific enrollees or eligibility groups. 

In contrast, MSIS provides detailed, individual-level enrollment and claims 

data, including data on expenditures for specific services provided to 

Appendix I: Data and Methodology for 

Estimates of Medicaid Spending per Enrollee
Appendix I: Data and Methodology for 

Estimates of Medicaid Spending per Enrollee

Page 37 GAO-14-456 Medicaid Spending Variation

specific enrollees.2

OACT’s expenditure estimates reflect the total spending reported in the 

CMS-64 data system, distributed across eligibility groups and service 

categories, as reported in MSIS. To develop these estimates, OACT 

obtains from the CMS-64 data system an annual summary report called 

the Base Financial Management Report, which shows expenditures for 

the year by category of service and also includes information on any 

changes states made to their quarterly expenditure reports for prior 

periods, such as adjustments and collections.

However, MSIS expenditure data are not considered 

as reliable as CMS-64 data, because they are not reviewed for use in 

determining the federal share of Medicaid expenditures. MSIS data are 

also less complete than CMS-64 data, in that they lack information on 

expenditures that are not linked to specific enrollees. These expenditures 

include drug rebates, which effectively reduce states’ expenditures for 

drugs, as well as DSH and non-DSH supplemental payments. 

3

To estimate overall Medicaid spending per enrollee by state for the four 

major eligibility groups—children, adults, disabled, and aged—we 

From MSIS, OACT obtains 

tabulations of expenditures by service category and eligibility group. To 

combine the data from these two sources, OACT crosswalks the service 

categories in the CMS-64 annual summary report to the more detailed 

service categories in the MSIS data, and then distributes the spending 

reported in the CMS-64 annual summary report across eligibility groups 

accordingly. For example, if disabled enrollees accounted for 50 percent 

of the inpatient care expenditures reported in MSIS by a given state, 

OACT would assign to these enrollees 50 percent of the inpatient care 

expenditures reported in that state’s CMS-64 Base Financial 

Management Report. These expenditure estimates do not include states’ 

administrative costs. DSH payments, adjustments, and collections are all 

reported as separate line items.

 

2

State Medicaid agencies are required to provide CMS, through MSIS, with quarterly 

electronic files approximately 45 days after a quarter has ended that contain data on the 

persons covered by Medicaid and on claims for medical services reimbursed by the 

Medicaid program.

3

Adjustments are made to correct overpayments, underpayments, or reporting errors that 

relate to spending reported in prior quarterly reports. Collections include reimbursement 

from private or public insurance plans or other third parties that are liable for some portion 

of enrollees’ health care costs, as well as recoveries made through efforts to reduce 

waste, fraud, and abuse.
Appendix I: Data and Methodology for 

Estimates of Medicaid Spending per Enrollee

Page 38 GAO-14-456 Medicaid Spending Variation

collapsed some of the eligibility groups by which the OACT enrollment 

and expenditure data were broken out and then totaled the expenditures 

attributed to each of the four groups in each state.4 To each group’s total, 

we then added a share of state DSH payments. Although these payments 

do not represent expenditures on individual enrollees, we included them 

in estimates of spending per enrollee, in order to avoid skewing 

comparisons among states by excluding one type of supplemental 

payment while including another. In fiscal year 2008, states were required 

to separately report DSH payments in their CMS-64 quarterly reports, but 

lines to separately report non-DSH supplemental payments were not 

added to the CMS-64 until fiscal year 2010.5

We distributed DSH payments among eligibility groups based on each 

group’s share of state spending for relevant services. Specifically, we 

distributed inpatient DSH payments based on spending for services 

provided in these facilities (hospital inpatient and outpatient services), and 

mental health facility DSH payments based on spending for mental health 

facilities, nursing facilities, and public and private intermediate care 

facilities for individuals with intellectual disability.

In fiscal year 2008, these 

payments were folded into the spending reported for related services. 

(For example, some non-DSH supplemental payments to hospitals could 

be folded into spending for inpatient or outpatient care.) Because it was 

therefore not possible to exclude non-DSH supplemental payments and 

because some states appear to use these payments more than DSH 

payments, while others appear to do the reverse, we included both types 

of supplemental payments in our estimates.

6

 

4

Specifically, we collapsed three eligibility groups (adults, unemployed adults, and 

enrollees who qualify for Medicaid under provisions of the Breast and Cervical Cancer 

Act) into the adult eligibility group, and three other eligibility groups (children, children of 

unemployed adults, and foster care children) into the children eligibility group.

For example, if children 

accounted for 30 percent of total spending for hospital inpatient and 

outpatient services in a state, we assigned 30 percent of the state’s 

5

States were not required to separately report non-DSH supplemental payments until 

fiscal year 2010, and have not done so consistently since then. See GAO, Medicaid: More 

Transparency and Accountability for Supplemental Payments Are Needed, GAO-13-48

(Washington, D.C., Nov. 26, 2012).

6

This is the general approach that the Medicaid and CHIP Payment and Access 

Commission (MACPAC) uses to distribute DSH payments among eligibility groups in its 

estimates of spending per enrollee. See Medicaid and CHIP Payment and Access 

Commission, Report to the Congress on Medicaid and CHIP (Washington, D.C.: June 

2012), pp. 138-141.
Appendix I: Data and Methodology for 

Estimates of Medicaid Spending per Enrollee

Page 39 GAO-14-456 Medicaid Spending Variation

inpatient DSH payments to that eligibility group. We did not distribute 

adjustments or collections among eligibility groups or include them in our 

estimates of overall spending per enrollee because these amounts could 

apply to spending from prior years. Instead, we report the total 

adjustments and collections for each state as a separate dollar amount 

and as a percentage of the state’s total expenditures for the year.

To assess the reliability of the data, we reviewed documentation for the 

OACT estimates and for MSIS and CMS-64 data, interviewed CMS 

officials knowledgeable about these data sources, and compared our 

estimates to those from other data sources. On the basis of this 

assessment, we excluded two states from certain analyses because of 

significant errors or omissions in the data they reported to CMS for fiscal 

year 2008. We excluded Massachusetts from all analyses of state 

Medicaid spending because, according to CMS officials, fiscal year 2008 

enrollment data for the state mistakenly included information on many 

individuals who were not eligible for Medicaid and were instead covered 

with state funds. We excluded Maine from analyses of state Medicaid 

spending at the eligibility-group level, because the state was unable to 

report spending by service category, which OACT uses to estimate state 

spending by eligibility group. We determined that for the rest of the states 

the data were sufficiently reliable for our purposes.
Appendix II: Estimated Medicaid Spending per 

Enrollee by State

Page 40 GAO-14-456 Medicaid Spending Variation

Table 1 illustrates state variation in estimated Medicaid spending per 

enrollee—for enrollees overall, and for the four major Medicaid eligibility 

groups—children, adults, disabled, and aged. Our analysis of expenditure 

data from CMS-64 annual summary reports and enrollment and 

expenditure data from the Medicaid Statistical Information System 

suggests wide variation across states in Medicaid spending per 

enrollee—estimated overall spending per enrollee ranged from about 

$3,800 in California to about $11,700 in Rhode Island in fiscal year 2008.

Table 1: Estimated Medicaid Spending per Enrollee for All Enrollees and for Each 

Eligibility Group, by State, Fiscal Year 2008 

Estimated Medicaid spending per enrollee

State All enrollees Children Adults Disabled Aged

Alabama $5,410 $2,890 $3,556 $8,870 $9,882

Alaska 11,111 4,298 7,920 31,835 25,780

Arizona 6,331 3,344 6,086 17,080 11,064

Arkansas 5,913 2,606 2,031 12,721 15,205

California 3,838 1,702 1,480 13,089 9,938

Colorado 7,827 2,802 6,132 20,776 18,022

Connecticut 9,659 3,226 3,765 30,396 26,067

Delaware 7,333 2,937 5,989 18,902 17,364

District of Columbia 10,510 4,119 6,006 23,220 27,322

Florida 6,577 2,288 5,314 14,510 11,345

Georgia 6,062 2,562 8,115 11,844 12,117

Hawaii 6,756 2,306 4,971 20,802 14,000

Idaho 7,561 2,474 8,540 19,337 14,029

Illinois 5,799 2,227 3,935 18,910 11,261

Indiana 8,052 2,521 4,995 23,213 21,757

Iowa 7,608 2,535 3,490 20,017 19,828

Kansas 8,702 2,644 5,966 20,217 18,870

Kentucky 7,003 2,924 6,736 11,082 13,450

Louisiana 6,593 2,123 5,471 16,911 11,533

Maine 7,452 a — — — — 

Maryland 9,548 3,630 5,871 22,795 20,950

Massachusetts — b — — — — 

Michigan 6,209 2,075 5,672 14,388 19,632

Minnesota 11,308 4,157 5,229 31,570 24,505

Mississippi 5,827 2,444 3,983 10,441 12,140

Missouri 8,695 3,815 5,227 20,959 17,162

Appendix II: Estimated Medicaid Spending 

per Enrollee by State
Appendix II: Estimated Medicaid Spending per 

Enrollee by State

Page 41 GAO-14-456 Medicaid Spending Variation

Estimated Medicaid spending per enrollee

State All enrollees Children Adults Disabled Aged

Montana 9,613 3,112 7,031 20,682 28,564

Nebraska 8,742 3,394 4,717 21,654 21,179

Nevada 7,026 3,006 5,029 17,876 12,729

New Hampshire 10,854 3,905 8,508 25,237 29,613

New Jersey 11,612 2,758 7,908 28,393 22,817

New Mexico 7,133 3,603 5,251 22,658 12,314

New York 11,310 2,873 5,635 32,185 29,734

North Carolina 7,462 2,755 5,938 17,401 13,449

North Dakota 10,535 2,902 5,087 25,087 25,213

Ohio 7,510 2,105 4,432 17,421 21,800

Oklahoma 6,376 2,614 5,119 16,081 13,375

Oregon 8,191 2,704 6,760 16,947 19,463

Pennsylvania 9,030 3,026 5,019 14,175 27,207

Rhode Island 11,680 5,107 5,982 22,972 21,574

South Carolina 6,401 2,818 4,941 13,247 13,704

South Dakota 7,064 2,146 6,031 19,587 15,559

Tennessee 5,827 2,644 5,338 10,262 12,694

Texas 6,540 3,345 7,131 15,680 10,495

Utah 7,882 3,723 4,857 23,896 14,468

Vermont 7,706 5,877 5,708 13,984 10,981

Virginia 7,554 2,622 5,494 17,251 14,693

Washington 6,785 2,376 5,107 17,432 19,207

West Virginia 7,037 2,467 5,759 11,584 15,863

Wisconsin 6,432 1,902 3,329 17,389 11,262

Wyoming 8,358 3,250 6,756 24,644 21,662

State average $7,847 $2,973 $5,497 $19,135 $17,609

Source: GAO analysis of Centers for Medicare & Medicaid Services data. | GAO-14-456

Notes: Estimates of spending per enrollee include federal and state spending on regular Medicaid 

payments to providers and managed care plans for covered services provided to enrollees as well as 

Disproportionate Share Hospital (DSH) and non-DSH supplemental payments, but do not include 

administrative costs. Estimates also do not reflect states’ subsequent changes, including adjustments 

or collections, to the spending originally reported for this year. Enrollment is measured in terms of fullyear-equivalent enrollees. Both enrollment and expenditure data include all enrollees, regardless of 

the scope of benefits offered. State average spending per enrollee represents the sum of each state’s 

estimated spending per enrollee divided by the number of states. For purposes of this table we refer 

to the District of Columbia as a state.

a

We excluded Maine from eligibility-group level estimates because the state was unable to report 

spending by service category for fiscal year 2008.

b

We excluded Massachusetts from the estimates because of errors in fiscal year 2008 CMS data for 

this state.
Appendix III: Total Medicaid Spending and 

Adjustments and Collections by State

Page 42 GAO-14-456 Medicaid Spending Variation

States are required to report to CMS each quarter any collections or 

adjustments to the Medicaid spending they previously reported. In one of 

the annual summary reports available from the CMS-64 data system, the 

adjustments and collections reported by a state that year are summed by 

type—for example, adjustments increasing claims—and reported as line 

items separate from other reported spending amounts.1 The reported 

sums may include adjustments and collections applicable to spending for 

the current year as well as prior years.

2 For six states, the adjustments 

and collections reported in fiscal year 2008—an unknown amount of 

which was applicable to that year’s spending—represented 5 percent or 

more of the total spending reported for that year. Table 2 shows the total 

spending states reported for fiscal year 2008, as well as the total 

adjustments and collections they reported that year, and the percentage 

of total spending that adjustments and collections represented.

 

1

In the other annual summary report, collections are reported as a separate line item, but 

adjustments are folded into the current year’s spending, by type of service, and program. 

2

These sums may also include adjustments to spending for Medicaid expansion programs 

under the State Children’s Health Insurance Program as well as for the traditional 

Medicaid program.

Appendix III: Total Medicaid Spending and 

Adjustments and Collections by State
Appendix III: Total Medicaid Spending and 

Adjustments and Collections by State

Page 43 GAO-14-456 Medicaid Spending Variation

Table 2: Total Medicaid Spending and Adjustments and Collections Reported in 

Fiscal Year 2008

State Total spending

Adjustments and 

collections

Adjustments and 

collections as a 

percentage of 

total spending

Alabama $4,065,658,513 ($3,403,747) -0.1

Alaska 962,595,105 (72,726,013) -7.6

Arizona 7,285,798,764 217,986,033 3.0

Arkansas 3,328,009,018 (95,445,204) -2.9

California 31,039,145,327 7,546,974,470 24.3

Colorado 3,186,825,239 (34,849,295) -1.1

Connecticut 4,515,843,293 (98,177,252) -2.2

Delaware 1,103,519,563 (1,363,880) -0.1

District of Columbia 1,459,889,715 (31,962,688) -2.2

Florida 14,674,721,802 (73,161,543) -0.5

Georgia 7,654,184,658 (390,248,341) -5.1

Hawaii 1,222,550,545 (20,392,992) -1.7

Idaho 1,220,236,237 (32,553,305) -2.7

Illinois 11,730,832,868 (263,433,221) -2.2

Indiana 6,679,844,413 (565,918,130) -8.5

Iowa 2,834,135,869 (56,770,325) -2.0

Kansas 2,338,692,399 (114,140,708) -4.9

Kentucky 4,781,853,623 (90,229,659) -1.9

Louisiana 6,065,775,886 (234,590,878) -3.9

Maine 2,186,642,908 47,453,663 2.2

Maryland 5,789,864,630 (151,620,736) -2.6

Massachusetts — a — — 

Michigan 9,763,205,475 31,721,058 0.3

Minnesota 6,963,611,523 (79,838,444) -1.1

Mississippi 3,534,943,883 258,504,898 7.3

Missouri 7,065,432,032 (78,221,022) -1.1

Montana 780,125,095 (10,369,615) -1.3

Nebraska 1,585,314,119 (32,318,151) -2.0

Nevada 1,308,662,237 3,712,625 0.3

New Hampshire 1,256,516,384 (16,206,643) -1.3

New Jersey 9,390,013,827 (36,195,450) -0.4

New Mexico 3,051,859,421 (27,864,999) -0.9
Appendix III: Total Medicaid Spending and 

Adjustments and Collections by State

Page 44 GAO-14-456 Medicaid Spending Variation

State Total spending

Adjustments and 

collections

Adjustments and 

collections as a 

percentage of 

total spending

New York 46,004,929,844 258,553,798 0.6

North Carolina 9,984,558,550 (370,706,876) -3.7

North Dakota 555,283,315 (26,625,586) -4.8

Ohio 12,208,921,164 (16,039,100) -0.1

Oklahoma 3,525,551,862 (105,739,641) -3.0

Oregon 3,188,916,042 (11,560,143) -0.4

Pennsylvania 16,137,965,265 48,605,230 0.3

Rhode Island 1,846,481,589 (43,086,140) -2.3

South Carolina 4,435,472,577 (209,104,361) -4.7

South Dakota 672,641,093 (20,933,097) -3.1

Tennessee 7,296,597,016 (162,724,231) -2.2

Texas 20,942,941,607 154,234,451 0.7

Utah 1,570,682,903 (81,216,971) -5.2

Vermont 1,034,050,857 45,268,884 4.4

Virginia 5,361,612,424 (33,874,206) -0.6

Washington 6,381,271,503 (139,384,829) -2.2

West Virginia 2,279,677,025 (16,083,970) -0.7

Wisconsin 5,103,833,259 (182,497,433) -3.6

Wyoming 485,726,260 (1,714,150) -0.4

State Average $6,356,868,371 $91,594,443 -1.1%

Source: GAO analysis of Centers for Medicare & Medicaid Services data. | GAO-14-456

Notes: Total spending includes federal and state spending on regular Medicaid payments to providers 

and managed care plans for covered services provided to enrollees as well as Disproportionate 

Share Hospital (DSH) and non-DSH supplemental payments and does not include adjustments, 

collections, or administrative costs. For purposes of this table we refer to the District of Columbia as a 

state.

a

We excluded Massachusetts from the estimates because of errors in fiscal year 2008 CMS data for 

this state.
Appendix IV: Estimated Medicaid Spending per 

Enrollee, by State, Using Two Possible 

Methods to Distribute DSH Payments

Page 45 GAO-14-456 Medicaid Spending Variation

Federal Medicaid law requires states to make DSH payments to 

qualifying hospitals that serve large numbers of Medicaid and uninsured 

low-income patients. States are required to report to CMS separate data 

on the two types of DSH payments: payments to inpatient hospitals and 

payments to inpatient mental health facilities.1 We included DSH 

payments in our estimates of spending per enrollee, and compared two 

possible methods of distributing these payments among eligibility groups. 

For the first method—the one used in our estimates of spending per 

enrollee—we distributed DSH payments among eligibility groups based 

on each group’s share of state spending for services delivered in the 

types of facilities that are potentially eligible for DSH payments. 

Specifically, we distributed inpatient DSH payments based on spending 

for services provided in these facilities (hospital inpatient and outpatient 

services), and mental health facility DSH payments based on spending 

for mental health facilities, nursing facilities, and public and private 

intermediate care facilities for individuals with intellectual disability. For 

the second method, we distributed DSH payments among eligibility 

groups based on each group’s share of total spending. We found that for 

some eligibility groups in some states, the method used to distribute DSH 

payments significantly affected estimates of spending per enrollee. 

Table 3 shows estimated Medicaid spending per enrollee by state and by 

eligibility group, for fiscal year 2008, using these two different methods to 

distribute DSH payments.

 

1

Under federal law, states may only claim federal matching funds for DSH payments 

made to qualifying hospitals up to the states’ DSH allotments, which are based on a 

statutory formula and vary across the states. Individual hospitals may only receive DSH 

payments up to their hospital-specific limit. States also make DSH payments out of their 

allotment to institutions for mental disease and other mental health facilities that provide 

inpatient services. However, federal law limits the total amount of federal matching funds 

that states may claim for DSH payments made to these mental health facilities. 42 U.S.C. 

§ 1396r-4.

Appendix IV: Estimated Medicaid Spending 

per Enrollee, by State, Using Two Possible 

Methods to Distribute DSH Payments
Appendix IV: Estimated Medicaid Spending per 

Enrollee, by State, Using Two Possible 

Methods to Distribute DSH Payments

Page 46 GAO-14-456 Medicaid Spending Variation

Table 3: Estimated Medicaid Spending per Enrollee Using Two Possible Methods to Distribute Disproportionate Share 

Hospital (DSH) Payments, by Eligibility Group and State, Fiscal Year 2008

With DSH payments distributed across groups 

based on share of spending for relevant servicesa With DSH payments distributed across groups 

based on share of total spending

State 

b

Children Adults Disabled Aged Children Adults Disabled Aged

Alabama $2,890 $3,556 $8,870 $9,882 $2,995 $2,533 $8,972 $10,450

Alaska 4,298 7,920 31,835 25,780 4,318 7,983 31,844 25,447

Arizona 3,344 6,086 17,080 11,064 3,351 6,091 17,103 10,936

Arkansas 2,606 2,031 12,721 15,205 2,603 2,024 12,722 15,227

California 1,702 1,480 13,089 9,938 1,711 1,383 13,088 10,329

Colorado 2,802 6,132 20,776 18,022 2,737 5,660 20,970 18,772

Connecticut 3,226 3,765 30,396 26,067 3,263 3,797 30,194 26,064

Delaware 2,937 5,989 18,902 17,364 2,951 6,018 18,914 17,134

District of Columbia 4,119 6,006 23,220 27,322 4,202 6,132 22,721 28,169

Florida 2,288 5,314 14,510 11,345 2,287 5,273 14,550 11,329

Georgia 2,562 8,115 11,844 12,117 2,589 8,062 11,548 12,660

Hawaii 2,306 4,971 20,802 14,000 2,334 4,943 20,300 14,558

Idaho 2,474 8,540 19,337 14,029 2,451 8,327 19,418 14,231

Illinois 2,227 3,935 18,910 11,261 2,230 3,940 18,906 11,236

Indiana 2,521 4,995 23,213 21,757 2,574 5,127 22,775 22,016

Iowa 2,535 3,490 20,017 19,828 2,525 3,462 20,037 19,913

Kansas 2,644 5,966 20,217 18,870 2,677 6,023 20,259 18,558

Kentucky 2,924 6,736 11,082 13,450 2,945 6,593 11,073 13,572

Louisiana 2,123 5,471 16,911 11,533 2,037 4,825 16,920 12,868

Maine — c — — — — — — — 

Maryland 3,630 5,871 22,795 20,950 3,643 5,907 22,841 20,665

Massachusetts — d — — — — — — — 

Michigan 2,075 5,672 14,388 19,632 2,073 5,687 14,465 19,418

Minnesota 4,157 5,229 31,570 24,505 4,155 5,190 31,400 24,864

Mississippi 2,444 3,983 10,441 12,140 2,396 3,794 10,416 12,664

Missouri 3,815 5,227 20,959 17,162 3,892 5,335 20,821 16,824

Montana 3,112 7,031 20,682 28,564 3,076 6,894 20,663 29,065

Nebraska 3,394 4,717 21,654 21,179 3,374 4,630 21,658 21,398

Nevada 3,006 5,029 17,876 12,729 3,041 4,884 17,506 13,376

New Hampshire 3,905 8,508 25,237 29,613 3,618 6,385 26,310 31,736

New Jersey 2,758 7,908 28,393 22,817 2,835 8,005 28,203 22,740

New Mexico 3,603 5,251 22,658 12,314 3,597 5,228 22,693 12,372
Appendix IV: Estimated Medicaid Spending per 

Enrollee, by State, Using Two Possible 

Methods to Distribute DSH Payments

Page 47 GAO-14-456 Medicaid Spending Variation

Source: GAO analysis of Centers for Medicare & Medicaid Services data. | GAO-14-456

Notes: Estimates of spending per enrollee include federal and state spending on regular Medicaid 

payments to providers and managed care plans for covered services provided to enrollees, as well 

DSH and non-DSH supplemental payments, but do not include administrative costs. Estimates also 

do not reflect states’ subsequent changes, including adjustments or collections, to the spending 

originally reported for this year. Enrollment is measured in terms of full-year-equivalent enrollees. 

Both enrollment and expenditure data include all enrollees, regardless of the scope of benefits 

offered. State average spending per enrollee represents the sum of each state’s estimated spending 

per enrollee divided by the number of states. For purposes of this table we refer to the District of 

Columbia as a state.

a

For this method, we distributed DSH payments among eligibility groups based on each group’s share 

of state spending for relevant services. Specifically, we distributed inpatient DSH payments based on 

spending for hospital inpatient and outpatient services and mental health facility DSH payments 

based on spending for mental health facilities, nursing facilities, and public and private intermediate 

care facilities for individuals with intellectual disability. 

b

For this method, we distributed DSH payments among eligibility groups based on each group’s share 

of total spending.

c

We excluded Maine from eligibility-group level estimates because the state was unable to report 

spending by service category for fiscal year 2008.

d

New York

We excluded Massachusetts from the estimates because of errors in fiscal year 2008 CMS data for 

this state.

2,873 5,635 32,185 29,734 2,809 5,447 32,225 30,606

North Carolina 2,755 5,938 17,401 13,449 2,770 5,824 17,453 13,442

North Dakota 2,902 5,087 25,087 25,213 2,904 5,091 25,099 25,186

Ohio 2,105 4,432 17,421 21,800 2,105 4,432 17,421 21,800

Oklahoma 2,614 5,119 16,081 13,375 2,602 5,060 16,103 13,489

Oregon 2,704 6,760 16,947 19,463 2,699 6,734 16,991 19,456

Pennsylvania 3,026 5,019 14,175 27,207 3,053 4,929 14,266 27,010

Rhode Island 5,107 5,982 22,972 21,574 5,263 6,217 22,111 22,530

South Carolina 2,818 4,941 13,247 13,704 2,813 4,702 13,223 14,304

South Dakota 2,146 6,031 19,587 15,559 2,147 6,032 19,599 15,531

Tennessee 2,644 5,338 10,262 12,694 2,644 5,326 10,253 12,766

Texas 3,345 7,131 15,680 10,495 3,369 6,936 15,531 10,723

Utah 3,723 4,857 23,896 14,468 3,706 4,806 23,989 14,578

Vermont 5,877 5,708 13,984 10,981 5,955 5,532 13,924 11,272

Virginia 2,622 5,494 17,251 14,693 2,617 5,411 17,194 14,908

Washington 2,376 5,107 17,432 19,207 2,463 5,214 17,112 19,027

West Virginia 2,467 5,759 11,584 15,863 2,507 5,762 11,505 15,919

Wisconsin 1,902 3,329 17,389 11,262 1,895 3,325 17,297 11,398

Wyoming 3,250 6,756 24,644 21,662 3,249 6,755 24,645 21,665

State average $2,973 $5,497 $19,135 $17,609 $2,981 $5,381 $19,086 $17,841
Appendix V: State DSH Payments as a 

Percentage of Total State Medicaid Spending 

and Effect on Overall Spending per Enrollee

Page 48 GAO-14-456 Medicaid Spending Variation

Federal Medicaid law requires states to make DSH payments to 

qualifying hospitals that serve large numbers of Medicaid and uninsured 

low-income patients. DSH payments represent varying proportions of 

states’ total Medicaid spending, ranging from 0 to 18 percent. Thus the 

effect of including these payments in estimates of state spending per 

enrollee also varies. Table 4 presents DSH payments as a percentage of 

each state’s total Medicaid spending for fiscal year 2008, as well as 

overall state spending per enrollee excluding and including DSH 

payments.

Table 4: Disproportionate Share Hospital (DSH) Payments as a Percentage of Total 

State Medicaid Spending and Overall Spending per Enrollee Excluding and 

Including DSH Payments, Fiscal Year 2008 

Overall spending per enrollee

State 

DSH payments as 

percentage of total state 

Medicaid spending

Excluding 

DSH payments

Including 

DSH payments

Alabama 10.5% $4,840 $5,410

Alaska 1.6 10,931 11,111

Arizona 1.6 6,231 6,331

Arkansas 0.3 5,898 5,913

California 6.1 3,604 3,838

Colorado 5.2 7,420 7,827

Connecticut 5.9 9,091 9,659

Delaware 0.5 7,296 7,333

District of Columbia 4.8 10,009 10,510

Florida 2.3 6,429 6,577

Georgia 5.2 5,744 6,062

Hawaii 2.5 6,585 6,756

Idaho 1.8 7,424 7,561

Illinois 1.7 5,703 5,799

Indiana 7.0 7,492 8,052

Iowa 0.6 7,566 7,608

Kansas 3.5 8,402 8,702

Kentucky 4.1 6,716 7,003

Louisiana 16.6 5,498 6,593

Maine 2.3 7,281 7,452

Maryland 1.9 9,365 9,548

Massachusetts — a — — 

Appendix V: State DSH Payments as a

Percentage of Total State Medicaid Spending 

and Effect on Overall Spending per Enrollee
Appendix V: State DSH Payments as a 

Percentage of Total State Medicaid Spending 

and Effect on Overall Spending per Enrollee

Page 49 GAO-14-456 Medicaid Spending Variation

Overall spending per enrollee

State 

DSH payments as 

percentage of total state 

Medicaid spending

Excluding 

DSH payments

Including 

DSH payments

Michigan 4.5 5,927 6,209

Minnesota 1.7 11,120 11,308

Mississippi 5.1 5,532 5,827

Missouri 9.9 7,831 8,695

Montana 2.0 9,422 9,613

Nebraska 1.7 8,595 8,742

Nevada 6.3 6,582 7,026

New Hampshire 17.8 8,926 10,854

New Jersey 16.3 9,721 11,612

New Mexico 0.9 7,072 7,133

New York 4.8 10,764 11,310

North Carolina 4.3 7,144 7,462

North Dakota 0.2 10,511 10,535

Ohio 0.0 7,510 7,510

Oklahoma 1.4 6,285 6,376

Oregon 1.9 8,036 8,191

Pennsylvania 4.6 8,615 9,030

Rhode Island 6.4 10,938 11,680

South Carolina 10.0 5,763 6,401

South Dakota 0.2 7,050 7,064

Tennessee 0.6 5,792 5,827

Texas 6.5 6,117 6,540

Utah 1.3 7,780 7,882

Vermont 3.5 7,439 7,706

Virginia 3.4 7,294 7,554

Washington 5.1 6,437 6,785

West Virginia 3.2 6,812 7,037

Wisconsin 1.7 6,320 6,432

Wyoming 0.0 8,356 8,358

State average 4.2% $7,504 $7,847

Source: GAO analysis of Centers for Medicare & Medicaid Services data. | GAO-14-456

Notes: Total state spending and spending per enrollee include federal and state spending on regular 

Medicaid payments to providers and managed care plans for covered services provided to enrollees 

as well as DSH and non-DSH supplemental payments. Estimates do not reflect states’ subsequent 

changes, including adjustments or collections, to the spending originally reported for this year and do 

not include administrative costs. Enrollment is measured in terms of full-year-equivalent enrollees. 

Both enrollment and expenditure data include all enrollees, regardless of the scope of benefits 
Appendix V: State DSH Payments as a 

Percentage of Total State Medicaid Spending 

and Effect on Overall Spending per Enrollee

Page 50 GAO-14-456 Medicaid Spending Variation

offered. The state averages represent the sum of state percentages or state spending per enrollee 

divided by the number of states. For the purposes of this table, we refer to the District of Columbia as 

a state.

a

We excluded Massachusetts because of errors in fiscal year 2008 CMS data for this state.
Appendix VI: Distribution of State Medicaid 

Enrollees by Eligibility Group

Page 51 GAO-14-456 Medicaid Spending Variation

Table 5 illustrates that the distribution of Medicaid enrollees in each of the 

four major Medicaid eligibility groups (children, adults, disabled, and 

aged)—a program characteristic known to influence overall per-enrollee 

Medicaid spending—varied widely by state in calendar year 2008.

Table 5: Distribution of Medicaid Enrollees by Eligibility Group and State, Calendar 

Year 2008

Percentage of Medicaid Enrollees

State

a

Children Adults Disabled Aged

Alabama 49.5% 15.0% 24.3% 11.1%

Alaska 60.0 21.3 12.9 5.7

Arizona 45.2 40.0 9.2 5.5

Arkansas 57.3 16.1 17.5 9.1

California 40.0 41.8 10.8 7.4

Colorado 58.4 16.8 15.3 9.4

Connecticut 51.9 23.9 12.3 11.9

Delaware 42.7 38.5 11.8 7.0

District of Columbia 47.3 23.3 22.7 6.7

Florida 50.3 19.3 18.1 12.3

Georgia 57.4 16.6 17.9 8.1

Hawaii 46.3 33.6 10.7 9.4

Idaho 63.4 12.6 16.7 7.3

Illinois 55.9 25.1 13.4 5.6

Indiana 58.0 20.6 14.0 7.5

Iowa 48.4 28.1 15.0 8.5

Kansas 55.8 14.6 19.6 10.0

Kentucky 49.1 15.3 25.1 10.6

Louisiana 58.2 15.8 16.9 9.1

Maine 37.1 29.5 17.2 16.2

Maryland 56.2 21.0 16.2 6.6

Massachusetts 33.0 40.3 16.2 10.5

Michigan 53.8 23.8 15.6 6.7

Minnesota 48.4 25.5 14.7 11.5

Mississippi 49.6 16.7 23.4 10.3

Missouri 55.7 17.2 18.2 8.9

Montana 54.4 18.5 18.4 8.7

Nebraska 61.2 16.1 13.7 8.9

Nevada 56.1 19.9 15.0 8.9

Appendix VI: Distribution of State Medicaid 

Enrollees by Eligibility Group
Appendix VI: Distribution of State Medicaid 

Enrollees by Eligibility Group

Page 52 GAO-14-456 Medicaid Spending Variation

Percentage of Medicaid Enrollees

State 

a

Children Adults Disabled Aged

New Hampshire 59.7 13.6 16.7 10.0

New Jersey 51.4 20.5 16.9 11.1

New Mexico 57.5 25.5 12.3 4.7

New York 38.9 36.8 15.0 9.3

North Carolina 53.2 19.3 17.2 10.2

North Dakota 51.4 21.2 15.0 12.4

Ohio 53.1 21.5 17.3 8.1

Oklahoma 60.7 16.7 14.5 8.1

Oregon 50.1 23.5 16.5 9.9

Pennsylvania 45.1 19.8 24.5 10.6

Rhode Island 45.1 24.6 20.9 9.5

South Carolina 52.2 21.9 17.4 8.5

South Dakota 62.2 15.4 14.5 7.9

Tennessee 49.7 20.2 23.2 6.9

Texas 62.2 14.1 13.6 10.1

Utah 55.2 26.8 13.2 4.8

Vermont 38.2 37.1 14.0 10.7

Virginia 56.1 15.4 18.0 10.5

Washington 54.9 21.9 15.7 7.6

West Virginia 47.4 14.6 28.7 9.3

Wisconsin 43.9 29.4 14.5 12.2

Wyoming 65.3 14.3 13.3 7.1

State average 52.0% 22.4% 16.6% 9.0%

Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) data. | GAO-14-456

Notes: State average represents the sum of the state percentages divided by the number of states. 

For purposes of this table, we refer to the District of Columbia as a state.

a

Based on CMS Medicaid Analytic eXtract 2008 Chartbook data for calendar year 2008.
Appendix VII: Selected Factors That Are 

Known to Influence Health Care Spending, by 

State

Page 53 GAO-14-456 Medicaid Spending Variation

Tables 6 and 7 illustrate state variation on selected factors that are known 

to influence health care spending, such as indicators of enrollee health 

services needs and scope of benefits received.

Table 6: State Variation on Selected Factors That Can Influence Health Care 

Spending for Aged Medicaid Enrollees, Fiscal or Calendar Year 2008

 State 

Percentage of aged 

Medicaid enrollees 

who were 85 

and older

Percentage of aged 

Medicaid enrollees 

receiving long-term 

care services a

Percentage of aged 

Medicaid enrollees 

ever institutionalized

during the year a

Alabama

b,c

23.7 23.5 17.8

Alaska 16.8 39.7 8.2

Arizona 17.9 d — — 

Arkansas 23.1 34.6 21.9

California 18.3 30.3 10.2

Colorado 22.2 45.0 21.9

Connecticut 30.7 51.1 35.7

Delaware 23.7 26.6 21.8

District of Columbia 21.2 27.7 20.4

Florida 21.1 18.4 14.2

Georgia 22.4 23.4 20.4

Hawaii 22.2 23.3 15.9

Idaho 22.6 47.4 22.2

Illinois 27.0 33.4 28.2

Indiana 24.4 37.9 36.3

Iowa 30.2 65.6 37.2

Kansas 28.8 54.2 35.0

Kentucky 22.7 32.1 21.4

Louisiana 19.1 25.2 20.3

Maine 21.9 e — — 

Maryland 24.8 32.0 28.9

Massachusetts — f — 23.6

Michigan 22.7 40.9 26.3

Minnesota 33.4 36.0 23.9

Mississippi 23.3 27.3 21.1

Missouri 24.5 48.4 30.8

Montana 31.3 52.9 42.5

Nebraska 29.7 48.4 37.3

Nevada 16.6 28.2 13.7

Appendix VII: Selected Factors That Are 

Known to Influence Health Care Spending, 

by State
Appendix VII: Selected Factors That Are 

Known to Influence Health Care Spending, by 

State

Page 54 GAO-14-456 Medicaid Spending Variation

 State 

Percentage of aged 

Medicaid enrollees 

who were 85 

and older

Percentage of aged 

Medicaid enrollees 

receiving long-term 

care services a

Percentage of aged 

Medicaid enrollees 

ever institutionalized

during the year a

New Hampshire

b,c

30.9 51.0 41.0

New Jersey 29.9 38.3 26.0

New Mexico 22.4 d — — 

New York 26.3 38.0 22.0

North Carolina 22.7 40.5 18.9

North Dakota 36.8 54.9 46.1

Ohio 23.7 47.4 34.9

Oklahoma 20.1 44.4 25.5

Oregon 21.3 44.9 13.9

Pennsylvania 24.5 32.5 29.6

Rhode Island 33.0 38.2 35.8

South Carolina 23.6 29.1 18.7

South Dakota 38.9 49.6 42.5

Tennessee 24.8 24.7 23.4

Texas 19.1 35.9 17.0

Utah 19.4 28.7 23.3

Vermont 26.3 27.3 16.4

Virginia 21.9 31.4 21.2

Washington 20.8 45.8 16.1

West Virginia 18.1 29.3 24.3

Wisconsin 33.2 d — — 

Wyoming 26.4 48.7 35.7

State average 24.6 37.7 24.5

Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) data. | GAO-14-456

Notes: State average represents the sum of state percentages, divided by the number of states. For 

purposes of this table, we refer to the District of Columbia as a state.

a

Based on CMS Medicaid Statistical Information System (MSIS) data for fiscal year 2008.

b

Based on CMS Medicaid Analytic eXtract 2008 Chartbook data for calendar year 2008.

c

Institutionalized enrollees include those receiving Medicaid-covered services in nursing homes, 

intermediate care facilities for individuals with intellectual disability, mental hospitals for the aged, or 

inpatient psychiatric facilities for those under age 21 at any time in 2008.

d

Excluded from long-term care service use and ever-institutionalized data because more than 

2 percent of all enrollees in the state—and therefore likely a higher percentage of aged enrollees—

received long-term care services through managed care plans and therefore were not represented in 

the fee-for-service data used to identify enrollees who received long-term care services during the 

year.

e

Excluded from long-term care service use and ever-institutionalized data because of the state’s 

inability to accurately report data related to service use in 2008.
Appendix VII: Selected Factors That Are 

Known to Influence Health Care Spending, by 

State

Page 55 GAO-14-456 Medicaid Spending Variation

f

Table 7: State Variation on Selected Factors That Can Influence Health Care 

Spending for Children and Adults, Fiscal or Calendar Year 2008

Excluded from percentage of aged who were 85 years or older and long-term care service use data 

because of errors in fiscal year 2008 CMS MSIS data.

 State 

Percentage of 

child Medicaid 

enrollees in 

foster care

Percentage of 

adult Medicaid 

enrollees 

receiving only 

family planning 

benefits a

Percentage of 

adult state 

residents who 

reported 

being obese b

Percentage of 

adult state 

residents who 

reported 

smoking 

tobacco c

Alabama

c

2% 53% 32% 22%

Alaska 5 0 27 21

Arizona 2 1 26 17

Arkansas 2 61 30 22

California 4 55 24 14

Colorado 6 0 19 18

Connecticut 2 0 21 16

Delaware 3 4 28 18

District of Columbia 6 0 22 16

Florida 3 7 25 18

Georgia 4 0 28 19

Hawaii 7 0 23 16

Idaho 3 0 25 17

Illinois 5 5 27 20

Indiana 3 0 27 24

Iowa 5 20 27 19

Kansas 8 0 28 18

Kentucky 4 0 30 26

Louisiana 2 24 29 22

Maine 4 0 26 19

Maryland 5 15 27 16

Massachusetts — d 0 22 16

Michigan 4 10 30 20

Minnesota 3 15 25 17

Mississippi 1 30 33 23

Missouri 6 7 29 24

Montana 7 0 24 18

Nebraska 11 0 27 18

Nevada 7 0 26 22
Appendix VII: Selected Factors That Are 

Known to Influence Health Care Spending, by 

State

Page 56 GAO-14-456 Medicaid Spending Variation

 State 

Percentage of 

child Medicaid 

enrollees in 

foster care

Percentage of 

adult Medicaid 

enrollees 

receiving only 

family planning 

benefits a

Percentage of 

adult state 

residents who 

reported 

being obese b

Percentage of 

adult state 

residents who 

reported 

smoking 

tobacco c

New Hampshire

c

3 0 25 17

New Jersey 6 0 24 16

New Mexico 2 17 26 19

New York 3 3 25 18

North Carolina 3 12 30 21

North Dakota 5 0 28 19

Ohio 6 0 29 21

Oklahoma 3 19 31 25

Oregon 7 0 25 17

Pennsylvania 6 11 28 21

Rhode Island 7 1 22 17

South Carolina 3 27 31 21

South Dakota 8 0 28 18

Tennessee 3 0 31 23

Texas 2 0 29 19

Utah 6 0 23 10

Vermont 4 0 23 17

Virginia 3 6 26 18

Washington 3 31 26 16

West Virginia 4 0 32 26

Wisconsin 5 22 26 19

Wyoming 7 0 25 21

State average 4% 9% 27% 19%

Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) and Centers for Disease Control and Prevention (CDC) 

data. | GAO-14-456

Notes: State average represents the sum of state percentages, divided by the number of states. For 

purposes of this table, we refer to the District of Columbia as a state.

a

Based on CMS Medicaid Statistical Information System (MSIS) fiscal year 2008 data.

b

Based on CMS Medicaid Analytic eXtract 2008 Chartbook data for calendar year 2008.

c

Based on CDC’s Behavioral Risk Factor Surveillance Survey data for calendar year 2008.

d

Excluded from foster care data because of errors in fiscal year 2008 CMS MSIS data.
Appendix VIII: GAO Contacts and Staff 

Acknowledgments

Page 57 GAO-14-456 Medicaid Spending Variation

Carolyn L. Yocom, Director, Health Care, (202) 512-7114, 

yocomc@gao.gov

In addition to the contacts named above, Robert Copeland, Assistant 

Director; Emily Beller; Kye Briesath; Greg Dybalski; Nancy Fasciano; 

Drew S. Long; Vikki Porter; Max Sawicky; Rachel Svoboda; and 

Hemi Tewarson made key contributions to this report.

Appendix VIII: GAO Contacts and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Related GAO Products

Page 58 GAO-14-456 Medicaid Spending Variation

Medicaid: Use of Claims Data for Analysis of Provider Payment Rates. 

GAO-14-56R. Washington, D.C.: January 6, 2014.

Medicaid: Alternative Measures Could Be Used to Allocate Funding More 

Equitably. GAO-13-434. Washington, D.C.: May 10, 2013.

Medicaid: More Transparency of and Accountability for Supplemental 

Payments Are Needed. GAO-13-48. Washington, D.C.: November 26, 

2012.

Medicaid: Data Sets Provide Inconsistent Picture of Expenditures. 

GAO-13-47. Washington, D.C.: October 29, 2012.

Medicaid: States Reported Billions More in Supplemental Payments in 

Recent Years. GAO-12-694. Washington, D.C.: July 20, 2012.

Medicaid: Prototype Formula Would Provide Automatic, Targeted 

Assistance to States during Economic Downturns. GAO-12-38. 

Washington, D.C.: November 10, 2011.

Medicaid: Improving Responsiveness of Federal Assistance to States 

during Economic Downturns. GAO-11-395. Washington, D.C.: March 31, 

2011.

Medicaid Managed Care: CMS’s Oversight of States’ Rate Setting Needs 

Improvement. GAO-10-810. Washington, D.C.: August 4, 2010.

Medicaid: CMS Needs More Information on the Billions of Dollars Spent 

on Supplemental Payments. GAO-08-614. Washington, D.C.: May 30, 

2008.

Related GAO Products

(291117)
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