United States General Accounting Office

GAO Testimony

Before the Subcommittee on Health and Environment,

Committee on Commerce, House of Representatives

For Release on Delivery

Expected at 1:00 p.m.

Tuesday, March 11, 1997

MEDICAID

Recent Spending

Experience and the

Administration’s Proposed

Program Reform

Statement of William J. Scanlon, Director

Health Financing and Systems Issues

Health, Education, and Human Services Division

GAO/T-HEHS-97-94

Summary

GAO’s statement focuses on two broad issues: (1) key factors that explain

the Medicaid 3.3-percent growth rate in fiscal year 1996 and their

implications for future spending and (2) the administration’s proposal to

contain Medicaid cost growth through decreases in disproportionate share

hospital (DSH) payments and per capita caps, and to increase state

flexibility.

GAO found no single pattern across all states that accounts for the recent

dramatic decrease in the growth of Medicaid spending. Rather, a

combination of factors—some affecting only certain states and others

common to many states—explains the low 1996 growth rate. Leading

factors include continued reductions in DSH payments in some states as a

result of earlier federal restrictions on the amount of such payments and

the leveling off of Medicaid enrollment in other states following planned

expansions in prior years. A number of states GAO contacted attributed the

lower growth rate to a generally improved economy and state initiatives to

limit expenditure growth through programmatic changes, such as

managed care programs and long-term care alternatives. While the

magnitude of the effect of these programmatic changes is less clear, there

is evidence that they helped to restrain program costs. It is likely that the

3.3-percent growth rate is not indicative of the growth rate in the years

ahead. Just as a number of factors converged to bring about the drop in

the 1996 growth rate, so a variety of factors—such as a downturn in the

economy—could result in increased growth rates in subsequent years.

The administration’s proposal for Medicaid reform would further control

spending by reducing DSH expenditures and imposing a per capita cap,

while providing the states greater flexibility in program policy and

administration for their managed care and long-term care programs. These

initiatives should produce cost savings. However, in controlling program

spending, attention should be given to targeting federal funds

appropriately and ensuring that added program flexibility is accompanied

by effective federal monitoring and oversight.

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Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss recent Medicaid spending trends

and their potential implications for future outlays. My comments are based

on work that we have in progress at the request of the Chairmen of the

Senate and House Budget Committees. Their request was prompted by an

interest in what contributed to the precipitous drop in the annual growth

rate of Medicaid spending from over 20 percent in the early 1990s to

3.3 percent in fiscal year 1996. In addition, you have asked us to comment

on aspects of the administration’s fiscal year 1998 proposal for the

Medicaid program.

My remarks today focus on two broad issues: (1) key factors that explain

the 3.3-percent growth rate in fiscal year 1996 and their implications for

future Medicaid spending and (2) the administration’s proposal to contain

Medicaid cost growth through decreases in disproportionate share

hospital (DSH) payments and per capita caps, and to increase state

flexibility. Our findings are based on our analysis of Medicaid expenditure

data published by the Department of Health and Human Services’ Health

Care Financing Administration and our review of federal outlays as

reported by the Department of the Treasury. We also contacted Medicaid

officials in 18 states that represent a cross-section of state spending

patterns over the past 2 years and that account for almost 70 percent of

Medicaid expenditures. Our comments on the administration’s proposal

are based on a review of budget documents and previous work we have

conducted.

In brief, we found no single pattern across all states that accounts for the

recent dramatic decrease in the growth of Medicaid spending. Rather, a

combination of factors—some affecting only certain states and others

common to many states—explains the low 1996 growth rate. Leading

factors include continued reductions in DSH payments in some states as a

result of earlier federal restrictions on the amount of such payments and

the leveling off of Medicaid enrollment in other states following planned

expansions in prior years. A number of states we contacted attributed the

lower growth rate to a generally improved economy and state initiatives to

limit expenditure growth through programmatic changes, such as

managed care programs and long-term care alternatives. While the

magnitude of the effect of these programmatic changes is less clear, there

is evidence that they helped to restrain program costs. However, it is likely

that the 3.3-percent growth rate is not indicative of the growth rate in the

years ahead. Just as a number of factors converged to bring about the drop

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in the 1996 growth rate, so a variety of factors—such as a downturn in the

economy—could result in increased growth rates in subsequent years.

Finally, the administration’s proposal for Medicaid reform would further

control spending by reducing DSH expenditures and imposing a per capita

cap, while providing the states greater flexibility in program policy and

administration for their managed care and long-term care programs. These

initiatives should produce cost savings. However, in controlling program

spending, attention should be given to targeting federal funds

appropriately and ensuring that added program flexibility is accompanied

by effective federal monitoring and oversight.

Background Medicaid, a federal grant-in-aid program that states administer, finances

health care for about 37 million low-income people. With total federal and

state expenditures of approximately $160 billion in 1996, Medicaid

constitutes a considerable portion of both state and federal budgets,

accounting for roughly 20 percent and 6 percent of total expenditures,

respectively.

For more than a decade, the growth rate in Medicaid expenditures

nationally has been erratic. Between 1984 and 1987, the annual growth

rates remained relatively stable, ranging between roughly 8 and 11

percent. Over the next 4 years, beginning in 1988, annual growth rates

increased substantially, reaching 29 percent in 1992—an increase of over

$26 billion for that year. From this peak, Medicaid’s growth rates declined

between 1993 and 1995 to approximately the levels of the mid-1980s. Then,

in fiscal year 1996, the growth rate fell to 3.3 percent.

Key Factors Affecting

1996 Spending

Growth and Their

Implication for the

Future

In analyzing the growth rate for 1996 we found that no single spending

growth pattern was evident across the states nor did we find a single

factor that explained the decrease in growth. Rather there was a

confluence of factors, some of which are unlikely to recur, while others

are part of a larger trend. Future spending will potentially be higher if the

economy weakens and as the elderly population continues to grow.

No Single Spending Trend

Across States

The 3.3-percent growth in 1996 federal Medicaid outlays masks striking

variation among the states. Growth rates ranged from a decrease of

16 percent to an increase of 25 percent. Such differences in program

spending growth across states has been fairly typical. In addition, there are

often some states that experience large changes in growth from one year

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to the next because of major changes in program structure or accounting

variances that change the fiscal year in which a portion of expenditures is

reported. To determine the stability of the growth rates among states, we

compared states’ growth rates in fiscal year 1995 with those in fiscal year

1996. Our analysis showed that states could be placed in one of five

categories, as shown in table 1. (See app. I for specific state growth rates.)

Table 1: Changes in Growth Rate of Federal Medicaid Outlays, Fiscal Years 1995 and 1996

Fiscal year 1996 growth

rate compared with fiscal

year 1995’s Number of states

Percentage of 1996

federal outlays States

Decreased substantially

10 16

Colorado, Florida, Hawaii, Louisiana, North

Carolina, Oregon, Rhode Island, South Carolina,

Tennessee, Wyoming

Decreased moderately

20 48

Alabama, California, Idaho, Illinois, Iowa,

Kansas, Kentucky, Maryland, Massachusetts,

Michigan, Minnesota, Mississippi, North Dakota,

Ohio, Oklahoma, Pennsylvania, South Dakota,

Texas, Vermont, Washington

Changed minimally

16 32

Arizona, Arkansas, Connecticut, Delaware,

District of Columbia, Georgia, Missouri, Montana,

Nebraska, Nevada, New Jersey, New York, Utah,

Virginia, West Virginia, Wisconsin

Increased moderately 3 2 Alaska, Maine, New Mexico

Increased substantially 2 2 Indiana, New Hampshire

Ten states that collectively account for 16 percent of 1996 federal outlays

experienced substantial decreases in fiscal year 1996 growth compared

with fiscal year 1995’s. However, 80 percent of 1996 federal Medicaid

outlays were in states that either experienced moderate decreases or

minimal changes in their fiscal year 1996 growth. Although five states’

fiscal year 1996 growth rates increased, those states did not have much

effect on spending growth patterns because their combined share of

Medicaid outlays is only 4 percent.

A Convergence of Factors

Led to the 3.3-Percent

Growth Rate in 1996

A number of factors have led to decreases in the growth rate in Medicaid

spending in recent years. Some of these—such as the prior

implementation of cost controls and a leveling off in the number of

program eligibles following state-initiated expansions—continue to

influence the growth rate in a handful of states. Other factors, such as

improved economic conditions and changing program policies—for

example, alternatives to institutional long-term care—also influenced

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many states’ growth rates. The convergence of these factors resulted in the

historically low 3.3-percent growth rate in fiscal year 1996 Medicaid

spending.

Several Nonrecurring Factors The growth rate changes in those states that experienced large decreases

in 1996 were largely attributable to three factors not expected to recur:

substantial decreases in DSH funding, slowdowns in state-initiated

eligibility expansions, and accelerated 1995 payments in reaction to block

grant proposals for Medicaid.

In 1991 and 1993, the Congress acted to bring under control DSH payments

that had grown from less than $1 billion to $17 billion in just 2 years.1

 After

new limits were enacted, DSH payments nationally declined in 1993,

stabilized in 1994, and began to grow again in 1995. An exception to this

pattern, however, was Louisiana—a state that has had one of the largest

DSH programs in the nation. It experienced a substantial decrease in its

1996 growth rate as its DSH payments continued to decline. The state’s

federal outlays decreased by 16 percent in 1996 because of a dramatic

drop in DSH payments.

Recent slowdowns in state-initiated eligibility expansions also helped to

effect substantial decreases in the growth rates in selected states. Over the

past several years, some states implemented statewide managed care

demonstration waiver programs to extend health care coverage to

uninsured populations not previously eligible for Medicaid. Three states

that experienced substantial decreases in their 1996 growth rates—Hawaii,

Oregon, and Tennessee—undertook the bulk of their expansions in 1994.

The expenditure increases related to these expansions continued into 1995

and began to level off in 1996. Tennessee actually experienced a drop in

the number of eligible beneficiaries in 1996, as formerly uninsured

individuals covered by the program lost their eligibility because they did

not pay the required premiums.

States’ acceleration of 1996 payments into 1995 is another explanation

sometimes given for the low 1996 growth rate.2

 In 1995, the Congress—as

part of a block grant proposal—was considering legislation to establish

1

DSH payments are intended to partially reimburse hospitals for the cost of providing care not covered

by public or private insurance. A number of states, however, began to use the program to increase

their federal Medicaid dollars in conjunction with certain creative financing mechanisms. To constrain

these payments, DSH payments were limited to a target of 12 percent of Medicaid expenditures,

excluding administrative costs.

2

Aggregate data show that federal outlays were flat in the first 6 months of 1996 and then grew

6 percent in the last 6 months.

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aggregate Medicaid spending limits, which would be calculated using a

base year. Officials from a few states told us that, in response to the

anticipated block grant, they accelerated their Medicaid payments to

increase their expenditures for fiscal year 1995—the year the Congress

was considering for use as the base. For example, one state, with federal

approval, made a DSH payment at the end of fiscal year 1995 rather than at

the beginning of fiscal year 1996. An official from another state, which had

a moderate decrease in growth, told us that the state expedited decisions

on audits of hospitals and nursing homes to speed payments due these

providers.

Strong Economic Conditions Improved economic conditions, reflected in lower unemployment rates

and slower increases in the cost of medical services, also have contributed

to a moderation in the growth of Medicaid expenditures. Between 1993

and 1995, most states experienced a drop in their unemployment

rates—some by roughly 2 percentage points. As we reported earlier, every

percentage-point drop in the unemployment rate is typically associated

with a 6-percent drop in Medicaid spending.3

 States told us that low

unemployment rates had lowered the number of people on welfare and,

therefore, in Medicaid.

In addition, growth in medical service prices has steadily been declining

since the late 1980s. In 1990, the growth in the price of medical services

was 9.0 percent; by 1995, it was cut in half to 4.5 percent. In 1996, it

declined further to 3.5 percent. Declines in price inflation have an indirect

effect on the Medicaid rates that states set for providers. Officials of

several of the states we spoke with reported freezing provider payment

rates in recent years, including rates for nursing facilities and hospitals.

Such a freeze might not have been possible in periods with higher inflation

because institutional providers might challenge state payment rates in

court, arguing they had not kept pace with inflation.4

 With inflation down,

states can restrain payment rates with less concern about such challenges.

State Managed Care Programs

and Long-Term Care Policies

Several states that we contacted discussed recent program changes that

may have had an effect on their Medicaid expenditures. Most prominently

mentioned was the states’ implementation of Medicaid managed care.

However, the overall effect of managed care on Medicaid spending is

3

Medicaid: Restructuring Approaches Leave Many Questions (GAO/HEHS-95-103, Apr. 4, 1995).

4

The Boren Amendment, section 1902(a)(13)(A) of the Social Security Act, requires that states make

payments to hospitals, nursing facilities, and intermediate care facilities for the mentally retarded that

are reasonable and adequate to meet the costs that must be incurred by efficiently and economically

operated facilities. Providers in a number of states have used the Boren Amendment to compel states

to increase reimbursement rates for institutional services above the rates the states had been paying.

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uncertain because of state variations in program scope and objectives.

States also mentioned initiatives to use alternative service delivery

methods for long-term care. While these initiatives may have helped to

bring Medicaid costs down, measuring their effect is difficult.

Although some states have been using managed care to serve portions of

their Medicaid population for over 20 years, many of the states’ programs

have been voluntary and limited to certain geographic areas. In addition,

these programs tend to target women and children rather than populations

that may need more care and are more expensive to serve—such as people

with disabilities and the elderly.5

 Only a few states have mandated

enrollment statewide—fewer still have enrolled more expensive

populations—and these programs are relatively new. Arizona, which has

the most mature statewide mandatory program, has perhaps best proven

the ability to realize cost savings in managed care, cost savings it achieved

by devoting significant resources to its competitive bidding process.6

However, other states have emphasized objectives besides cost control in

moving to managed care. In recently expanding its managed care program,

Oregon chose to increase per capita payments to promote improved

quality and access and to look to the future for any cost savings. Officials

from Minnesota, which has a mature managed care program, and

California, which is in the midst of a large expansion, told us that managed

care has had no significant effect on the moderate decreases they

experienced.7

 Given the varying objectives, the ability of managed care to

help control state Medicaid costs and moderate spending growth over time

is unclear.

Some states we contacted are trying to control long-term care costs,

which, for fiscal year 1995, accounted for about 37 percent of Medicaid

expenditures nationwide. They are limiting the number of nursing home

beds and payment rates for nursing facility services while expanding home

and community-based services, which can be a less-expensive alternative

to institutional care. For example, a New York official told us that the state

is attempting to restrain its long-term care costs by changing its

rate-setting method for nursing facilities, establishing county expenditure

targets to limit growth, and pursuing home- and community-based service

5

Medicaid Managed Care: Serving the Disabled Challenges State Programs (GAO/HEHS-96-136, July 31,

1996).

6

Arizona Medicaid: Competition Among Managed Care Plans Lowers Program Costs (GAO/HEHS-96-2,

Oct. 4, 1995).

7

California considers its managed care program to be budget neutral, having no effect on spending one

way or another.

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options as alternatives to nursing facilities. Our previous work showed

that such strategies can work toward controlling long-term care spending

if controls on the volume of nursing home care and home- and

community-based services, such as limiting the number of participating

beneficiaries and having waiting lists, are in place.8

Potential for Higher

Expenditure Growth in

Future Years

Many of the factors that resulted in the 3.3-percent growth rate in

1996—such as DSH payments, unemployment rates, and program policy

changes—will continue to influence the Medicaid growth rate in future

years. However, there are indications that some of these components may

contribute to higher—not lower—growth rates, while the effect of others

is more uncertain.

Without new limits, DSH payments can be expected to add to the growth of

the overall program. While Louisiana’s adjustments to its DSH payments

resulted in a substantial reduction in its 1996 spending, other states’ DSH

spending began to grow moderately in 1995 as freezes imposed on

additional DSH spending no longer applied.9

 Although DSH payments are not

increasing as fast as they were in the early 1990s, these payments did grow

12.4 percent in 1995.

Even though the economy has been in a prolonged expansion, history

indicates that the current robust economy will not last indefinitely. The

unemployment rate cannot be expected to stay as low as it currently is,

especially in states with rates below 4 percent. Furthermore, any increases

in medical care price inflation will undoubtedly influence Medicaid

reimbursement rates, especially to institutional providers.

While states have experienced some success in dealing with long-term

care costs, the continued increase in the number of elderly people will

inevitably lead to an increase in program costs. Alternative service

delivery systems can moderate that growth but not eliminate it.

Other factors may dampen future spending growth, but by how much is

unclear. The recently enacted welfare reform legislation makes people

receiving cash assistance no longer automatically eligible for Medicaid. As

a result, the number of Medicaid enrollees—and the costs of providing

8

Medicaid Long-Term Care: Successful State Efforts to Expand Home Services While Limiting Costs

(GAO/HEHS-94-167, Aug. 11, 1994).

9

States whose DSH spending exceeded 12 percent of their total medical assistance spending in 1993

were not allowed to increase DSH spending until it fell below 12 percent of total medical assistance

spending.

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services—may decrease, since some Medicaid-eligible people may be

discouraged from seeking eligibility and enrollment apart from the new

welfare process. However, states may need to restructure their eligibility

and enrollment systems to ensure that people who are eligible for

Medicaid continue to participate in the program. Restructuring their

systems will undoubtedly increase states’ administrative costs. The net

effect of these changes remains to be seen.

The potential for cost savings through managed care also remains unclear,

as experience is limited and state objectives in switching to managed care

have not always emphasized immediate cost-containment. Yet it is hoped

that managed care will, over time, help constrain costs. While Arizona’s

Medicaid managed care program has been effective, cost savings were due

primarily to considerable effort to promote competition among health

plans. The challenge is whether the state can sustain this competition in

the future.

Administration’s

Proposal for Medicaid

Controls Spending

While Increasing

Flexibility

To help control Medicaid spending and increase state flexibility, the

administration’s 1998 budget proposal includes three initiatives:

(1) imposing additional controls over DSH payments, (2) implementing a

per capita cap policy, and (3) eliminating waiver requirements and the

Boren Amendment. Through the implementation of these and other

initiatives, the administration’s proposal projects a net saving in federal

Medicaid spending of $9 billion over 5 years.

DSH Payments Reduced As previously mentioned, in 1995 DSH payments began to grow moderately

as states began to reach their federal allotments. The Congressional

Budget Office’s Medicaid baseline estimates the federal share of DSH

payments over the next 5 years will increase from $10.3 billion in 1998 to

$13.6 billion in 2002. The administration’s proposal would cap federal

spending on DSH at $10 billion in 1998, $9 billion in 1999, and $8 billion in

2000 and thereafter. To achieve the projected savings, the administration’s

proposal would limit federal DSH payments for 1998 in each state to the

state’s 1995 level. In subsequent years, the national limit is lowered, and

the reduction is distributed across states by taking an equal percentage

reduction of all or some of each state’s 1995 DSH payments. In states where

DSH payments in 1995 exceeded 12 percent of total Medicaid expenditures,

the percentage reduction would only apply to the amounts at or under the

12-percent limit. This limit on reductions would affect 16 states that in

1995 had DSH payments in excess of 12 percent of their total Medicaid

expenditures.

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In the past we reported on states using creative mechanisms to increase

their federal Medicaid dollars, specifically through DSH, provider-specific

taxes and voluntary contributions, and intergovernmental transfers.10

Legislation in 1991 and 1993 went a long way toward controlling DSH

payments and provider taxes and voluntary contributions. In particular,

the 1991 legislation froze DSH payments for “high-DSH” states—those whose

DSH expenditures exceeded 12 percent of Medicaid expenditures—because

of concerns that these high levels included inappropriate efforts to

increase federal matching funds. The administration’s proposal would

provide some protection for high-DSH states at the expense of low-DSH

states that have kept their share of program spending on DSH below the

congressionally specified target level.

Per Capita Caps to Limit

Federal Spending

The administration’s proposed per capita cap aims at more certain control

over federal Medicaid spending but does not address concerns about the

distribution of federal funding resulting from the current matching

formula. The administration’s proposal defines a per capita cap policy that

would limit federal Medicaid spending on a per beneficiary basis. As

Medicaid enrollment increases in a particular state, so would the federal

dollars available to the state. The per capita cap would be set using 1996 as

the base year—including both medical and administrative expenditures.

The proposal would use an index based on nominal gross domestic

product (GDP) per capita plus an adjustment factor to account for

Medicaid’s high utilization and intensity of services provided. This index

and the number of people eligible for Medicaid in a particular year would

be applied to the total 1996 expenditures to determine a state’s per capita

limit of federal dollars. Savings expected from this proposal will depend

on restraining the growth in spending per beneficiary to about 5 percent a

year over the 5-year period.

When the Medicaid program was established, a matching formula to

determine the share of federal funds was adopted to narrow the

differences likely to result among the Medicaid programs of wealthier and

poorer states. Because states have discretion regarding the extent and

depth of their programs, the federal share of Medicaid expenditures varied

with states’ per capita income so that differences in poverty rates and state

tax bases would not result in excessive differences in the coverage given

to poor people living in different states. However, per capita income has

proven to be an imprecise proxy for the incidence of poverty and state tax

10Medicaid: States Use Illusory Approaches to Shift Program Costs to Federal Government

(GAO/HEHS-94-133, Aug. 1, 1994); Michigan Financing Arrangements (GAO/HEHS-95-146R, May 5,

1995); and State Medicaid Financing Practices (GAO/HEHS-96-76R, Jan. 23, 1996).

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capacity. In addition, current law guarantees that no state will have to pay

more than half of the total costs of its Medicaid program, meaning states

with higher income receive a higher federal share than they otherwise

would. This has contributed to disparities among states in coverage of

population groups and services as well as in federal funding.

The administration’s proposal would not address these disparities. To the

extent there is congressional interest in lessening them, we have

previously indicated that any distribution formula should include

(1) better and more direct measures than per capita income for both the

incidence of poverty and states’ ability to finance program benefits,

(2) adjustors for geographic differences in the cost of health care, and

(3) a reduced guaranteed federal minimum match.11

Increased State Flexibility In regard to state flexibility, the administration has proposed changes in

three areas: managed care programs, long-term care programs, and the

Boren Amendment. Currently, states must obtain waivers of certain

federal statutory requirements in order to implement large-scale managed

care programs and to provide home- and community-based services as

alternatives to nursing facility care. The administration has proposed

eliminating the need for a waiver for such programs. In addition, the Boren

Amendment, which places certain requirements on how states can set

reimbursement rates for hospitals and nursing facilities, would be

repealed.

Medicaid’s restrictions on states’ use of managed care reflect historical

concerns over access and quality. For example, the so-called 75/25 rule

that stipulates that, to serve Medicaid beneficiaries, at least 25 percent of a

health plan’s total enrollment must consist of private paying patients, was

intended as a proxy for quality because private patients presumably have a

choice of health plans and can vote with their feet. A second provision,

allowing Medicaid beneficiaries to terminate enrollment in a health plan at

almost any time, aims to provide them with a similar capacity to express

dissatisfaction over the provision of care. The administration’s proposal

would replace these requirements with enhanced quality monitoring

systems.

We have studied Medicaid managed care programs for many years and

have concluded that some federal requirements may have hampered

11Medicaid: Matching Formula’s Performance and Potential Modifications (GAO/T-HEHS-95-226,

July 27, 1995).

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states’ cost-containment efforts. However, the experience of states with

Medicaid managed care programs underscores the importance of adequate

planning and appropriate quality assurance systems.12 If states are granted

more direct control to aggressively pursue managed care strategies, the

importance of continuous oversight of managed care systems to protect

both Medicaid beneficiaries from inappropriate denial of care and federal

dollars from payment abuses should not be overlooked.

We have also reported on the successful use by states of home- and

community-based care services as an alternative to nursing facilities.

States we contacted in the course of this work have expanded the use of

such services as part of a strategy to help control rapidly increasing

Medicaid expenditures for institutional care. States have told us that when

implementing these programs, they value the control they have under a

waiver but not under the regular program over the amount of home- and

community-based services provided. They indicated this control allows

them to serve the population in need within budgetary constraints. Despite

the limitations in program size, these programs have allowed states to

serve more people with the dollars available.

Originally, the Boren Amendment was intended to provide states with

greater latitude in setting hospital and nursing facility reimbursement rates

while ensuring rates were adequate to provide needed services. Over time,

however, states believe court decisions have made the Boren Amendment

burdensome to states and affected their ability to set reimbursement rates.

The uncertainty created by the language of the Boren Amendment is

potentially preventing states from controlling rates of payment to

institutional providers in ways that compromise neither access nor quality.

While some clarification of the Boren Amendment to address state

concerns is needed, its original goals are still valid.

Mr. Chairman, this concludes my statement. I would be happy to answer

any questions you or members of the Subcommittee might have at this

time. Thank you.

12Medicaid: Spending Pressures Spur States Toward Program Restructuring (GAO/T-HEHS-96-75, Jan.

18, 1996); Medicaid: Tennessee’s Program Broadens Coverage but Faces Uncertain Future

(GAO/HEHS-95-186, Sept. 1, 1995); Medicaid: State Flexibility in Implementing Managed Care

Programs Requires Appropriate Oversight (GAO/T-HEHS-95-206, July 12, 1995); Medicaid Managed

Care: More Competition and Oversight Would Improve California’s Expansion Plan (GAO/HEHS-95-87,

Apr. 28, 1995); and Medicaid: States Turn to Managed Care to Improve Access and Control Costs

(GAO/HRD-93-46, Mar. 17, 1993).

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Contributors For more information on this testimony, please call Kathryn G. Allen,

Assistant Director, on (202) 512-7059. Other major contributors included

Lourdes R. Cho, Richard N. Jensen, Deborah A. Signer, and Karen M.

Sloan.

Page 13 GAO/T-HEHS-97-94
Appendix I 

Stability of Growth Rate for Federal

Medicaid Outlays, Fiscal Years 1995 and

1996

GAO developed a growth stability index that shows the direction and

magnitude of change in the growth rates of federal outlays between fiscal

years 1995 and 1996. An index of 1.0 indicates no change in the growth

rates for the 2 years. An index greater than 1.0 indicates a decrease in the

1995-96 growth rates. For example, Colorado’s index of 1.37 ranks it as

having the largest decrease.

Table I.1: Growth Stability Index for

Federal Medicaid Outlays by State,

Fiscal Years 1995 and 1996

Percentage

growth,

fiscal year

1995

Percentage

growth,

fiscal year

1996

Growth

stability

index

State ranking based

on growth stability

index

States and District

of Columbia 11.00 3.18a 1.08

Alabama 10.63 3.71 1.07 26

Alaska 2.54 17.60 0.87 49

Arizona 2.70 4.58 0.98 43

Arkansas 8.76 7.50 1.01 38

California 13.73 2.80 1.11 21

Colorado 30.84 –4.66 1.37 1

Connecticut 10.68 11.51 0.99 40

Delaware 24.47 19.65 1.04 35

District of Columbia –0.51 –1.37 1.01 39

Florida 22.35 –4.28 1.28 4

Georgia 7.82 2.44 1.05 31

Hawaii 31.87 11.46 1.18 9

Idaho 12.99 5.46 1.07 24

Illinois 16.30 1.85 1.14 12

Indiana –13.34 24.52 0.70 51

Iowa 11.46 –0.02 1.11 17

Kansas 12.67 –2.05 1.15 11

Kentucky 13.36 2.15 1.11 19

Louisiana 1.19 –15.96 1.20 8

Maine –0.22 10.21 0.91 48

Maryland 15.56 3.36 1.12 16

Massachusetts 11.22 3.50 1.07 23

Michigan 7.86 1.46 1.06 27

Minnesota 13.48 2.52 1.11 20

Mississippi 16.54 3.34 1.13 15

Missouri 8.70 6.81 1.02 36

Montana 7.05 11.76 0.96 46

(continued)

Page 14 GAO/T-HEHS-97-94
Appendix I 

Stability of Growth Rate for Federal

Medicaid Outlays, Fiscal Years 1995 and

1996

Percentage

growth,

fiscal year

1995

Percentage

growth,

fiscal year

1996

Growth

stability

index

State ranking based

on growth stability

index

Nebraska 6.22 9.89 0.97 45

Nevada 20.88 15.52 1.05 32

New Hampshire –21.73 0.95 0.78 50

New Jersey 10.16 5.54 1.04 33

New Mexico 13.80 21.30 0.94 47

New York 8.13 6.47 1.02 37

North Carolina 26.51 1.27 1.25 5

North Dakota 11.19 0.08 1.11 18

Ohio 10.94 4.43 1.06 28

Oklahoma 9.22 3.42 1.06 30

Oregon 38.37 4.26 1.33 3

Pennsylvania 7.50 1.62 1.06 29

Rhode Island 18.81 –10.97 1.33 2

South Carolina 16.72 0.71 1.16 10

South Dakota 13.18 –0.03 1.13 13

Tennessee 21.67 0.78 1.21 7

Texas 11.80 4.57 1.07 25

Utah 10.14 11.25 0.99 41

Vermont 18.23 7.40 1.10 22

Virginia 5.24 8.41 0.97 44

Washington 15.39 2.02 1.13 14

West Virginia –3.19 –1.77 0.99 42

Wisconsin 7.55 3.17 1.04 34

Wyoming 20.88 –1.68 1.23 6

aAggregate growth in federal outlays for Medicaid is 3.3 percent when outlays for territories are

included in calculation.

Source: Federal outlays for Medicaid, U.S. Treasury.

(101550) Page 15 GAO/T-HEHS-97-94
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