As a comprehensive health benefit program for vulnerable populations, each state Medicaid program, by law, must cover certain categories of individuals and provide a broad array of benefits. Within these requirements, however, the Medicaid program allows for significant flexibility for states to design and implement their programs, resulting in more than 50 distinct state-based programs. These variations in design have implications for program eligibility and services offered, as well as how expenditures are reported and services are delivered. Specifically, in administering their own programs, states make decisions regarding populations or health services to cover beyond what are mandated by law. States must cover certain groups of individuals, such as pregnant women with incomes at or below 133 percent of the federal poverty level (FPL), but may elect to cover them above this required minimum income level. For example, as of March 2011, some states covered pregnant women with incomes at or above 250 percent of the FPL. Similarly, while states’ Medicaid programs generally must cover certain mandatory services—including inpatient and outpatient hospital services, physician services, laboratory and X-ray services, and nursing facility services for those age 21 and older—states may also elect to cover additional optional benefits and services. These optional benefits and services include prescription drugs, dental care, hospice care, home- and community-based services, and rehabilitative services. In addition, even among states that offer a particular benefit, the breadth of coverage (i.e., amount, duration, and scope) of that benefit can vary greatly. For example, most states cover some dental services, but some limit this benefit to trauma care and/or emergency treatment for pain relief and infection, while others also cover annual dental exams. States also have flexibility, within general federal requirements, to determine how the services they cover will be delivered to Medicaid enrollees—whether on a fee-for-service basis or through managed care arrangements. For example, under some managed care arrangements, the state pays managed care organizations a fixed amount, known as a capitation payment, to provide a package of services. States vary in terms of the types of managed care arrangements used and the eligibility groups enrolled. For example, while 12 states enrolled 50 percent or more of their disabled enrollees in comprehensive risk-based managed care in fiscal year 2011, 20 states enrolled fewer than 5 percent of disabled enrollees in such arrangements. States may also operate premium assistance programs to subsidize the purchase of private health insurance—such as employer-sponsored insurance—for Medicaid enrollees. In 2009, 35 states reported using Medicaid funds to provide premium assistance. These differences in covered services and delivery systems can affect the distribution of states’ spending across categories of services. For example, states that rely heavily on managed care arrangements to provide hospital care and acute care services to their enrollees are likely to have a greater proportion of their expenditures devoted to managed care, and a lower proportion to the covered services, than states that do not have such managed care arrangements. A small percentage of Medicaid-only enrollees consistently accounted for a large percentage of total Medicaid expenditures for Medicaid-only enrollees. As shown in figure 1, there was little variation across the years we examined. In each fiscal year from 2009 through 2011, the most expensive 1 percent of Medicaid-only enrollees in the nation accounted for about one-quarter of the expenditures for Medicaid-only enrollees; the most expensive 5 percent accounted for almost half of the expenditures; the most expensive 25 percent accounted for more than three- quarters of the expenditures; in contrast, the least expensive 50 percent accounted for less than 8 percent of the expenditures; and about 12 percent of enrollees had no expenditures. These findings regarding Medicaid-only enrollees are similar to those that others have reported for all Medicaid enrollees, as well as for Medicare and personal healthcare spending in the United States. A Kaiser Family Foundation report found that in fiscal year 2001, the most expensive 1.1 percent of all Medicaid enrollees—including those dually eligible for Medicare—accounted for more than one-quarter of Medicaid expenditures, and the most expensive 3.6 percent accounted for nearly half. The Congressional Budget Office reported that in 2001, the most expensive 5 percent of Medicare enrollees in fee-for-service plans accounted for 43 percent of Medicare expenditures, and the most expensive 25 percent accounted for 85 percent. The National Institute for Health Care Management reported that in 2009, the most expensive 1 percent of the overall civilian U.S. population living in the community accounted for more than 20 percent of personal health care spending, with the most expensive 5 percent accounting for nearly half. We also found that in each state, a similarly small percentage of high- expenditure Medicaid–only enrollees was responsible for a disproportionately large share of expenditures for Medicaid-only enrollees, although the magnitude of this effect varied widely across states. For example, the percentage of expenditures for the most expensive 5 percent of Medicaid-only enrollees ranged from 28.8 percent in Tennessee to 63.2 percent in California. For additional state-by-state information about the distribution of expenditures among Medicaid-only enrollees in fiscal year 2011, see appendix II. The proportions of high-expenditure Medicaid-only enrollees in different eligibility groups were consistent from fiscal year 2009 through 2011, as shown in figure 2.enrollees were disabled (less than 10 percent), disabled enrollees were disproportionately represented in the high-expenditure group, consistently constituting about 64 percent of those with the highest expenditures. Conversely, although children were the largest group of Medicaid-only enrollees (about 50 percent), they consistently constituted about 16 percent of the high-expenditure group. The distribution of high-expenditure Medicaid-only enrollees’ expenditures among selected categories of service in fiscal year 2011 varied widely across states. As noted above, managed care arrangements can affect the distribution of expenditures for covered services. For some states, such as Tennessee and Hawaii, a high percentage of expenditures were for managed care or premium assistance, and correspondingly low percentages were for expenditures such as hospital care or acute care services. For other states, such as Idaho and Oklahoma, a low percentage of expenditures were for managed care or premium assistance, and correspondingly higher percentages were for hospital care or acute care services. States’ reliance on managed care plans to provide certain services limits what can be learned from the MSIS summary data regarding the services received by enrollees, because the data show the per-enrollee payments made by state Medicaid programs to plans, not the payments the plans made to providers for the services for which the plans are responsible. In a state such as Tennessee, for example, in which all Medicaid enrollees are in managed care plans that are responsible for providing hospital care and a broad array of acute care services, the state’s low percentages of expenditures in those service categories reflect the delivery system structure of the state Medicaid program, not enrollees’ utilization of services. The greatest variation among states in their expenditures for specific service categories was for managed care and premium assistance. As shown in figure 3, four states reported that 0 percent of their expenditures were for managed care or premium assistance. For states that did report expenditures in this category, the percentage ranged from less than 1 percent to 75 percent. Nationwide, about 15 percent of expenditures for high-expenditure Medicaid-only enrollees were in this category. The variation among states in the percentages of expenditures in this service category reflects the wide variation among states in their reliance on managed care arrangements to provide services to enrollees, and particularly disabled enrollees, who constituted almost two-thirds of high- expenditure Medicaid-only enrollees. In the five states with the highest percentage of expenditures for managed care and premium assistance, the percentage of disabled enrollees in comprehensive risk-based managed care plans ranged from 44 percent in New Mexico to more than 90 percent in Hawaii and Tennessee, compared with 0 percent in the five states with the lowest percentages of expenditures in this service category. States also varied widely—from 0 to about 45 percent—in the percentages of high-expenditure Medicaid-only enrollees’ expenditures for hospital care (inpatient and outpatient). About 27 percent of nationwide expenditures for high-expenditure Medicaid-only enrollees were in this category. (See fig. 4.) Similarly, states varied widely—from nearly 0 to about 45 percent—in the percentages of high-expenditure Medicaid-only enrollees’ expenditures that were for non-institutional support services other than acute or long- term support services. These other support services include hospice benefits, private duty nursing, rehabilitative services, and targeted case management. About 17 percent of nationwide expenditures were for enrollees in this category. (See fig. 5.) States also varied in the percentages of high-expenditure Medicaid-only enrollees’ expenditures in other categories, if not as widely. States varied least—from 0 to 11 percent—in the percentage of expenditures for high- expenditure Medicaid-only enrollees that were for psychiatric facility care, which accounted for about 2 percent of nationwide expenditures for high-expenditure Medicaid-only enrollees. The percentage of a state’s expenditures for high-expenditure Medicaid-only enrollees varied in other categories from 0 to 33 percent for acute care services,11 percent of nationwide expenditures; 0 to 25 percent for prescription drugs, which accounted for 14 percent 0 to about 23 percent for long-term non-institutional support services,expenditures; and which accounted for about 6 percent of nationwide 0 to 22 percent for long-term institutional care, 9 percent of nationwide expenditures. Long-term institutional care includes nursing facilities and intermediate care facilities for individuals with intellectual disabilities. See GAO, Medicaid: Assessment of Variation among States in Per-Enrollee Spending, GAO-14-456 (Washington, D.C.: June 16, 2014), and GAO, Medicaid: Alternative Measures Could Be Used to Allocate Funding More Equitably, GAO-13-434 (Washington, D.C.: May 10, 2013). percentage of expenditures reported in the MSIS summary file that was attributable to prescription drugs was lower on average in states that included some or all drugs in the package of services provided by managed care plans than in states that paid for all drugs on a fee-for- service basis, and the three states in which the share of expenditures that went to drugs was lowest—Arizona, Hawaii, and New Mexico—included all drugs in their managed care packages. States vary widely in the distribution of their expenditures among service categories; for state-by-state information about the percentage of high- expenditure Medicaid-only enrollees’ expenditures for selected categories of services in fiscal year 2011, see appendix V. HHS reviewed a draft of this report and provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Secretary of HHS and other interested parties. The report also will be available at no charge on the GAO website at http://www.gao.gov. 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 VI. This appendix describes the methodology for addressing our three objectives regarding high-expenditure Medicaid enrollees who are not also enrolled in Medicare, that is, Medicaid-only enrollees. These objectives were to: (1) examine the distribution of expenditures among Medicaid-only enrollees, (2) determine whether the proportions of high- expenditure Medicaid-only enrollees in selected categories changed or remained consistent from year to year, and (3) determine whether the distribution of high-expenditure Medicaid-only enrollees’ expenditures among selected categories of service varied across states. We analyzed data from the Medicaid Statistical Information System (MSIS) Annual Person Summary File. This summary file consolidates individual enrollees’ claims for a single fiscal year, including data on their enrollment and expenditures. The file includes enrollee-specific information regarding enrollment categories, expenditures, dual eligibility status, age, gender, payment arrangements—including fee-for-service payments and capitated payments made to managed care organizations—and indicators for five chronic conditions and two service categories. The five chronic condition indicators are for asthma, diabetes, human immunodeficiency virus/acquired immunodeficiency syndrome (HIV/AIDS), mental health conditions, and substance abuse. The two service category indicators are for delivery or childbirth (which may include costs attributed to a mother during delivery or the child soon after birth) and long-term care residence. The summary file does not provide information on other conditions that may affect enrollees’ expenditures. We used data from fiscal years 2009, 2010, and 2011—the most recent years for which data from almost all states were available. As of December 2014, the summary file did not include expenditure or enrollment data from Maine for fiscal year 2011. We made several changes to limit our analyses to Medicaid-only enrollees and ensure that the data were sufficiently reliable for our purposes. For example, because our objectives focused on Medicaid-only enrollees, we excluded those who were dually eligible for both Medicaid and Medicare. Specifically, we made the following adjustments to the data: If an individual’s enrollment category was listed as child, adult, or aged, and the recorded age or other information was inconsistent with that category, we re-defined the enrollment category as unknown. We reset all negative expenditures (which can indicate adjustments to expenditures recorded in prior years) to 0. Generally, states may report adjustments to their Medicaid expenditures for up to two years. To the extent that negative expenditures reflect adjustments to prior year expenditures, retaining them would result in an underestimate of expenditures for any specific year. records because we could not determine which expenditures for these enrollees were Medicaid expenditures. After making these changes, we retained about 85 percent of the original records in the summary file for each fiscal year, counting the records from all states and the District of Columbia (but not counting records from Maine in 2011, which were unavailable). These records represent just under 65 percent of total Medicaid expenditures in these years. (We previously reported that dual-eligible enrollees—whom we excluded from our analyses—accounted for about 35 percent of total Medicaid expenditures in fiscal year 2009.) As of December 2014, the summary file did not include fiscal year 2011 expenditure data from Florida, and so we excluded Florida from all further analyses of 2011 data. We assessed the reliability of these data by performing appropriate electronic data checks and reviewing relevant documentation, and determined that the data from Idaho for 2010 were not sufficiently reliable for our purposes. We determined that the remaining data were sufficiently reliable for our purposes. Our analyses were thus based on data from all states and the District of Columbia, but excluded Idaho in fiscal year 2010, and excluded Florida and Maine in fiscal year 2011. To determine the distribution of expenditures among Medicaid-only enrollees, we calculated the cumulative frequency distribution of expenditures for enrollees. That is, we placed all Medicaid-only enrollees nationwide in rank order by their total Medicaid expenditures, from highest to lowest, and determined the cumulative percentage of nationwide expenditures for Medicaid-only enrollees attributable to enrollees as the percentage of ordered enrollees increased. We analyzed data from 3 years—fiscal years 2009, 2010, and 2011—separately to determine whether the relationship was similar or different across years. To facilitate interpretation of these frequency distributions, we also computed a mathematical coefficient that provides information about the relationship between the percentage of Medicaid-only enrollees and the percentage of total Medicaid expenditures for these enrollees—the Gini coefficient. This coefficient indicates the degree of inequality, that is, the extent to which the frequency distribution differs from one in which expenditures are equal for all enrollees. Figure 6 illustrates the difference between frequency distributions with differing Gini coefficients. To determine whether the proportions of high-expenditure Medicaid-only enrollees in selected categories changed or remained consistent from year to year, we conducted two separate analyses. For both, we defined high-expenditure Medicaid-only enrollees as the 5 percent with the highest expenditures within each state, as we had in our earlier work on high-expenditure Medicaid enrollees. For one analysis, we examined the percentage of high-expenditure Medicaid-only enrollees in five mutually exclusive eligibility groups (child, adult, aged, disabled, or unknown). For another analysis, we examined the percentage of high-expenditure Medicaid-only enrollees identified as having any one of the five chronic conditions recorded in the summary file (asthma, diabetes, HIV/AIDS, mental health conditions, or substance abuse) or either of the two services (delivery or childbirth, and long-term care residence) recorded in the summary file. Enrollees could have any of these seven conditions or services, any combination of them, or none of them. We compared the proportions of high-expenditure enrollees in each of these sets of categories in fiscal years 2009, 2010, and 2011. To determine whether the distribution of high-expenditure Medicaid-only enrollees’ expenditures among selected categories of service varied across states, we again defined high-expenditure Medicaid-only enrollees as the 5 percent with the highest expenditures within each state and examined expenditures for fiscal year 2011 in eight categories of service. These categories were three types of institutional care— hospital, long-term, and psychiatric facility; three types of non-institutional services—acute care; long-term support; and other support services, such as targeted case management or rehabilitative services; prescription drugs; and managed care and premium assistance. We identified the distribution of expenditures for high-expenditure enrollees among these types of service within each state in fiscal year 2011 and compared the distributions across states. Table 4 provides information about the distribution of expenditures among Medicaid-only enrollees nationally and in each state and the District of Columbia in fiscal year 2011, including the percentages of expenditures for Medicaid-only enrollees that were attributable to the most expensive 1, 5, 10, and 25 percent of these enrollees; the percentage of expenditures for Medicaid-only enrollees that were attributable to the least expensive 50 percent of these enrollees (including those with 0 expenditures); and the Gini coefficient, which indicates the degree of inequality; that is, the extent to which the frequency distribution differs from one in which expenditures are equal for all enrollees. These state-by-state data illustrate that states differ widely in the degree to which their distribution of expenditures varied across enrollees, but in each state, a small percentage of high-expenditure Medicaid–only enrollees was responsible for a disproportionately large share of the expenditures for Medicaid-only enrollees. Table 5 provides information about the percentage of high-expenditure Medicaid-only enrollees in five mutually exclusive eligibility groups (child, adult, aged, disabled, or unknown) nationally and in each state and the District of Columbia in fiscal year 2011. These data indicate that while there was considerable variation across the states, in each state, the greatest percentage of high-expenditure Medicaid-only enrollees were disabled and the lowest percentage in a known eligibility group were aged. Table 6 provides information about the percentage of high-expenditure Medicaid-only enrollees with certain conditions or services nationally and in each state and the District of Columbia in fiscal year 2011. The conditions are five chronic conditions recorded in the Medicaid Statistical Information System Annual Person Summary File—asthma, diabetes, human immunodeficiency virus/acquired immunodeficiency syndrome (HIV/AIDS), mental health conditions, or substance abuse. The services are two services—delivery or childbirth, and long-term care residence— recorded in the summary file. Enrollees could have any of these conditions or services, any combination of them, or none of them. These data indicate considerable variation across states, although the majority of these enrollees in each state except Pennsylvania had at least one of these conditions or services, and within each state, mental health conditions were the most common of these conditions and services. Table 7 provides information about the percentage of high-expenditure Medicaid-only enrollees’ expenditures in different categories of services nationally and in each state and the District of Columbia in fiscal year 2011, and illustrates that states vary widely in the distribution of their expenditures among service categories. These categories were three types of institutional care—hospital, long-term, and psychiatric facility; three types of non-institutional services—acute care; long-term support; and other support services, such as targeted case management or rehabilitative services; prescription drugs; and managed care and premium assistance. Expenditures for categories of service other than managed care and premium assistance do not include payments for those services that were made by managed care plans. As a result, the percentage of expenditures does not necessarily reflect enrollees’ utilization of services. In addition to the contact named above, key contributors to this report were Robert Copeland, Assistant Director; Dee Abasute; Kristen Joan Anderson; Nancy Fasciano; Giselle Hicks; Drew Long; and Jennifer Whitworth.

Summary: Studies on healthcare spending generally find that a small percentage of individuals account for a large proportion of expenditures, and Medicaid—a federal-state health financing program for low-income and medically needy individuals—is no exception. Medicaid expenditures for fiscal year 2013 totaled about $460 billion, covering about 72 million enrollees, some of whom were also eligible for Medicare. More information about Medicaid enrollees who are not also eligible for Medicare (i.e., Medicaid-only enrollees) and who account for a high proportion of expenditures could enhance efforts to manage expenditures and facilitate improvements to care. GAO was asked to provide information about the characteristics of high-expenditure Medicaid-only enrollees and their expenditures. GAO (1) examined the distribution of expenditures among Medicaid-only enrollees, (2) determined whether the proportions of high-expenditure Medicaid-only enrollees in selected categories changed or remained consistent from year to year, and (3) determined whether the distribution of high-expenditure Medicaid-only enrollees' expenditures among selected categories of service varied across states. GAO analyzed data from the Medicaid Statistical Information System Annual Person Summary File for fiscal years 2009, 2010, and 2011, the most recent years for which data from almost all states were available. A small percentage of Medicaid-only enrollees—that is, those who were not also eligible for Medicare—consistently accounted for a large percentage of total Medicaid expenditures for Medicaid-only enrollees. In each fiscal year from 2009 through 2011, the most expensive 5 percent of Medicaid-only enrollees accounted for almost half of the expenditures for all Medicaid-only enrollees. In contrast, the least expensive 50 percent of Medicaid-only enrollees accounted for less than 8 percent of the expenditures for these enrollees. Of the Medicaid-only enrollees who were among the 5 percent with the highest expenditures within each state, the nationwide proportions of these enrollees in different eligibility groups (such as the disabled or children) and with certain conditions (such as asthma) or services (such as childbirth or delivery) were also consistent from fiscal years 2009 through 2011. The distribution of high-expenditure Medicaid-only enrollees' expenditures among categories of service in fiscal year 2011 varied widely across states. Expenditures for managed care and premium assistance varied most widely (from 0 to 75 percent). The Department of Health and Human Services provided technical comments on a draft of this report, which were incorporated as appropriate.