Medicaid spending will increase at an average annual rate of 7.4% through 2002, more than two percentage points less than government estimates, according to a report released last week by a liberal think tank.
The Urban Institute, which prepared the study, said the slowdown is due to several factors, including lower Medicaid disproportionate-share payments, slower growth in Medicaid enrollment due to state welfare reforms and slower growth in costs per beneficiary as more states move to managed care.
The question now is what will the Congressional Budget Office predict when it releases its new budgetary projections in January? The CBO is charged with determining the official congressional budget estimates.
Last week, CBO Director June O'Neill agreed that growth in both Medicare and Medicaid had slowed since last year but would not say how much.
The CBO's decision is important because of its impact on the budget process. If growth has in fact slowed, it may make lawmakers less interested in reforming the program than they were when costs were increasing at double-digit rates. From 1988 through 1992, it had been rising by an average of 22.4% per year (See chart).
"This raises questions about how major a change is necessary at this point," said John Holahan, director of the Urban Institute Health Policy Research Center.
But others said they were concerned that without structural changes to the Medicaid program, costs will again rise faster than expected.
"This is the same program that gave us double-digit increases from 1988-1992," said Bruce Bullen, commissioner of the Massachusetts division of medical assistance. "What would it take to return to double-digit increases? The answer is not much."
Gail Wilensky, chair of the Physician Payment Review Commission, said she also doubted that spending on Medicaid would continue to moderate unless more fundamental changes were made in the program. Wilensky added that she was concerned that GOP leaders will shelve their plan to give states more flexibility rather than take on the White House over Medicaid again.
"This is definitely a fight they don't need," Wilensky said.
One wild card is the nation's governors who are still pressing GOP lawmakers to reform the Medicaid program.
"The governors are rabid about getting more flexibility, and that isn't going to change just because costs are slowing," said one GOP aide who asked not to be identified.