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REPORT: Medicaid Does A Better Job Of Containing Costs Than Private Insurance

By Igor Volsky  

"REPORT: Medicaid Does A Better Job Of Containing Costs Than Private Insurance"

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Republicans railing against Medicaid would be well served by reading this brief from the Urban Institute. John Holahan, Lisa Clemans-Cope, Emily Lawton, and David Rousseau argue that the program — which saw an increase in beneficiaries since the Great Recession — has done a better job of containing health care spending than private insurers:

As policymakers explore deficit reduction options involving Medicaid at the federal level and spending reductions at the state level, they need to recognize that a large amount of cost containment measures have already been taken, with considerable success, and further cuts could have adverse effects on access and health care quality for their sickest and poorest residents. [..]

On a per enrollee basis, however, growth in Medicaid spending (the national average, not necessarily specific states) is slower than both growth in national health expenditures per capita and increases in private health insurance premiums (Figure 1). Moreover, although Medicaid spending per enrollee has risen 1.6 percentage points faster than growth in GDP per capita (3.0 percent) over the last decade (2000-2009), its per capita growth has been far below the rise in overall per capita health spending in America, which has risen 2.9 percentage points per year faster than GDP per capita over this same period.

Growth in Medicaid spending per enrollee is lower than the increases in national health expenditures per capita and the premium growth of employer-sponsored health insurance plans due to an aggressive set of cost containment policies implemented by states in general. These include lower fee-for-service payment rates, consistent expansion of Medicaid managed care programs, an array of policies to control prescription drugs, and extension of home health and community-based services intended to reduce the level of institutionalization.

The Center for Budget and Policy Priorities’ Edwin Park provides this chart:

The Affordable Care Act does temporarily increase the reimbursement rates to Medicaid providers (and policy wonks agree that more needs to be done in this regard), but this report undermines the argument that Medicaid costs are out of control and that states would be better capping or even opting out of the program. The fact is that Medicaid cost growth per beneficiary “has essentially tracked growth in health-care costs systemwide” and the program actually “provides more comprehensive benefits than private insurance and charges beneficiaries significantly lower out-of-pocket costs.”

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