The Bush Administration's Medicaid Reform Proposal: Using Data to Estimate Mandatory and Optional Beneficiaries and Expenditures

Publication Date: July 2003

Publisher: Library of Congress. Congressional Research Service

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Research Area: Health

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Abstract:

Medicaid, a health insurance program jointly funded by federal and state governments, is facing a period of escalating costs and rising enrollment among the population it serves -- low-income individuals with disabilities, families and the elderly. The downturn in the economy since 2000 coupled with rising Medicaid costs and increasing enrollment and utilization are driving legislative attention both at the state and federal levels. Medicaid expenditures are a significant portion of most states' budgets and are a contributor to the current fiscal crises. However, it is a challenge for states to cut back Medicaid programs because some of the high cost components (such as nursing facility care) are statutorily required for certain beneficiaries, while other optional services (such as prescription drugs) may be important for beneficiaries' well-being.

In response to these fiscal pressures, on January 31, 2003, Secretary Tommy Thompson of the Department of Health and Human Services (HHS) announced a proposal to change the Medicaid program and provide additional flexibility to states. The Administration's proposal would give states the option to receive federal funds that combine Medicaid and the State Children's Health Insurance Program (SCHIP) into two lump-sum annual allotments, one for acute care and one for long-term care. While many details surrounding the proposal are still unknown, the Administration has indicated that current mandatory eligibility groups would retain their entitlement to mandatory benefits, and states would have considerably greater flexibility to change coverage of currently optional eligibility groups and optional benefits.

The Administration's Medicaid reform proposal is based on a policy design principle that requires the ability to identify those individuals who would maintain their entitlement to Medicaid. The primary federal data source to differentiate between mandatory and optional expenditures is the Medicaid Statistical Information System (MSIS). MSIS contains national enrollment and service use data on the Medicaid population and are the most comprehensive federal data available. However, overlapping Medicaid's complex rules with MSIS data does not support a detailed analysis of mandatory and optional people or spending. National estimates that attempt to separate mandatory from optional individuals and expenditures using MSIS must rely on a significant number of underlying assumptions. These assumptions are important to understand as they influence the estimates.