The Medical Assistance program, or Medicaid, is the nation’s “health insurer of last resort.” The program is designed to provide health care for those elderly, physically and mentally disabled, children, and families who cannot afford to provide that care for themselves. Totaling $26 billion during State Fiscal Year 1996-97, Medicaid spending has become the largest component of the New York State budget and is the second largest component of spending from the State’s General Fund.1
The Committee staff’s forecasting efforts focus on the traditional health care expenditures administered by the New York State Department of Health.2 According to the financial plan estimates prepared by the Executive in conjunction with the presentation of the 1998-99 State Budget Proposal in January 1998, the State Department of Health is expected to expend $5.5 billion in State funds from its 1997-98 budget for Medicaid.3 For State Fiscal Year 1998-99, the Committee staff is projecting that the Department of Health will expend $5.4 billion in State funds for the Medicaid program, assuming that those policies currently in effect for the 1997-98 fiscal year will remain in effect during SFY 1998-99.4 The Committee staff projection is $272 million below the Executive forecast of $5.7 billion.
Following three years of double-digit growth during the recession of the early 1990’s, Medicaid’s rate of expansion has fallen to more modest levels, not only in New York State but at the national level as well.5 In New York, this deceleration is related to a variety of reasons, including: the decline in the rate of medical care inflation; an improved economy which reduces the number of people who need governmental assistance in meeting their health care needs, and restructuring within the State’s health care industry, together with deliberate policy actions enacted during the last three fiscal years aimed specifically at controlling cost. This paper will demonstrate the consistency of the Committee staff’s projection of Medicaid growth with developments currently taking place within the State’s health care industry.
Medicaid services are provided to three major types of clients: the aged, blind, and disabled who require expensive long-term care in addition to other services; the mentally disabled; and children, families, and single adults in need of temporary assistance due to their financial circumstances (see Figure 1).
Although the aged, blind and disabled account for about 52 percent of total program costs, they comprise less than one third of all Medicaid recipients. Over 40 percent of the more than two million people who received care through the Medicaid program on an average monthly basis during 1996 were dependent children although children account for only about 14 percent of program costs. The focus here will be on the two populations that comprise the “traditional” Medicaid population: the aged, blind and disabled; and those in need of assistance due to their financial circumstances.
The Medicaid program is operated by the states according to federal guidelines. Medicaid costs are shared by the federal, State, and county governments. In New York, the federal government covers roughly half of the overall cost, the State about one third, while local governments are responsible for the remaining portion. In the past, Medicaid traditionally has provided its government-financed services through a broad array of local health care providers including hospitals, clinics, doctors, dentists, and pharmacists; nursing homes and home care agencies serve the smaller, but typically more costly population of the elderly and the disabled. More recently, however, the traditional approach has been abandoned in favor of managed care plans, which are thought to provide cost-savings while maintaining good health care for the recipient. In New York State, this movement towards a managed care approach resulted in the July 1997 approval by the federal government of an “1115 waiver” that allows the State to implement a Statewide mandatory managed care program for all Medicaid eligibles aside from those requiring long- term care services.6
As the Medicaid program is administered in New York, eligible persons include: low-income elderly and disabled beneficiaries of the Supplemental Security Insurance program; elderly and severely ill persons who have exhausted their assets paying for long-term or chronic medical care; pregnant women with family incomes up to 185 percent of the federal poverty level; and children up to age fourteen whose family income ranges between 100 percent to 185 percent of the poverty level, depending on the age of the child. Children under twenty-one may also be eligible for Medicaid when family income is below 100 percent of the poverty level. Coverage is also available for certain classes of elderly persons who need help paying the premiums and co-payments required under Medicare. Until 1997, cash grant recipients under the State’s public assistance programs were automatically eligible for Medicaid as well. Under federal welfare reform, however, eligibility for Medicaid will now be determined separately.
A brief history of total Medicaid spending growth since the 1981-82 State fiscal year is presented in Figure 2. It is evident from this graph that the early 1990’s was a period of extraordinary spending growth. During this period, the rate of medical cost inflation substantially exceeded the growth in the general price level. In addition to the brisk rise in medical care prices, the rate of growth in Medicaid spending reflects program policy changes, such as deliberate efforts on the part of government to seek out and extend benefits to eligible individuals. These efforts were probably most successful for elderly and disabled clients, the costliest populations to serve.
A substantial portion of the demand for Medicaid services is generated by individuals and families who either receive cash grants under the State’s public assistance programs, or, though not qualifying for cash grants, have lost their health care benefits due to joblessness. Since the cyclical path of the economy reflects the expansion and contraction of employment, growth in Medicaid spending is also a reflection of changes in the overall economy. The after-effects of the erosion of the real estate market, combined with both federal defense cuts and corporate downsizing, caused the recession of the early 1990’s to be much deeper for New York than for the nation as a whole because of its heavy economic reliance on those sectors. Hence, it is not surprising that the State Medicaid program’s period of strongest growth occurred during this time. High demand for services combined with continued high rates of medical price inflation forced Medicaid spending growth into the double digits by the 1989-90 fiscal year, peaking just under 24 percent during 1991-92.
In response to the great fiscal pressure produced by these high rates of growth, New York, like many other states, initiated major efforts to contain costs. As a result, spending growth for the 1992-93 fiscal year fell below six percent and has not since returned to the high levels of spending growth which were common during the last recession (see Figure 2).
The recent decline in spending growth witnessed in New York State parallels the national trend. Moreover, it is unlikely that the high levels of spending experienced in the early 1990’s will return in the present health care environment. The industry is experiencing significant restructuring under the pressure being exerted by the growing market for managed care and from the need to control costs. Change is being felt in every sector, affecting not just Medicaid but all aspects of health care.
The extent of restructuring within the State’s health care industry is clearly reflected in the decline in the growth of medical care prices that has been witnessed over the last few years. The medical services component of the Consumer Price Index for the Northeast Region has fallen steadily since peaking at 9.7 percent during the 1990-91 State fiscal year (see Figure 3). Medical price inflation fell below three percent during 1997-98. The Committee staff forecasts medical price inflation of 3.5 percent for 1998-99.
Growth in the State’s Public Assistance caseload is highly correlated with changes in the economy. Policy changes and administrative actions, however, can also influence the size of the population being served. Since 1994, county governments have been putting unprecedented effort into reducing their public assistance caseloads. For the first ten months of the current fiscal year, the Safety Net Assistance program, formerly the Home Relief program, experienced a decline in caseload of 14.9 percent from the same time period in 1996-97, while the number of recipients of Family Assistance, formerly Aid to Families with Dependent Children, fell by 13.1 percent. A significant portion of this dramatic decline is beyond what would have occurred due to economic forces alone, and is expected to produce reductions in Medicaid spending beyond what improvement in the economy alone would have produced. The impact of this decline is most visible in hospital inpatient spending.
In recent years, the Legislature and the Governor have approved comprehensive plans aimed at containing costs within the State’s Medicaid program and providing savings to the General Fund. In SFY 1995-96, a plan to save the General Fund over $1 billion was approved.7 Of this amount, $650 million was directly related to efforts to control provider costs. The remaining savings were achieved through a variety of revenue actions that have the effect of maximizing federal reimbursement without a commensurate State General Fund increase.
In SFY 1996-97 State Budget, the Legislature and the Governor continued actions from the previous year that were due to expire and approved new cost containment measures that together resulted in an estimated $334 million in savings to the State’s General Fund.8 These provisions included provider reimbursement rate reductions and policies designed to encourage more efficient delivery of service. Additional General Fund savings of an estimated $289 million were again achieved through revenue actions designed to maximize federal reimbursement that did not affect providers. Enactment of Chapter 433 of the Laws of 1997 saw continuation of all the cost containment actions enacted in the prior two years, in addition to approval of an estimated $121 million in new savings measures for State savings of $404 million.
In 1997-98, additional General Fund savings, estimated to total $428 million, were achieved through revenue actions that maximize federal reimbursement. These savings actions are somewhat offset by other provisions that allowed for $24 million in new General Fund spending. The cost containment provisions incorporated in the 1997-98 budget were enacted for a two-year period and, hence, will be continued into 1998-99, absent any additional action. The Executive is not recommending any new cost saving initiatives in the proposed Medicaid budget for 1998-99.
The effect of the State’s cost containment efforts over the past three years has been restrained growth in those sectors that have been targeted for control, namely hospital inpatient services, nursing homes, and long term home-based care. Lower Medicaid spending growth, in conjunction with the restructuring of the State’s overall health care industry has in turn been associated with employment decline in the health care industry. New York’s health care industry experienced a 0.7 percent decline in employment during the first two quarters of 1997 from the same period a year ago, following a decline of 0.2 percent in 1996. The hospital sector, which accounts for 47.8 percent of total industry employment, lost almost 14,000 jobs, a decline of 3.3 percent. Within the hospital industry, public hospitals, which serve a disproportionately large share of the Medicaid population, were hit the hardest. Private hospitals eliminated more than 6,000 positions, a decline of 1.9 percent, while public hospitals shed nearly 7,500 jobs, a decline of 7.7 percent. In contrast, employment in the U.S. health care industry, which is also in the midst of a restructuring, grew by 2.2 percent during 1997, a slowdown from 2.6 percent growth in 1996. National hospital sector employment experienced growth of 1.9 percent during 1997, compared to 1.6 percent during 1996.
The 1980’s and the early 1990’s saw dramatic growth in hospital inpatient services, the largest category of Medicaid services. This growth can be attributed to changes in program policy, the rapid growth in medical prices, as well as growth in the demand for hospital services due to the downturn in the State economy. During the early 1990’s, growth in hospital inpatient spending was amplified by growth in the federal government’s Disproportionate Share program. In 1986, the Federal Budget Reconciliation Act allowed state Medicaid programs to make supplemental payments to hospitals that serve a disproportionate number of low-income patients. The federal government agreed to provide half of every dollar spent on such “disproportionate share adjustments.” The impact of this program has been to shift some of the cost of Medicaid from the State and local governments to the federal government. While Disproportionate Share funding had the welcomed effect of easing the State’s financial burden, it also resulted in an overall increase in the size of Medicaid, as services which formerly were delivered outside the program were included under the Medicaid umbrella in order to draw federal reimbursement. This policy change accelerated the growth of Medicaid spending during the transition period of the early 1990’s.
Hospital inpatient spending is determined by changes in the price of health care, as well as changes in the demand for inpatient services. The change in spending due to a change in demand alone can be more accurately measured by adjusting total spending by the rate of medical care inflation. Isolating spending increases due to an increase in demand alone permits an illustration of how closely demand for hospital inpatient services is related to the state of the economy. This is done in Figure 4, which combines hospital inpatient spending with spending for hospital outpatient and free standing clinic services, all adjusted for inflation. Economic growth is measured by an index of current economic conditions developed by the Ways and Means Committee staff.9
During the mid-1980’s, when the State economy was experiencing strong job growth, the rate of growth in Medicaid hospital and clinic spending declined significantly. When the economy weakened in the late 1980’s, spending began to rise again. The growth in spending peaked above 20 percent during the 1991-92 fiscal year. Since the end of 1992, the State economy has experienced moderate growth and State growth in Medicaid costs has declined. Modest economic growth is expected to continue through the current fiscal year and into the 1998-99 fiscal year as well, resulting in continued downward pressure on the demand for both hospital inpatient and, to a lesser degree, outpatient services.
More recently, however, additional factors have had a constraining effect on hospital inpatient spending. Specifically, the overall restructuring of health care delivery, with its emphasis on shorter hospital stays and more community-based support services; the expansion of managed care, as well as the enactment over the past two years of deliberate actions to contain costs have also contributed to a decline in hospital inpatient expenditures.
National debate surrounding the rapid rate of health care expenditure growth brought the health care industry to the realization that the nation would no longer tolerate the rate of medical price growth exhibited through the early 1990’s. The industry has taken steps to streamline, as evidenced by the large numbers of recent hospital mergers. In addition, some public hospitals are now in the process of changing their corporate structure so that they can become involved in the development of health networks and joint ventures with other health care providers. Moreover, hospitals are demonstrating an increased interest in sponsoring their own managed care plans in order to develop new revenue streams and to maintain a sizable client base.
In addition to self-directed industry restructuring, New York State recently moved to a deregulated hospital reimbursement system with the passage in July 1996 of the Health Care Reform Act of 1996. Prior to its enactment, New York’s hospitals had operated since 1983 under a tightly regulated rate reimbursement system known as the New York Prospective Hospital Reimbursement Methodology (NYPHRM) which exerted significant government control over hospital financing. The passage of the Health Care Reform Act marked a conscious move away from the strict regulatory environment of NYPHRM and towards a system of negotiated rates. As the Legislature noted in the preamble to the Act: “This legislation will promote competition in the health care marketplace by increasing reliance on market incentives while reducing the role of regulation.”10
During the State’s most recent recession, outpatient services grew at double-digit rates, peaking at almost 30 percent during 1991-92. The rate of spending growth subsequently began to decline, falling to 3.4 percent in the 1994-95 fiscal year. However, more recently, cost-reducing advances in medical technology have permitted the health care industry to direct more and more services formerly delivered on an inpatient basis to an outpatient setting. This restructuring has put upward pressure on outpatient spending, counterbalancing the impact of an improving economy. Consequently, outpatient spending began to rise once again during the 1995-96 State fiscal year, and has since remained high. Moreover, cost containment measures enacted over the past two fiscal years eliminating inflation increases and rate enhancements and lowering reimbursement for administration have been modest and have not noticeably decelerated growth.
An important component of the restructuring of health care has been the emergence of the managed care industry as an increasingly important component of health care spending. Managed care, which utilizes a capitated payment structure, is seen as a cost-effective alternative to more traditional fee-for-service medical care. Moreover, it offers the opportunity for better and more efficient health care because of its emphasis on preventive primary care. The growth in managed care is linked to the actual decline in fee-for-service spending which has been observed in hospital inpatient, physician, dental, eye, lab and x-ray, and rehabilitation and therapy services.
Managed care enrollment grew very rapidly beginning in the late 1980’s, but enrollment in this State has been restrained for more than two and one-half years due to policy and administrative changes. Following an audit by the U.S. Health Care Financing Administration which uncovered numerous violations, the State Department of Health ordered the suspension of managed care enrollment among nine of the largest private managed care providers in New York City in the summer of 1995. Subsequently, enrollments dropped and have remained relatively flat throughout the last fiscal year and into the current fiscal year. Moreover, in implementing its mandated Medicaid managed care plan, the State instituted a procurement process that resulted in lower than feasible premium rates and the subsequent withdrawal of some major providers from serving the Medicaid population. The Committee staff anticipates, however, that enrollment numbers will begin to rise again by the end of the current fiscal year and into the next fiscal year due to the approval by the federal Health Care Financing Administration in July 1997 of a waiver permitting New York to implement fully its mandatory Medicaid program, as well as a legislatively approved rate increase to managed care providers disadvantaged by the procurement process.
Since the primary users of long-term care are the aged, blind, and disabled, fluctuations in nursing home spending are not closely related to the changes in the level of employment of any of the other cyclical aspects of the economy. Demand for nursing home services is affected by changes in prices, and the size of the Supplemental Security Income caseload and related populations.
The demand for nursing home services has grown steadily since the early 1980’s, but accelerated significantly in the early 1990’s to over 30 percent during SFY 1991-92 and 14 percent during the following year. This growth was due largely to outreach efforts on the part of program administrators which successfully targeted elderly and disabled clients, the populations most likely to require nursing home services. Over 85 percent of nursing home spending is for elderly, blind, and disabled clients who, due to the high cost of institutional long-term care, have qualified for Medicaid benefits by spending down their incomes.11
More recently, however, efforts to encourage the use of home-based care, combined with close regulation of bed expansion, have successfully limited growth in nursing home spending. Underlying growth fell to 4.4 percent in the 1996-97 fiscal year from 7.4 percent in the previous year. Moreover, the continued selective use of alternatives to institutional care has contributed to a reported modest decline in capacity utilization, which industry experts are attributing to a reduction in the average nursing home stay. In addition, the State has taken steps to curb nursing home growth through the implementation of cost containment initiatives estimated to have saved the State $348 million over the past three fiscal years. These measures have been directed at freezing inflation increases, lowering rates and barring rate increases through the appeals process. Cost reducing measures have also encouraged the use of alternative funding sources, such as the federal Medicare program, promoting a more efficient usage of State Medicaid dollars. As a result, we have witnessed a deceleration in the growth of nursing home services.
High rates of nursing home utilization and their high cost of care comprise one of the factors which make New York’s Medicaid program costly. In order to contain these high costs, the State has encouraged the utilization of home-based long-term care services such as personal care and home health care. Personal care services assist an individual with non-medical care deemed by a physician to be essential to the recipient’s health. Home health care includes medical services prescribed by a physician in accordance with a plan of treatment for the recipient and administered under the supervision of a registered nurse. These services provide a less expensive alternative (roughly a third of the cost) to more costly institutional nursing home care. Hence, demand for these services grew at double-digit rates from the mid-1980’s until the early 1990’s, peaking at close to 30 percent growth during SFY 1986-87, but remaining close to 20 percent through the 1991-92 State fiscal year.
To reduce yet further the cost of long-term care services, the State has encouraged increased utilization of systems that promote efficiencies in the delivery of home-based care. These systems include programs which improve the efficiency of service-time allocation through the use of a more flexible, task-oriented system which minimizes idle time spent by the home attendant. Spending for personal care has actually declined for the last two fiscal years. However, until recently, home health care had been continuing its expansion as clients who require skilled nursing care are diverted from costly institutional to less expensive home-based settings.
The most recent spending data shows evidence of significant belt-tightening on the part of the home health industry as a result of government actions to control costs. Prior year cost containment efforts were mainly directed at promoting greater efficiency in the delivery of personal care services in New York City. These efforts appear to have been successful. Additional cost containment actions enacted with the SFY 1996-97 and SFY 1997-98 budgets also targeted the home health industry that had been experiencing burgeoning growth as personal care services dipped. This two-pronged approach to reduce costs has resulted in slower spending growth in this sector.
Many states employ a baseline budgeting method to forecast expenditures. Under this approach, the analyst takes the previous year’s level of spending, subtracts non-recurring expenditures, trends the result forward according to a set of assumptions regarding price and utilization growth, and finally, adds in the cost of new initiatives. Often, this methodology does not take into account how changes in the larger society, such as changes in the rate of joblessness, affect the demand for the services being funded. The consequences of relying on this methodology to construct a projection for Medicaid spending are clear. During the State’s long recession of the early 1990’s, Medicaid spending would be underestimated by those who used a baseline budgeting approach. Subsequently, after the economy emerged from recession, that same baseline approach would overestimate Medicaid spending for several years. This suggests that an important factor was systematically excluded in constructing the forecast, namely, the state of the economy. By design, a baseline budget approach excludes economic conditions from the analysis.
An acceptable method for projecting budgetary expenditures must be able to account for the spending levels observed in the past. If the projection method cannot accurately track the historical data, it can hardly be trusted to accurately foretell the future. A valid method must capture all of the relevant factors that affect the level of spending. For example, the previous discussion indicated that the economy is an important factor determining Medicaid spending growth.12 Excluding the economy from the analysis, it would be impossible to fully explain the decline in spending growth observed between SFY 1983-84 and SFY 1987-88, as well as the subsequent increases in growth through SFY 1991-92 (see Figure 2). Only by including in the analysis all of the factors which significantly affect spending growth can expected shifts in these factors be reflected in the projection. Finally, a sound approach to forecasting must comprise a rigorous set of criteria by which the results can be evaluated.13
Carefully examining those critical factors that determine Medicaid spending allows us to project total spending for the next fiscal year. These factors include the rate of growth in medical costs, changes in demand for Medicaid services due to changes in the rate of job growth, the overall restructuring of the health care industry, as well as government policy actions. However, as the previous discussion makes clear, these factors do not operate uniformly on the various categories of Medicaid spending. For example, the shift away from institutional settings toward outpatient or home-based settings will tend to increase demand for hospital outpatient and home-based long-term care, at the expense of hospital inpatient and nursing home services. We therefore decompose total spending into five major components: hospital inpatient services, outpatient services, nursing homes, long-term home-based care, and non-institutional fee-for-service spending, in order to make projections.14 This enables us to properly assess the effects of the various forces that operate differentially on each area.15
To measure spending growth due to medical care price inflation, we incorporate the medical services component of the Consumer Price Index for the Northeast Region published by the U.S. Department of Labor.16 In the case of hospital inpatient and outpatient services, service demand reflects the state of the economy.17 In addition, demand for hospital inpatient services is related to the growth in managed care enrollment and growth in the Income Maintenance caseload independent of economic trends. Changes in the demand for nursing home services reflects the caseload of the Supplemental Security Income program, which serves the aged, blind, and disabled. In addition to the incorporation of the above factors, demand for outpatient, nursing home, home-based care, and non-institutional fee-for-service spending is projected using a sophisticated method of extrapolating past spending patterns into the future.
Program policies that significantly affected spending growth are also taken into account. The cost containment policies discussed above are found to have had a significant impact on program spending for hospital inpatient, nursing home, and home-based long-term care services. In addition, the model is specified to take into account behavioral changes by service providers, such as hospitals accelerating their billing practices in 1991-92 in response to Executive administrative actions. As indicated above, disproportionate share spending also expanded during this period. Administrative outreach efforts increased the nursing home population beyond what is represented by growth in the Supplemental Security Insurance caseload during 1991 and beyond. By the end of 1993, spending for personal care services began to fall due to successful cost containment efforts by the New York City government. Finally, an acceleration of the use of hospital outpatient and clinic services in place of inpatient and private practitioner care is found as of the first half of 1995.
Based on expenditure data for the first ten months of the current State fiscal year, the Assembly Ways and Means Committee staff estimates that General Fund Medicaid spending for the Department of Health for 1997-98 will be $5.5 billion, growth of 1.4 percent over the previous fiscal year.18 This does not represent the true underlying, or “constant policy” growth in the system due to two confounding factors. One is the prepayment of a weekly Medicaid cycle worth $136 million, originally scheduled for payment during the 1998-99 State fiscal year. This of course has the effect of boosting the actual growth rate for 1997-98 in a way that does not reflect true spending trends. The second factor relates to the Medicaid managed care waiver under which the federal government is now covering 50 percent of all Medicaid costs for the State’s Safety Net population. This change is expected to have the effect of reducing Medicaid spending by $31.5 million during 1997-98. After accounting for these two policy changes, the estimated constant policy trend in Medicaid spending for the 1997-98 fiscal year is a decline of 0.4 percent.19
The Ways and Means Committee staff estimates that projected Medicaid spending by the Department of Health in SFY 1998-99 will fall by 0.9 percent to $5.4 billion. However, on a constant policy basis — after accounting for the extra week’s payment in 1997-98, as well as the impact of the savings due to the managed care waiver — the Committee staff’s projection represents growth of 3.1 percent. Constant policy growth rates, permitting the identification of the true underlying growth in Medicaid, are presented in Table 1 by major category of service.
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Table 1: General Fund Medicaid Spending |
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| Service Category | Actual 1996-97 | Estimated 1997-98 | 1997-98 Growth * | Projected 1998-99 | Constant Policy 1998-99 Growth | Observed 1998-99 Growth |
| Hospital Inpatient | 1,706.2 | 1,611.9 | (5.5%) | 1,542.9 | (2.4%) | (4.3%) |
| Outpatient | 757.9 | 821.4 | 8.4% | 834.2 | 3.5% | 1.6% |
| Nursing Homes | 1,931.9 | 2,027.2 | 4.9% | 2,080.0 | 4.6% | 2.6% |
| Home Care | 923.4 | 965.2 | 4.5% | 957.4 | 1.1% | (0.8%) |
| Total Other | 734.6 | 784.5 | 6.8% | 815.9 | 6.0% | 4.0% |
| Managed Care | 264.9 | 258.2 | (2.5%) | 306.5 | 21.0% | 18.7% |
| Adjustments ** | (938.5) | (1,012.2) | -- | (1,128.3) | -- | -- |
| Grand Total | 5,380.4 | 5,456.1 | 1.4% | 5,408.7 | 3.1% | (0.9%) |
| Source: NYS Division of
the Budget, Ways and Means Committee staff estimates. * The growth rates we expect to observe for 1997-98 are inflated due to the payment of an extra week’s spending. ** These adjustments include offsets to the General Fund from various sources including the federal government. The total value of these offsets for both years is based on NYS Division of the Budget estimates adjusted for consistency with the Committee staff’s hospital inpatient spending projection. |
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The constant policy 1998-99 growth rates found in Table 1 reflect current trends in the health care industry, as well as the provisions of a two-year plan to contain costs enacted with the 1997-98 budget. The 2.4 percent decline in hospital inpatient spending reflects the continuing decline in the demand for inpatient services, as well as the impact of cost containment actions that have effectively prohibited the price of inpatient care from rising. The decline in demand for inpatient services is due to the continuing shift of service delivery from inpatient to outpatient settings, the improvement in the economy, and the decline in the Public Assistance caseload. Also contributing to the declining growth is the impact of cost containment measures, as well as the effects of a newly deregulated reimbursement system which should spur competition.
Growth in outpatient spending of 3.5 percent is consistent with the recent trend toward increasing substitution of outpatient services for inpatient services in an environment governed by all of the same forces which account for the decline in inpatient spending. Growth in nursing home spending of 4.6 percent reflects continued growth in the demand for long-term care services in an environment that prefers home-based to institutional settings, as well as lower price growth and the impact of cost containment. Growth in home-based care spending of only 1.1 percent is consistent with conscious efforts toward belt tightening in response to governmental intervention to require efficiencies. Non-institutional fee-for-service care growth of 6.0 percent reflects the same forces influencing the decline in demand for hospital inpatient and outpatient care, offset by an increasing demand for high-priced prescription drugs. Finally, growth in spending for managed care services of 21.0 percent reflects stepped-up voluntary enrollment following renewed confidence in the industry after a period of close government scrutiny over quality control issues, together with a phase-in of the mandatory managed care program and implementation of legislated rate increases.
The Committee staff’s projections of continued modest Medicaid growth reflect an underlying trend toward lower growth, which began during the 1992-93 fiscal year, due to the following factors:
As mentioned before, recent trends in national Medicaid spending indicate that the days of unbridled program growth observed in the early 1990’s are over. Since 1992, both the State and national health industries have been undergoing a self-initiated restructuring and belt tightening, which has remarkably altered the pricing and delivery of both public and private health care services. As discussed above, this restructuring has resulted in the loss of almost 14,000 jobs in the State’s hospital sector. In addition, the decline in medical price inflation, the growth in managed care, government intervention to control costs, as well as a stable State economy are all contributing to a deceleration in Medicaid spending. There appears to be a strong impetus for this trend to continue well into the next fiscal year and beyond. Nevertheless, policymakers should be mindful of the need for maintaining the viability of the Medicaid program and for assuring continued access to quality health care for its recipients in contemplating future actions to control costs. Concern for the continued “good health” of the health care industry during this period of transition should be taken into consideration, especially as this industry is an important contributor to the New York economy. Absent such concern, the good health not only of the poor, elderly, and disabled, but of all New Yorkers is in jeopardy.
Prepared by the NYS Assembly Ways and Means Committee staff.
Statistical and Narrative Summary of the Executive Budget, Fiscal Year April 1, 1998 to March 31, 1999, January 1998.
New York State Economic Report 1997 & 1998, March 1998.
New York State Revenue Report 1997-98 & 1998-99, March 1998.
“Trends in Public Assistance Spending in New York State”, March 1998.
“Trends in the New York State Correctional System”, March 1998.