Out of control Medicare spending? Maybe not.

By Sarah Kliff,

Health policy discussions often take for granted the fact that Medicaid costs are spiralling out of control, becoming a huge burden on state budgets. Via Incidental Economist, a new Bloomberg Government study questions that assumption, suggesting that Medicaid’s costs may be growing significantly slower than we think.

Here’s per capita spending on Medicaid in the five largest states since 2002. It’s bobbed up and down over the past decade, but in 2011, looks surprisingly similar to where it was in 2002:

And more analysis from Aaron Carroll and Austin Frakt:

Inflation adjusted Medicaid spending per capita by state general funds increased just 3.8% between 2002 and 2011. This is illustrated by the dotted line in the chart below. Per capita Medicaid spending by each of the five states with the largest Medicaid programs is also shown. Though they gyrate up and down, they all end up at the end up in 2011 close to or even below where they started in 2002.

Some might object to dividing spending by the state population (per capita), because the population grows over time. Of course, the state’s population reflects its potential tax base too, so it is fair to divide by it by that standard. A State with a growing population should to be able to afford commensurate growth in its Medicaid spending, though that can depend on how different sectors of the population grow relative to each other (more wealthy or more poor people).

A lot of this probably has to do with actions states have taken to constrain their health-care spending. As former Michigan Medicaid director Vernon Smith tells Bloomberg Government’s Chris Flavelle, “No other payer has constrained the rate of growth in spending as well as Medicaid has ... the reason is that no payer has been as motivated to undertake cost containment as state governments.”

The study does not necessarily indicate that we have Medicaid cost growth figured out. When states have looked to control their Medicaid budgets, they have sometimes cut the rates they pay providers or eliminated some benefits. Slowing cost growth can, in some cases like those, be to the detriment of the beneficiary.