Summary: Growth in Medicaid spending rose dramatically in the early 1990s, reaching almost 29 percent in 1992, with expenditures increasing from nearly $60 billion in fiscal year 1989 to $157 billion in fiscal year 1995. Factors that help explain this trend include (1) escalating disproportionate share hospital payments made to hospitals that cover large numbers of low-income and Medicaid beneficiaries, (2) the increasing cost to provide services, and (3) the growing number of program beneficiaries. By fiscal year 1995, however, the contribution of these factors had decreased. The dramatically low Medicaid growth rate in fiscal year 1996 masked wide variations in states' Medicaid growth. Most states, however, saw modest decreases or minimal changes from their previous years' spending growth. Some states' increases in Medicaid enrollment leveled off after state-initiated program expansions in prior years. Several other states attributed lower growth rates to a better economy and to state initiatives, such as managed care and long-term care alternatives, designed to limit expenditure growth. Whether the low 1996 Medicaid spending growth rate of 3.3 percent will be sustained in subsequent years is uncertain.
