Clinton Budget to Cap Spending on Medicaid

President Clinton’s budget will propose a spending cap for the first time for Medicaid, the massive federal-state program that helps pay medical bills for 38 million poor Americans, officials said Monday.

The president’s proposal would limit the growth in spending for Medicaid to the growth rate of the gross domestic product, the nation’s total output of goods and services.

If the GDP expanded by an amount equal to 3%, for example, spending for Medicaid enrollees could rise no more than 3%.

The Medicaid spending restrictions, to be part of the overall budget for fiscal 1998 that Clinton will unveil in early February, can be expected to draw criticism from many members of the Democratic Party in Congress who are strong supporters of this key entitlement program for the poor.

“Liberal Democrats and advocates for the poor do not want any more [such] cuts,” said an administration official, anticipating criticism of the budget plan.

Other likely critics include state governors worried about the prospect of a decreasing contribution from the federal government to the costly program. The federal government pays from 50% to 70% of Medicaid costs, depending on the state.

The president first proposed a cap on Medicaid’s growth last year as part of his proposal for a balanced budget. However, the proposal was never enacted because the administration and congressional Republicans could not agree on a balanced budget formula.

Currently, there is no cap on Medicaid spending and anyone who meets the eligibility requirements can get full benefits.

The administration hopes to mute some of the criticism of its proposal by pointing out that the cap will not have an immediate impact on Medicaid beneficiaries.

Medicaid spending grew just 2% per capita in the last year, while the GDP expanded on a per capita basis by nearly 4%. Therefore, a cap under current circumstances would not hurt outlays for the poor, according to administration officials.

The big impact of the cap could come in future years, if Medicaid spending once again returns to the double-digit levels of the 1980s and early 1990s.

Spending has slowed dramatically because the states, which determine the program’s rules and eligibility, have been moving many Medicaid recipients into health maintenance organizations, which put tight controls on costs. But it is unclear whether this has resulted in temporary savings or whether the cost slowdown is likely to be sustained over a long period of time.

The program in California is called Medi-Cal, and the state has been enrolling increasing numbers of beneficiaries in HMOs and other managed care systems.

Government actuaries are fearful that Medicaid’s costs could rise sharply by the year 2000 and beyond. Administration officials see the proposed cap as an effective tool to prevent a future surge in growth.

Medicaid’s 38.7 million recipients include 18.7 million dependent children from poor families who qualify for welfare, 8.3 million adults in welfare families, 6.5 million poor disabled people, 100,000 blind people and 4.6 million people over the age of 65.

About 14% of the civilian population is enrolled in Medicaid, a sharp increase from 10% in 1990. As private health insurance coverage declines, with a shrinking percentage of people covered at work, more poor people have become eligible for Medicaid.

Another fast-growing category is the indigent elderly population in nursing homes. Medicaid pays nursing-home bills for long-term custodial care, after patients have exhausted their financial assets. With private nursing homes costing $40,000 a year and more, many patients quickly run out of money and become eligible for Medicaid.