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Medicaid spending is driven by enrollment; cost control hinges on promoting self-reliance

Medicaid spending is driven by enrollment; cost control hinges on promoting self-reliance

Niklas Kleinworth
July 14, 2023

The 2024 fiscal year will feature a $4.7 billion price tag for Idaho’s medical welfare program — Medicaid. This is the largest budget in the program’s history, costing over $1 billion more than just two years ago.

Bureaucrats are trying to shift the narrative by pinning the ballooning Medicaid budget to the rising cost of health care services — particularly for prescription drugs. But these claims are misdirected and ignore the fact that promoting medical welfare drives the cost of the program and health care more broadly. 

Leaders at the Idaho Department of Health and Welfare argue that prescription drug costs are the fastest growing spending category in the department. Director Dave Jeppesen noted in a presentation last legislative session that these costs are largely driven by demand for “miracle drugs” that cost hundreds of thousands to procure — such as the cure for Hepatitis C. 

It is true that health care costs have increased substantially in the last few years, particularly for prescribed drugs. Prescription drug spending per Medicaid beneficiary grew by 84% in just five years — costing $1,260 per enrollee each year. Prescription drug costs were stable at 10% of total Medicaid spending before 2020 but rose to nearly 15% by 2022.

Prescription drugs represented one-fifth of the increase in overall Medicaid spending — nearing $320 million. Most of this spending was driven by a surge of beneficiaries after the start of continuous enrollment and Medicaid expansion. 

These policy changes added 125,000 able-bodied, working-age adults and up to 154,000 ineligible beneficiaries to the program and are estimated to represent 82% of the rise in prescription drug spending.

Prescription drug use is an increasingly common mode of treatment for the expansion population, in particular. While the use of other services remained relatively stagnant, prescription drug claims grew 50% faster than enrollment since 2020.

Contributing to increased spending on prescriptions is the record use of psychotropic medications to treat mental health conditions like anxiety, depression and mood disorders. Also included in these numbers is record spending on drugs like Ozempic, which is known for its common use as a bandaid treatment for weight loss 一 costing taxpayers up to $21 million, annually.

Some would rebut the claim that retaining ineligibles and expanding the program to able-bodied, working-age adults is driving the cost of Medicaid by looking at growth in per-enrollee costs.  These costs rose most for people with disabilities. At an annual cost of $26,000 per person, this population is the most expensive group on Medicaid.

Those with disabilities make up just one-tenth of the enrollees but 31% of the total spending. Though this population makes up a large portion of the Medicaid budget, it did not contribute to very much of the growth in costs 一 only 19%.

Meanwhile, able-bodied, working-age adults made up 55% of the spending growth at a cost of $6,900 per enrollee. This shows that despite the increased costs in health care, what has driven increases in the Medicaid budget is the decision to increase enrollment.

Legislators cannot expect to control spending on Medicaid without promoting free-market policies that drive disenrollment and self-reliance. Yet, they are studying how to revamp how Medicaid is funded. They appear set to sustain spending instead of curbing it.

The only ways to reduce costs to the Medicaid program are to reduce the number of enrollees, the amount of services they receive, or the amount the state pays health care providers. So far, state efforts to control spending drove up the cost of health care for everyone. "Cost-control" mechanisms like prescription benefit managers and price mandates shift costs. This vicious cycle makes health care less affordable, driving more people into the welfare system. 

The solution is to reduce the need for Medicaid so that the program itself becomes unnecessary. A welfare program should not measure its success by how many people it supports, but how many people no longer need government assistance.

The goal should be to render Medicaid obsolete as a deregulated free market advances to provide better services for these populations. Reforms within the program should focus on ending the cycle of government-engineered problems and solutions.

The prescription drug argument is just another case of finger-pointing from legislators and bureaucrats. If politicians can redirect the blame for irresponsible spending on government welfare programs to greedy drug companies, they can argue that the problem is out of their hands. In the meantime, taxpayers are left tied to the swelling costs for both themselves and those on medical welfare.

1 Prescription drug spending per Idaho beneficiary grew by 84% between fiscal years 2017 and 2022.

2The budget analysis in this article used  data from the Idaho Legislative Budget Book for fiscal years 2015 through 2023 within the Health and Welfare - Medicaid section. Source materials can be accessed here.

3 Enrollment and claims data provided via a public records request made to the Idaho Department of Health and Welfare in November 2022.

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