The Medicaid program has become a primary target for federal and state legislators because Medicaid spending is the fastest-growing component of most state budgets.

• Medicaid spending grew nationally by 21.8 percent annually between 1988 and 1992.

• The National Association of State Budget Officers projects that Medicaid will account for more than 25 percent of many states' budgets in 1995.

Nearly all states have sought Medicaid waivers for demonstration projects that permit them to experiment with new ways of delivering health care to the poor. Most of the projects have placed Medicaid recipients in health maintenance organizations (HMOs) and other established managed care programs. As a result, the number in managed care has soared.

• As recently as 1991, only 2.7 million (9.5 percent) of Medicaid's 28.3 million enrollees were in managed care.

• Today, 7.8 million (about 23 percent) of the Medicaid population are in managed care programs.

• An estimated 75 percent of Medicaid recipients may be enrolled in managed care programs by the end of the decade.

Many fear that in trying to squeeze out a few dollars of cost savings, managed care bureaucrats will pose a threat to the quality of Medicaid patients' care.

Replacing traditional Medicaid delivery with managed care does nothing to change patient incentives. Both give patients economic incentives to overuse the system. The difference is that some managed care programs give providers incentives to provide less care.

Another way of dealing with rising Medicaid costs is through the introduction of Medical Savings Accounts (MSAs), which would allow beneficiaries to control some of their own health care dollars. Indeed, several states are already considering MSA Medicaid legislation that empowers individuals, not bureaucracies.

• Under a 1994 Indiana proposal, which passed in the state's Senate but not the House, each member of a family on Medicaid would have received a $100 voucher for health care and would have been permitted to use 10 percent of what was not spent of the next $3,250 for in-kind services such as day care and job training. Those spending more than $3,250 would still have had their medical bills covered by the state but would have received nothing at year's end.

• Legislation in Virginia that would create MSAs for "the working poor and individuals who are eligible to receive medical assistance services" has passed unopposed in committee in both chambers.

• Other states including Montana, Louisiana and Texas are looking at MSAs for Medicaid recipients.

Source: Merrill Matthews and Brant Mittler, "Can Managed Care Solve the Medicaid Crisis?" Brief Analysis No. 155, April 7, 1995, National Center for Policy Analysis, 12770 Coit Rd., Suite 800, Dallas, TX 75251, (972) 386-6272.

ea mj 95j