coverage through private sources, lowered the number of children without insurance, and significantly reduced the disparities in access to health care for poor children.

However, the increase in enrollment began to alarm governors and state legislatures, who were concerned about the rate of Medicaid cost increases as a proportion of state budgets (see Figure 5.3). In the late 1980s, the number of children enrolled in Medicaid was increasing at the same time that health care costs were rising across the country (see Figures 5.4 and 5.5). Because of the growth in Medicaid as a percentage of state expenditures, most states turned to some form of managed care to control Medicaid costs.

Medicaid represents an average of 20 percent of state budgets, and state officials and policymakers are continuing to experiment with ways to achieve cost savings. Some state policymakers are concerned about the costs of expanding the eligibility for entitlement to Medicaid, whereas 26 other states have expanded their Medicaid programs beyond the minimum federal requirements with a goal of improving access to care for low-income individuals (Gauthier and Schrodel, 1997).

By 1997, Medicaid cost increases seemed to have leveled off, in part because of the shift to Medicaid managed care, and also because of declining welfare enrollment due to welfare reform and the growth in the nation's economy. However, children's enrollment in Medicaid is expected to continue to increase through 2002, when phased-in coverage for older children is complete, and as some states choose to use Medicaid to cover groups of previously uninsured children under the State Children's Health Insurance Program (SCHIP) of the Balanced Budget Act of 1997.

Currently, the Medicaid program comprises 13 percent of all health care spending in this country. Medicaid expenditures totaled $157 billion in 1995: $90 billion from federal funds and $67 billion from state matching funds (GAO, 1997a). During fiscal year 1998, states will spend about $27 billion to purchase health care coverage for children through their Medicaid programs (Mann, 1997). As large-scale purchasers of managed care, states have an increasing ability to negotiate reasonable rates and control costs while increasing access to care.

When we think of Medicaid, we should not be thinking about the Medicaid program of 15 years ago. We should be thinking about the new emphasis in the program on managed care, on primary care, on prevention, and on predictable capitated costs for care. States have been increasingly willing to use their Medicaid programs for children's coverage because the move to managed care gives them more predictable costs per child. So they are putting children into systems of care where preventive and primary care are available.

Diane Rowland

The Kaiser Commission on the Future of Medicaid, Washington, DC

Public Workshop, June 2, 1997


The Medicaid program is a federal-state partnership with funding and administrative responsibilities shared by the federal government and state governments. It has both mandatory and optional categories of eligibility and services. Mandatory eligibility and service requirements apply in every state, whereas the states have the flexibility of choosing among optional categories at their own programmatic and financial discretion. In essence, the Medicaid program is different in every state.

Eligibility for Medicaid is mandatory for the following groups:

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