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CBO Predicts Dramatic Rise In Medicaid Costs

The Medicaid managed care business is booming. Look for federal spending to increase from $9 billion last year to $40 billion 10 years from now — a projected growth rate of 14 percent a year.

That's the word from the Congressional Budget Office, which forecasts Medicaid expenditures of $210 billion by 2008. The main reasons: an unexpected rapid enrollment in managed care plans and higher capitation rates.

The CBO expects managed Medicaid enrollment to climb more than 10 percent a year during the next five years because of states' new flexibility to enroll Medicaid beneficiaries in managed care without waivers. One-quarter of Medicaid recipients were in capitated plans in 1996.

A word of caution: The savings we're likely to see in Medicaid managed care in the next few years won't go on forever. The new groups being enrolled by the states — children and low-cost adults — aren't where the action is. The elderly and people with disabilities make up 70 percent of Medicaid spending — and managed care models "are still in the early stages of development and may not be able to provide care for the most expensive enrollees under state plans," according to the CBO.

After 2003, the CBO says, managed Medicaid enrollment increases will taper off as states have trouble enrolling chronically ill beneficiaries.

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