Is the growing need for long-term supports and services (LTSS) by older adults driving big increases in Medicaid spending? Not according to a new study by Don Redfoot and my Urban Institute colleague Melissa Favreault. Indeed, they found that while Medicaid enrollment and expenditures for older adults grew in recent decades, it had far less effect on the program than increases in other Medicaid populations, especially younger people with disabilities. Older adults accounted for only about 13 percent of Medicaid spending increases from 1975 to 2011.

Their paper, published in the Gerontological Society of America’s Public Policy and Aging Report, found that over that period the number of Medicaid beneficiaries tripled from about 22 million to 68 million and program spending increased four-fold from $90 billion to $365 billion (in 2011 dollars).

Modest Medicaid growth for seniors

But most of those increases were driven by an explosion in enrollment by non-elderly beneficiaries and the resulting rise in costs. For example, while the number of Medicaid enrollees 65 and older increased by 20 percent over the period, it grew by nearly 300 percent among younger people with disabilities.  While this added to Medicaid costs, it also resulted in a big increase  in the share of insured adults and children.

Similarly, after adjusting for inflation Medicaid costs for older adults roughly doubled over the period, from $32 billion to $67 billion. But that pace of growth was far slower than for any other demographic group.

For instance, spending on children increased more than four-fold and spending on non-disabled adults under age 65 grew more than 250 percent.

People with disabilities

But the biggest increase by far was for people with disabilities—a category that includes some seniors but mostly younger people. For them, Medicaid costs jumped by nearly 600 percent–from $23 billion to $155 billion in 2011 dollars. By 2011, people with disabilities accounted for nearly 43 percent of all Medicaid spending, while the program spent about 18 percent on seniors.  That’s a dramatic change from 1975, when Medicaid spending on older adults outpaced spending on younger people with disabilities.

Interestingly, while overall Medicaid spending growth for most populations was driven by increases in enrollment rather than hikes in per-person costs, the trend was very different for seniors. Older adults accounted for about 13 percent of new Medicaid spending from 1975-2011, but only about 2.5 percent of that was due to greater enrollment. Most, nearly 10.5 percent, was caused by increases in per person costs.

As the authors write, “population growth alone is a poor predictor of growth in the number of beneficiaries, and that growth…alone is a poor predictor of growth in expenditures.”

Medicaid’s asset test

What did account for the relatively modest boost in Medicaid spending on older adults?

Don and Melissa identified a number of factors, some demographic, some related to care delivery and overall health status, and some resulting from public policy.

For example, the health and finances of older adults has improved, and rates of widowhood have declined—all trends likely to slow the growth of Medicaid enrollment for seniors.

At the same time, growing numbers of older adults are getting care at home, a less costly setting than nursing facilities. But two other policy factors also may have played key roles.

First, the asset test that helps determine financial eligibility for Medicaid is not indexed for inflation, and its income test is tied to a relatively slow-growing inflation factor. For instance, unmarried older adults generally are barred from enrolling in Medicaid if they have non-housing assets that exceed $2,000—a limit that has not changed since 1989. Thus, as the wealth of many older adults is increasing, the asset test is not and the percentage of seniors eligible to enroll in Medicaid is shrinking.

A cloudy crystal ball

A second major policy reason was the creation of the Medicare Part D drug benefit in 2005 which shifted drug costs for low-income seniors from Medicaid to Medicare. As a result, Medicaid spent $871 million on prescription drugs in 2011, down from $10.6 billion prior to enactment of Part D.

What does this experience tell us about the future?

Importantly, the pattern of aging in America over the four decades from 2011-2050 is likely to resemble the trend from 1975-2011. Assuming no changes, Don and Melissa project that Medicaid enrollment among aging Baby Boomers will increase until it peaks at about 3.5 million in the early 2040s.

However, under current restrictive income and asset tests, the share of seniors benefitting from Medicaid will fall from about 4.9 percent in 2015 to 4.5 percent in 2020 and to 4.2 percent by 2025. If income and assets are allowed to rise at the same rate as wages, the share of seniors enrolled in Medicaid would increase by an additional 0.2 percentage points by 2035.

It may not be about the Boomers

Keep in mind, though, that the crystal ball about future Medicaid enrollment and costs is cloudy. How will changes in prevalence of dementia affect Medicaid enrollment? What about the longer lives of younger people with disabilities? And how will federal and state policymakers change Medicaid, both on the health care side and on the LTSS side? The program has undergone enormous change since Congress passed the Affordable Care Act in 2010—a pace that may not slow in coming years.

While we can’t predict the future, Don and Melissa have shown that in the recent past, older adults have had relatively little effect on Medicaid spending. And their work should serve as a warning: Don’t assume that aging Baby Boomers will drive big increases in Medicaid spending in the coming years.