Report: Medicaid to boost state health care outsourcing

State government spending on health care outsourcing will increase 17 percent over the next five years, as states struggle to adjust to rising Medicaid costs and competing budgetary costs for homeland security initiatives, according to a new study.

Market research firm Input Inc. of Reston, Va., reported this week that state spending on health care outsourcing will grow from about $500 million in 2003 to $1.1 billion in 2008.

"The new political environment and continuing budget crisis allows officials more freedom to review sensitive policies and management practices to address increasing Medicaid costs," said James Krouse, Input's manager of state and local market analysis.

Faced with an 8.7 percent annual increase in Medicaid costs over the next five years, states are considering measures that include outright Medicaid cuts, restricted program eligibility and, more significantly, outsourcing state Medicaid management information systems.

The gap between state operating costs and anticipated revenues is expected to widen to greater than $82 billion in fiscal 2004, according to the study. Because Medicaid cost increases are coming in conjunction with weaknesses in the economy and faltering tax collections, state governments will be forced to review cost containment measures against budget priorities, Krouse said.

"Events following Sept. 11, 2001, have dictated that tremendous resources are now required to ensure the safety of the country and the American people," he said. "In order to balance budgetary needs, public officials are forced to review priorities and weigh the expenditure of limited resources for programs such as Medicaid vs. new requirements for homeland security."