Managing Medicaid spending growth is RI’s greatest budget challenge

Posted 5/8/24

No state program poses a greater fiscal challenge to Rhode Island than its Medicaid program, which provides indispensable healthcare services to over one in three Rhode Islanders, including our most …

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Managing Medicaid spending growth is RI’s greatest budget challenge


No state program poses a greater fiscal challenge to Rhode Island than its Medicaid program, which provides indispensable healthcare services to over one in three Rhode Islanders, including our most vulnerable populations: low-income individuals and children, the elderly, and people with disabilities. Even with the federal government covering more than half the cost, Medicaid is still the largest single source of state spending, accounting for roughly one-third of Rhode Island’s state budget.

Spending on Medicaid is growing faster than overall state spending. Over the past five years, state Medicaid expenditures grew from $1.1 billion to $1.6 billion—an increase of 45%. During this same period, overall state spending grew by 37%. For the next fiscal year, FY 2025, the governor is proposing to increase state Medicaid expenditures by $108 million—a 7% increase year over year—despite a decline in Medicaid enrollees. To put this increase in perspective, total state general revenues are projected to grow at an annual rate of about 3% for next year, and over the next five years.

The rate of growth in state spending on Medicaid has been difficult to contain. While some of the surge in Medicaid spending over the past few years is attributable to the temporary uptick in enrollment while federal pandemic rules prohibited disenrollment, most of the growth has been driven by the rising cost of healthcare, which historically tends to grow faster than inflation.

Future growth in Medicaid spending in the state is also being driven by a new provider rate review process overseen by the Office of the Health Insurance Commissioner (OHIC). In September of last year, OHIC recommended relatively large rate increases for a subset of providers, consisting of behavioral health, home and community-based, and children’s services. The governor’s FY 2025 budget proposal adopted OHIC’s recommended increases, although the rate hikes would be phased in over three years, with the first year costing $22 million in state dollars. As part of its package of health legislation, the Senate notably is seeking to expand OHIC’s authority over provider rates, including those paid by Medicaid.

Despite the robust growth in Medicaid spending over the past several years and the generous increase proposed in the governor’s budget for next year, there remains considerable pressure to hike Medicaid’s historically low reimbursement rates to providers like hospitals, nursing homes, and physicians. As healthcare providers continue to experience financial challenges and Rhode Islanders more frequently encounter difficulties accessing healthcare services, there is a compelling case for the state to continue to increase Medicaid rates and spending, particularly with the federal government shouldering more than half of the cost.

However, given the sheer size of Medicaid spending and constrained state revenues, it will become more and more challenging to substantially increase Medicaid rates without crowding out other state spending priorities, such as education, transportation, and public safety, as well as other human services programs. In the short term, policymakers need to prioritize rate increases to those providers for which service access and quality are most at risk. In the longer term, policymakers need to explore ways to moderate the upward trajectory of Medicaid spending while, at the same time, ensuring that the healthcare system can deliver the services that Rhode Islanders need and deserve.



Michael DiBiase is the president and CEO of the Rhode Island Public Expenditure Council, a nonpartisan, nonprofit public policy research organization. This is the final installment of a four-part series on Governor Dan McKee’s proposed fiscal 2025 state budget.

Medicaid, budget


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  • Jamiel

    Thank you for supporting the OHIC rate increases for behavioral health and home-based service providers.

    What is missed in Mr. DiBiase's article is the reason Rhode Island's Medicaid costs are high and rising so fast. In fact, Rhode Island spends more per Medicaid enrollee than other New England states. The reason is that we spend our money on the wrong end of the healthcare continuum. We are penny-wise and pound foolish! All our upstream outpatient rates for behavioral health, human services, and outpatient medical care are on average 30% below our sister states. Behavioral health providers have waiting lists and there is a lack of primary care doctors. Thus, people do not access care until they are in a crisis, suicidal, overdosed, or extremely sick. They end up in a hospital emergency department or inpatient bed. Rhode Island's high Medicaid costs, other than the increase in enrollment, is because the money spent is disproportionately in high-cost hospital services. We also do not invest in the right effective evidenced-based practices which have a return on investment of saving over two dollars in healthcare costs for every dollar spent on research-based outpatient care.

    In community behavioral health all other states supplement their community provider system with blended state dollars in addition to Medicaid. How then can our overall cost per person and rate of increased Medicaid spending be higher than surrounding states when we pay providers less? Low outpatient rates!

    We do not need more costly beds but need to invest in the right services.

    Jamie Lehane

    Wednesday, May 8 Report this