Rhode Island’s greatest budget challenge? Managing Medicaid spending growth

No state program poses a greater fiscal challenge to Rhode Island than its Medicaid program, which provides indispensable health care 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 fiscal year 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 health care, 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.

How to strengthen primary care in Rhode Island? Start with this action plan

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 health care providers continue to experience financial challenges and Rhode Islanders more frequently encounter difficulties accessing health care 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 health care system can deliver the services that Rhode Islanders need and deserve.