What Is Driving the Increase in Medicaid Spending?

Executive Summary

Medicaid fee-for-service spending grew 83% from $108.7B in 2018 to $198.8B in 2023, adding $90.1B in five years (10.6% CAGR). Three forces explain this increase: volume drove most of the growth (61% of the increase, $55.2B from 51% more claims); home and community-based services accounted for 43% of all spending growth (led by personal care at +$17.9B); and growth was broadly distributed, not consolidation-driven (stable provider concentration ratios with 168K new providers entering the system).

$90.1B
+83% over 5 years
Total Spending Increase

3.22B
+51% vs 2018
Annual Claims (2023)

$61.77
+21% vs 2018
Avg Cost per Claim

168K
19.4% of spending
New Providers by 2023

Five-Year Spending Trajectory

Medicaid FFS spending increased every year from 2018 to 2023, but growth was uneven. 2020 was the slowest growth year (+4.1%), as COVID-19 disrupted non-emergency care. But 2021 saw the sharpest single-year increase (+23.1%, +$30.5B), driven by a massive claims volume surge as deferred care resumed and the continuous enrollment provision prevented Medicaid disenrollment.

Annual Medicaid FFS Spending, 2018-2023

The provider base expanded from 324K to 360K unique billing NPIs over the period, a net increase of 11%.

Volume Then Price

Decomposing each year's growth into volume (more claims at prior prices) and price (higher price per claim) reveals a structural shift in the nature of spending growth.

Annual Growth: Volume vs Price ($B)

2020 is the anomaly year: claims actually fell 4% (COVID disruption), but the average cost per claim jumped 8.4%, likely reflecting a shift toward higher-acuity services. In 2021, volume exploded (+26%) as deferred care returned and enrollment swelled, while prices temporarily fell as the mix shifted back toward lower-cost services.

By 2023, the dynamic had reversed: volume growth slowed to 4.2% while price growth accelerated to 6.2%. Over the full period, cumulative volume contributed $55.2B (61%) and price contributed $35.0B (39%) to the $90.1B increase.

Volume vs Price Decomposition by Year

HCBS Drove 43% of Growth

The service mix shifted markedly toward home and community-based services. Combining the HCBS-related categories (Personal Care, Behavioral Health, Home Health, and Transportation/Waiver), these services grew from $48.3B to $85.4B, adding $40.0B – 44% of total growth.

Spending Growth by Category, 2018-2023 ($B)

Within the HCBS block, the composition shifted: personal care surged from 12.7% to 16.0% of all spending while waiver/transportation declined from 10.1% to 7.6%.

Spending Growth by Service Category

Top Services by Growth

The five HCPCS codes contributing the most absolute growth are all HCBS or primary care services. T1019 (personal care aide) alone accounts for 14.6% of total spending growth.

Top 5 HCPCS Codes by Spending Growth

Volume vs Price Varies by Category

The volume/price split differs substantially across service types. Personal care growth is overwhelmingly volume-driven (70% volume, claims +91%), consistent with program expansion bringing more beneficiaries into self-directed care. Behavioral health and emergency department growth are price-driven (64% and 65% respectively), suggesting rate increases or acuity shifts rather than pure utilization expansion.

Volume vs Price Effect by Category ($B)

Fastest Growers by Percentage

Among services with at least $10M in 2018 spending, the fastest growers by percentage reveal emerging trends in telehealth, community psychiatric care, and autism services.

Personal Care's Rising Share

While HCBS-related services maintained a roughly stable aggregate share of spending (~43%), the internal composition shifted significantly. Personal care's +3.3 percentage point gain is the single largest share shift in the dataset. It reflects expanding self-directed care programs, growing demand for in-home supports for aging and disabled populations, and COVID-era policy changes that favored home-based over institutional care.

HCBS Share Shift, 2018-2023 (pp)

Waiver/transportation's -2.5 pp decline does not mean spending fell – it grew 39% – but other categories grew faster.

Broad-Based Growth

Provider spending concentration was remarkably stable over the period. Despite $90B in growth, the top 1% of providers actually saw a slight decline in share from 46.3% to 46.2%. This means growth was distributed roughly proportionally across the provider base, not concentrated among a few large billers.

Provider Spending Concentration

New Providers Contributed Significantly

Providers who were not billing Medicaid in 2018 accounted for a growing share of spending. By 2023, nearly 1 in 5 Medicaid dollars went to providers who entered the system after 2018. This suggests the spending increase is partly driven by system expansion – more providers participating in Medicaid, particularly in HCBS where entry barriers are lower.

New Provider Spending Share Over Time

New Provider Entry and Spending

COVID Accelerated the Shift

Comparing pre-COVID (2018-19), COVID (2020-21), and post-COVID (2022-23) periods shows that personal care was the standout: it grew 45.3% from pre-COVID to COVID periods, the fastest of any category. This reflects both the continuous enrollment provision and the shift toward home-based care during lockdowns. The growth moderated post-COVID (+26.9%) but remained well above its pre-COVID level.

Spending by Category and Period ($B)

Emergency department spending shows the inverse pattern: muted during COVID (+10.1%) then surging post-COVID (+47.1%) as deferred emergency-sensitive conditions presented.

Agency Billing Signals Growth

The finder pattern discovery analysis examined year-over-year spending growth at the HCPCS code level and found that the strongest statistical signal for above-average growth is organizational billing complexity (servicing-to-billing ratio > 1.31). This metric measures whether a service has substantially more servicing providers than billing providers – a signature of agency-based care delivery. The pattern appeared as a key driver in 6 of the top 10 most significant patterns by KS score. The highest-scoring pattern identified services with high claims per beneficiary, "Other" service category classification, high organizational billing ratio, high claim volume, and moderate total spending – yielding mean spending growth of 179,156%, indicating explosive growth from small bases among organizationally complex, high-volume, low-cost services.

Conclusions

Growth was broadly distributed across the provider base (stable concentration ratios) and involved significant new provider entry (168K new billing NPIs by 2023 contributing 19.4% of spending). This is not a story of a few large entities growing – it is a story of systemic expansion.

Limitations

• FFS only: This dataset covers fee-for-service payments. Approximately 70% of Medicaid enrollees are in managed care, whose capitation payments appear as lump sums to MCOs, not individual service claims. The trends described here reflect FFS Medicaid specifically.
• No geographic breakdown: Without a state field, we cannot analyze regional variation in spending growth.
• No clinical context: Without diagnosis codes or patient demographics, we cannot directly attribute growth to specific conditions or populations.
• Service category approximation: Categories were derived from HCPCS code prefixes, which is an imperfect mapping. The "Other" category (29.5% of growth) remains a heterogeneous bucket.
• 2024 excluded: Claims processing lag makes 2024 data unreliable for trend analysis.

Open Questions

Analysis based on T-MSIS Medicaid Provider Spending data, 2018-2023. Fee-for-service claims only. All dollar figures in nominal terms.