Healthcare costs, not enrollment, driving New Mexico's rising Medicaid price tag

SANTA FE — With big federal healthcare funding changes looming, New Mexico's spending on Medicaid beneficiaries has continued to rise and shows no signs of slowing down.

Specifically, the state's average per-member cost for an individual enrolled in Medicaid has increased from $576 per month in 2020 to a projected $883 per month in the just-ended fiscal year, according to a legislative report released Wednesday.

That trend has played a big role in causing total spending on Medicaid in New Mexico to more than double over the last 10 years — from less than $6 billion to nearly $12 billion — even as the number of people covered by the joint-federal healthcare program has decreased.

During a legislative hearing in Red River, top state healthcare officials cited national inflation, increased utilization and an expansion of covered services in New Mexico — including for individuals with autism and doula services — as primary cost-drivers for the state.

"I think we all know that things cost more," Health Care Authority Secretary Kari Armijo told members of two interim legislative committees.

"New Mexico cannot be an anomaly when there's a national growth in costs," she later added.

But some legislators and legislative analysts questioned whether the state's rapid healthcare spending growth has delivered results.

Sen. Nicole Tobiassen, R-Albuquerque, said many New Mexico residents are simply using the emergency room as their primary healthcare source due to a shortage of healthcare providers.

"Even the doctors I know don't have (primary care providers) of their own," Tobiassen said.

In addition, Sen. George Muñoz, D-Gallup, said lawmakers were promised more cost containment when they approved the creation of the state Health Care Authority in 2024, a move that consolidated several previous agencies and departments.

The Legislative Finance Committee report released Wednesday found commercial insurance premiums — not just Medicaid — have also seen hefty cost increases in recent years due to rising prices for hospitals, pharmaceutical drugs and healthcare employee wages.

But the state's current managed care system — four private insurance companies essentially run the state's Medicaid program — gives more protection to the companies for patient cost overruns than it provides state savings when cost projections are not met, the report found.

New Mexico was also one of just three states — along with Arizona and Colorado — that saw an increase in drug overdose deaths last year, the report found.

"With the amount of money we're pouring into the system, we would expect to see better outcomes," said LFC analyst Eric Chenier.

An increasingly expensive price tag

New Mexico has long had one of the nation's highest percentages of residents who qualify for government-subsidized healthcare.

As of June, there were roughly 818,000 New Mexico residents enrolled in Medicaid — or about 38.6% of the state's population.

Before that, the state's Medicaid enrollment had topped out at about 992,000 individuals in the 2023 budget year, due primarily to temporary federal rules enacted during the COVID-19 pandemic that barred people from being disenrolled. Once those rules lapsed, about 180,000 individuals were removed from the state's Medicaid rolls since they had not filled out the necessary paperwork to remain enrolled.

The individuals who remain enrolled in Medicaid tend to have higher healthcare needs, Amijo said. And that comes with an elevated cost.

New Mexico's Medicaid enrollment decline over the last 10 years would have meant a roughly $600 million spending decrease if healthcare costs had stayed the same over the time period, the LFC report found.

Instead, the rising per-member cost amounted to $6.7 billion since 2017 — or a net change of more than $6 billion.

Meanwhile, Armijo said most Medicaid recipients in New Mexico are working or going to school, not simply relying on government benefits.

"You can work a minimum wage job in New Mexico and still qualify for Medicaid," she added.

Federal changes on the horizon

Even before President Donald Trump signed a sweeping federal tax bill into law last year, New Mexico officials had expressed concern about the legislation's impact.

State health officials last year warned that six to eight rural hospitals could close due to the bill's Medicaid changes, while nearly 90,000 residents could lose their healthcare coverage.

The Trump administration has called the changes necessary to combat potential misspending, while also recently withholding Medicaid funds from two Democratic-controlled states — California and Minnesota — due to suspected fraud.

New Mexico has not had any of its federal Medicaid funds withheld to date.

During Wednesday's hearing, Armijo said the hospital closures have also been avoided so far, but noted many of the federal bill's provisions will not take effect until next year.

Those provisions include new work requirements for Medicaid recipients and more frequent verification checks to remain enrolled.

While Armijo said the Health Care Authority is preparing for those changes, she said recent state provider rate increases starting have had a positive impact. Specifically, New Mexico's Medicaid program added 14,836 new providers from July 2024 to May of this year, including a 47% uptick in behavioral health providers, according to HCA data.

The state has also recorded an increase in patient visits despite the enrollment decline, with physical therapy visits increasing by 41.3% and autism visits going up by 54.9% during a recent two-year period.

Dan Boyd covers state government and politics for the Journal in Santa Fe. Follow him on X at @DanBoydNM or reach him via email at [email protected].