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Senior and Post-Acute Healthcare News and Topics

Medicaid and Health Care Reform

With so much discussion and news review on Medicare spending and health insurance reforms at the center of the health care reform debate, Medicaid has taken a back-seat in terms of analysis on its programmatic impacts.  Today, Medicaid costs 76% of the cost of Medicare and covers approximately 20% of the population.  In the recently passed House reform bill, the language therein creates a broad expansion of Medicaid as a method of covering a large segment of the uninsured.  The primary methodology for this expansion is via a raising of the eligibility for participation limit to 150 percent of the poverty limit (133 percent in other versions).  Under present law, Medicaid on average, consumes 17% of a State’s budget and is projected to grow at a rate of 8.4% per year for the next ten years by then, consuming 3% of GDP.

What is unknown within the reform proposals is how the group that becomes eligible for Medicaid will spend or consume health services.  What is known is that people with insurance, especially those under a Federal entitlement program, tend to spend more on healthcare than those who are uninsured or have a private, high deductible health plan such as a HSA.  Given this truism, estimating the cost impact of a broadly expanded Medicaid program is difficult, especially since Medicaid by design, is an open-ended entitlement program.  Such programs do not require congressional approvals of spending as the funding is predicated on a formula whereby claims incurred at the state level are matched by a predetermined ratio of Federal dollars.  States that are economically poorer or less well-off receive a higher Federal match than states that are economically wealthier, ranging from 50% for the wealthiest states to 76% for the poorest states.

On the immediate surface of the issue of how health care reform will impact Medicaid is a host of economic and policy ramifications that are yet unaddressed by Washington policy makers.

  1. The economic conditions of the States is poor to dire (California) with only two states (Montana and North Dakota) projecting balanced or surplus budgets over their current fiscal years.  As a result, Governors have been adamantly opposed to Medicaid expansion without a dramatic increase in federal dollars.  To date, none of the health care reform proposals include such dramatic increases in money to support the expansion plans under Medicaid.
  2. The Federal Stimulus funding allocated to the states to support their lagging Medicaid budgets ($87 billion) evaporates in 2011.  Sadly, many states used some of this funding to increase or augment benefits that financially, will be unsupported by their budgets once the Stimulus funding disappears.
  3. Medicaid is not a program with any form of consistency or uniformity between the States.  The program emanates form the states and as such, it’s a maze of different and haphazard service offerings, benefit levels and provider participation.  Some states such as Minnesota, Wisconsin and New York are generous with programs that contain decent benefit levels and broad access.  Other states such as Mississippi, Idaho and Colorado have meager programs and as a result, geographic locations and benefit limits severely impact the quality and type of care that beneficiaries can access.  Across nearly all states, fewer and fewer dentists, primary care physicians and specialists are willing to accept Medicaid patients as a result of poor payment levels and bureaucratic and outdated claims processing systems.
  4.  Medicaid is a “locally” administered health policy decision and consequently, it is subject to heavy special interest lobbying at the state level.  The result is incredible inequities in funding between elder care and care for children and women and such swings can occur irrationally depending on power-shifts between parties and the status of election year cycles.

Taking the above into account as part of an analysis of health care reform and the implications for Medicaid, it becomes apparent that reform should principally concentrate on first gutting, redesigning and standardizing Medicaid’s coverage and benefit programs and then second, re-working its financing to assured adequate long-term funding and adequate payments to providers for care.  Today, the program’s financing creates an inverse incentive such that when state economies are good, Medicaid spending rises to garner additional federal dollars.  When however, economies decline, states become reluctant to stop Medicaid spending for fear that doing so would produce almost a rebate of federal matching funds to the Federal Government.  This perverse result causes (and has caused) enormous unfunded state Medicaid budgets that today, sans additional federal stimulus dollars or a dramatic rebound in the economy, will have states grasping for unavailable first dollars just with the hope of continuing a federal matching revenue that is inadequate to fund the total cost of the state program.  As an example, a state such as Mississippi which today receives an 83% federal match due to the additional stimulus funding would have to cut its total Medicaid program by nearly $6 million to achieve $1 million in savings at the state level.  By 2011, without more stimulus dollars, the hole expands as now Mississippi would have to cut $5.6 million to achieve the same $1 million in savings, plus realize the additional loss of $300K in reduced federal stimulus funds (76% match vs. 83% match).  As no doubs, states have spent the federal dollars associated with the additional stimulus funding, the 2011 reality will be harsh.

Another sharp and equally as absurd reality within the current Medicaid program lies in its distribution of dollars based on the “state wealth system”.  Dollars are allocated based on how “well off” a state is economically as opposed to how many poor people are actually within a particular geography or state.  For example, the five wealthiest states of Connecticut, New Jersey, Massachusetts, New York and Maryland  have 6.29 million poor people or 15.8% of their population.  Under Medicaid, these states received $36.7 billion in federal Medicaid payments or $5,405 per poor person.  In the five poorest states of Utah, Arkansas, Kentucky, West Virginia and Mississippi there are 2.97 million poor people or 21.1% of the population.  These states received $10.5 billion in federal Medicaid payments or $3,547 per person – nearly $2,000 per person less than the wealthy states.  It is no wonder that the programs in the poorest states compare in terms of access and quality of care sorrowfully with their wealthy state counterparts.

Given the present system and a seeming unwillingness on the part of Congress to address total Medicaid program reform, an expansion of Medicaid under current reform proposals is certain to exacerbate three significant existing problems.

  1. The spending and funding inequities from wealthy states to poor states will grow wider, not shrink.  While more people will be covered, it is logical to assume that the percentage growth of new eligibles under Medicaid expansion will come from states that are in the poor classification.  With no recognition that additional dollars need to be allocated outside of the current Medicaid funding equation or the program fully changed, states like Mississippi will be worse off, not better as their financial future contains no real means to garner additional federal matching dollars.
  2. Medicaid expansion does nothing to change the policy platform controlled by each state.  How good is expansion if providers are unwilling to treat the new population of additional Medicaid beneficiaries?  Likewise, how good is expansion if the new beneficiary resides in a state that has historically limited its program so severely that access is completely unavailable in a particular region?
  3. The states have no real source of money to participate in an expanded Medicaid program that requires their first dollars to gain additional funding.  Even the “wealthy” states have significant budget woes and the slow course of economic recovery will not re-fuel their coffers fast enough to provide for increased Medicaid spending.

November 16, 2009 Posted by | Policy and Politics - Federal | , , , , , | Leave a comment

Health Care Reform: Getting to the Details

Its been about ten days since the House passed its version of health care reform and just now,  it is possible to unwind and assess some of the cost/price details that are buried within the 2,000 page bill.  Similarly, it is also possible for the general public to begin the process of digesting the ramifications of what “may” happen to them (individually) if the meat of the legislation is enacted as written.  To clarify what’s beginning to take shape, take a look at two separate, recent information sources.

First, in a poll conducted by Stanford University, funded by Robert Wood Johnson for the Associated Press, the participants indicated a worried status on the costs of health care reform with 43% stating opposition to the legislation pending in Congress, 41% in favor and 15% undecided.  When asked more specific questions regarding cost trade-offs that could be faced, the 41% became less supportive. For example, there is broad support for requiring everyone to have health insurance (68%) but this same group of supporters when told about provisions that the Federal government would impose a fine, a penalty or a tax for people who chose not to buy insurance, support flipped to 63% in opposition.  Even among Democrats, 50% oppose the levy of taxes or fines on businesses or individuals in order to enforce the requirement of being insured.  The general consensus is a worry about rising taxes and an increased amount of federal debt to achieve health care reform.  Depending on the final amount of increases, the majority indicated that they were not in favor of reform if it caused taxes to rise substantially or the level of Federal debt to increase substantially.

The second piece of news comes from the Office of the Medicare Actuary (the Office of the Actuary) about the costs of the House bill.  Based on an analysis completed for the House Ways and Means Committee, requested by Republicans and released on November 14, the Office of the Actuary concluded that national health expenditures would rise by $289 billion between 2010 and 2019, consuming 21.1%  of GDP by 2019.  This compares to a projection of 20.8% of GDP in 2019 under current law.  While net Medicare spending is projected to reduce by $571 billion (not including the costs of the physician payment fix) during this period (primarily due to Medicare spending cuts), the Office of the Actuary warns that the projected effect of productivity adjustments as an offset to market basket increases is likely “unrealistic” as presented in the Bill.  They warn that such de facto price cutting or reimbursement reductions may lead providers to abandon the program altogether as they could find themselves fiscally unable to deliver the care required by Medicare beneficiaries.  The Office also states that the other provisions such as those related to comparative effectiveness research, administrative simplification, promoting health and wellness, and enhancing fraud and abuse prevention would have a minimal impact on reducing non-Medicare expenditures – $2.1 billion.  Compare this amount to a projected savings of $38 billion from instituting national tort reform provisions.  One final note: The Office of Actuary estimates that the number of uninsured (57 million) would reduce to 31 million under the House bill, principally as a result of the expansion of Medicaid and the increase in eligibility limits to 150% of the poverty limit.  This number is clearly higher than touted by Congressional members that support the House bill.

Unlike the Congressional Budget Office, the Office of the Actuary did not include a review of the income elements in the House legislation, focusing solely on the spending side of the legislation.  What is interesting to note however is that the income side associated with the “savings” activities contained within the Bill are viewed as “unrealistic” and minimal, suggesting perhaps that aside from direct cuts to Medicare expenditures, the economic results of reform are all on the tax versus spend side.

If there are any conclusions that one can draw from this news is that the Senate must be extremely wary of their task; namely, producing a companion bill to the House bill.  The House bill clearly does not achieve the desired reductions in overall healthcare spending as related to GDP and many of its provisions and its core, don’t even achieve the goal of eliminating the uninsured.  Frankly, the price of achieving less than a fifty percent reduction in the uninsured is astronomical and as concluded by the Office of the Actuary, at a greater cost to the U.S. economy than the present system (21.1 % of GDP vs. 20.8% of GDP under present law) with all of its inherent flaws.

November 16, 2009 Posted by | Policy and Politics - Federal | , , , , , , , | Leave a comment