Cut Medicaid or change it? Drawing lines between cost and coverage
Cut Medicaid or change it? Drawing lines between cost and coverage
Two respected health researchers say the Bush administration's plans to cut $26 billion from Medicaid spending over the next five years are misguided, and what is needed is a fundamental restructuring of the program to cover more people and shift more costs to the federal government. In a Health Affairs analysis published Feb. 25, 2007, Urban Institute Health Policy Center director John Holahan and National Academy for State Health Policy executive director Alan Weil say the four reform options they suggest "would go a long way toward solidifying the system of financing care for low-income Americans. They would simplify Medicaid's structure, expand coverage for low-income populations, and largely eliminate the financial manipulations that have plagued the program in recent years. They would shift more financial responsibilities to the federal government, which has far superior taxing and borrowing capabilities, and thus provide fiscal relief to states."
If it all sounds too good to be true, Mr. Holahan and Mr. Weil acknowledge that one major problem is that it will be hard to sell such ideas politically. "We recognize," they say, "that the nation faces a large structural deficit well into the future and that an expansion of a major entitlement program is not likely to be politically feasible in the near term. But any effort to expand health insurance coverage faces the same obstacle. The question is whether the federal straitjacket that has been the outcome of recent federal tax and spending policies should foreclose debate over tackling such major national problems." They say while they are under no illusion that their proposals are politically feasible, they believe that those pursuing true reform must address the issues they are raising.
Mr. Weil tells State Health Watch that it will take a serious discussion of comprehensive reform or universal coverage to get the ideas he and Mr. Holahan are advancing on the table. "Once the discussion broadens in that regard," he says, "it will be natural to include the role of Medicaid in the overall conversation regarding how we will cover everyone. This will open the door to conversations regarding what the publicly provided base of coverage should be [Medicaid] and the relative roles of the states and the federal government. Barring a true fiscal crisis at the state or federal level, it will be difficult to discuss reforms of the magnitude we propose."
Mr. Holahan tells SHW he agrees with Mr. Weil and says interest in broad reform with a significant role for states would make it imperative to look at the issues they raise. "Growing fiscal pressures on states because of rising health care costs coupled with slow revenue growth could also do it, particularly with a recession. Unfortunately, our piece was published in a year in which Medicaid costs are growing quite slowly, so this is off the radar screens at the moment. But this won't last."
Cost containment or cost-sharing
"In our opinion," Mr. Holahan and Mr. Weil say, "many of the ideas emerging from the reform proposals currently on the table are appropriate, such as increased emphasis on wellness and prevention; improving care coordination for higher-need populations, including dual-eligibles; and investing in information technology. But we also believe that there is much in the Deficit Reduction Act and recently approved waivers that represents the wrong approach to Medicaid cost containment and is not true reform."
The two say that while their proposals would certainly increase federal spending, their cost-containment policies should lower the rate of growth below current projections. "But the higher spending estimates should also be put in perspective," they wrote. "In the four models we described, federal spending would increase, but state spending would decline. The net effect of $26-$30 billion annually is clearly an overstatement because the reductions in the number of uninsured people would reduce the federal, state, and local costs of supporting the safety net, and increased Medicaid enrollment would reduce some costs for employers and individuals as well." And a companion Health Affairs study indicates that Medicaid may not be facing an immediate financial crisis requiring major cuts
The policy researchers say many Medicaid reforms being discussed and implemented rely on a series of mistaken assumptions and beliefs about why Medicaid costs so much. Specifically, they say, a major impetus for Medicaid reform has been a concern that enrollees over-use services. That concern, they say, is reflected in a variety of views expressed by some reform proponents. Thus, some of the alleged overuse is attributed to the idea that when people are shielded from the actual price of goods or services they use, they will consume more than is appropriate. Others speak of the "Cadillac" Medicaid benefits package that includes services generally not part of commercial insurance and in many states lacks numeric service limits on benefits such as physical therapy.
Such concerns, according to Mr. Holahan and Mr. Weil, naturally lead to policy responses such as increased cost-sharing for enrollees, particularly at the point of service; reducing the benefits package to exclude certain services, at least for some populations; or capping services such as setting a limit on the number of prescriptions to be filled each month.
For some reform advocates, they say, the appropriate response is even more fundamental change, such as extending use of high deductible insurance policies paired with health savings accounts for the very low-income Medicaid population, with a primary goal of making enrollees more conservative purchasers.
"The notion that a central principle of Medicaid reform should be giving enrollees financial incentives to reduce use ignores the long-standing reality that enrollees have difficulty finding health care providers who will accept Medicaid," the authors caution. "Research consistently shows that Medicaid enrollees have access and utilization levels comparable to those of the privately insured when differences in the populations are controlled for. In addition, these proposed policies are usually suggested for low-income parents and children, not for elders and people with disabilities. But parents and children on Medicaid are already mostly enrolled in managed care plans, which have systems designed to reduce unnecessary use. These enrollees only account for 31% of Medicaid spending, which means that even if the policies have their intended effect, they will have a limited effect on overall Medicaid costs."
Mr. Holahan and Mr. Weil warn that while efforts to reduce benefits and increase cost-sharing may in fact save money in the short-term, they may have implications well beyond cost, including lower use, which could lead to increases in unmet needs and negative health consequences, particularly for people with chronic conditions. Also, reform proposals based on shifting costs to enrollees are not likely to do much to control program spending. They contend the real reason for recent growth in Medicaid spending has been enrollment growth among families and children because of the economic recession and growing income inequality, growth in the number of disabled enrollees because of the increasing incidence and recognition of disability, and medical care inflation in the health sector.
Four reasons for reform
Even though they don't see the value in many of the current Medicaid reform proposals, Mr. Holahan and Mr. Weil say there are at least four reasons Medicaid does need to be reformed.
First, they say, Medicaid program costs and cost growth are a growing burden for states and given this fact, states will regularly be forced to make marginal cutbacks in coverage and benefits that will harm beneficiaries, undermine program goals, and increase the number of uninsured Americans. "States probably cannot continue to support Medicaid as well as other priorities such as infrastructure and education," they say. "Some fiscal relief needs to be part of any serious Medicaid reform effort. A reformed Medicaid program should recognize the broader taxing and borrowing authority of the federal government and the greater volatility of state revenues, and place more of the cost and risk for cost growth onto the federal government."
The second driver they see for reform is that interstate variations in Medicaid, particularly involving coverage and provider payment rates, are too great given the dominant funding role of the federal government and the national interest in providing for the health care needs of low-income families, elders, and people with disabilities. Thus, a reformed Medicaid program should reduce interstate variation in eligibility and provider payment.
Third, complex, restrictive federal eligibility standards contribute to the large number of people who are eligible but not enrolled and divide families in ways that make it difficult to build on the base of Medicaid coverage with tax credits, subsidized coverage, integration with employer-sponsored insurance, or any mechanism designed to reduce the number of uninsured Americans.
And finally, the current program design has features that promote mistrust between states and the federal government regarding whether Medicaid funds are being used to achieve the program's purpose. Specifically, Mr. Holahan and Mr. Weil say, the use of disproportionate share hospital payments, upper payment limits, and similar mechanisms in which state financial participation has been questionable has soured federal-state relations. In a reformed program, they say, financing arrangements that states have used to leverage higher federal matching payments with little or no state contribution should be eliminated.
Key reform needs
Key features of their reform options include, first, expanding coverage up to a national minimum eligibility standard, increasing the uniformity of Medicaid coverage among states and reducing the number of uninsured low-income Americans, particularly in states with more limited Medicaid coverage. Second, shifting populations or services to the federal government would provide states with fiscal relief and increase the federal government's incentives to invest in care management for these populations. Shifting other populations or services to states would make states wholly responsible for these services, potentially improving system efficiency and offsetting federal costs from the shift of other services to the federal government. Next, increasing federal matching rates would provide fiscal relief and increase incentives for states to add coverage and provide adequate benefits and to avoid punitive reductions in coverage and benefits. Finally, reform of disproportionate share payments, upper payment limit programs, and other similar programs in which states make little or no real contribution but can leverage federal dollars would curtail inappropriate use of federal outlays.
More than one way to reform
Mr Holahan and Mr. Weil say each of their four reform options would have approximately the same budget impact on the federal government and savings to states. The options differ in their relative emphasis on coverage expansion, acute or long-term care, and federal and state responsibilities. They say their idea was to show that there are different ways to achieve major reform and say those wanting to implement reform could pick and choose policy changes within the four options.
The options they advance are:
1. Terminate SCHIP and integrate all children's coverage into Medicaid with no enrollment caps. Premiums such as in the current SCHIP program would be allowed. Coverage of adults would be expanded to 150% of poverty, with a 30% enhanced match. States could expand further for children and adults at the enhanced matching rates. Federal matching rates on all acute care services for current beneficiaries would be increased by 30%, with no change in matching rates for long-term care. The federal government would be responsible for Medicare premiums and cost-sharing for Medicare acute care services. The current "clawback" policy for prescription drugs would remain in place. Disproportionate share payments would be eliminated.
2. This option, similar to the first, equalizes matching rate increases across services and programs. Federal matching rates for all services including long-term care would increase by 15%. SCHIP would be retained in its current form but with the matching rate reduced to 15% above current Medicaid rates. Coverage of adults would be expanded to 150% of poverty with a 15% enhanced match. States could expand further for both adults and children at the 15% enhanced match. Acute care services for dual-eligibles, including state clawback payments, would become the responsibility of the federal government, and disproportionate share payments would be eliminated.
3. This option would expand coverage for adults only to 100% of poverty, allowing states to go further if they choose. The current Medicaid/SCHIP structure for children would be retained. The federal government would be responsible for acute care services for dual-eligibles, including eliminating the drug clawback. Because the mandatory coverage expansion would be less, disproportionate share payments would not be eliminated but would be restructured with a new formula based on the number of low-income people and potentially the number of recent immigrants.
4. The last option, considered by Mr. Holahan and Mr. Weil to be the most dramatic, would federalize all care for dual-eligibles, including long-term care, but not including Medicare acute care services. The prescription drug clawback payment would be eliminated. Long-term care services for nondual-eligibles would be wholly a state responsibility. The current Medicaid/SCHIP structure for children would be retained. Coverage of parents and nonparents would be expanded to 100% of poverty and states could expand further with current federal matching payments. The current matching payments on all Medicaid services would be retained and states could expand at the current matching rates. Disproportionate share would be restructured but not eliminated.
The authors say Medicaid reform is an important priority and the cost pressures the program places on state governments often affect their ability to adequately address other priorities. Funding pressures also cause states to reduce Medicaid benefits and provider payment rates. At the same time, states' reluctance to expand coverage to levels that are allowed by federal law contributes to the high number of and growth in uninsured Americans.
Shifting costs
At a Feb. 23, 2007, Washington briefing at which their paper was released, Mr. Weil acknowledged there are inefficiencies in the current Medicaid program, but said a general strategy of shifting costs to the enrollee population or scaling back benefits is unlikely to yield savings. "I think," he said, "as we've seen a new body of evidence in just the last few years with recent changes in health care delivery, the risks to populations with chronic conditions in that kind of increased cost-sharing is substantial with respect to their health status. So needless to say, we conclude that starting a Medicaid reform discussion with the idea that what you're going to do is take away from some to save money and have no health consequences is not an appropriate starting point."
Mr. Holahan said increased federal spending would range from $41 billion to nearly $49 billion depending on the option. Much of that money would go to coverage expansion, but also would be needed to cover the cost of the federal government taking on new functions and higher matching rates.
All states would save money under all four options, due primarily to shifting responsibility for dual-eligibles to the federal government and higher income from higher matching rates. Some of that would be offset by higher state costs for coverage expansions.
While the net cost of $26 billion to $30 billion is clearly a lot of money, Mr. Holahan said, any proposal to expand coverage to low-income people in any significant way will face the same level of costs. "I think if you're going to have a serious discussion about this, you should get used to numbers like that," he said.
The bigger context
Also at the briefing, George Washington University associate professor Jeanne Lambrew said the study by Mr. Holahan and Mr. Weil "tries to get us out of the minutiae of looking at different parts of the Medicaid statute and putting this into a bigger context. Who should be covered? Who should pay? How do we think about this in a disciplined way? That's a real addition to our current debate when we typically are focused on kind of the narrow policy issues of the day."
Ms. Lambrew said the report also challenges the conventional wisdom that the country is spending too much on Medicaid at the federal budget level. In that term, she said, spending too much at the federal level implies that we basically have some sort of cost problem. But, she said, what we really have is a coverage problem.
"We have enrollment increases that are driving our costs," she explained. "And if we actually believe coverage is good, I'm not sure how we say that a cost increase associated with increased enrollment is a problem. I think what we see in the Holahan and Weil paper implicitly, and I think it's something we should discuss, is they're saying we actually think the federal government should be paying more, not less, because of its broader tax base and because we can rationalize some of our spending. I think that's an interesting contribution to this debate that does stretch the bounds."
Access the paper at http://content.healthaffairs.org/cgi/content/abstract/26/2/w254. Contact Mr. Weil at [email protected] and Mr. Holahan at [email protected].
Two respected health researchers say the Bush administration's plans to cut $26 billion from Medicaid spending over the next five years are misguided, and what is needed is a fundamental restructuring of the program to cover more people and shift more costs to the federal government.Subscribe Now for Access
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