Lost fiscal opportunities in store for Medicaid programs

While opportunities for cost savings exist in the Patient Protection and Affordable Care Act, some states will be unable to take advantage of these due to severe budget shortfalls, according to Stan Rosenstein, principal advisor at Health Management Associates in Sacramento, CA, and former California Medicaid director.

"There are a lot of terrific options, but some states may have difficulty coming up with the 10% match, as terrible as that sounds," he says. "If you are cutting programs drastically, it's pretty hard to come in and ask for any money for a new program. It is a very good match rate, but it is coming at a very difficult time."

Mr. Rosenstein says that the decreasing revenues and greater demand seen in states with high unemployment is a "classic problem" that Medicaid has faced for years. "At the times they have the most demand, there is the least state revenue," he says.

Even when unemployment starts decreasing, state budgets typically take about two years to recover from that point, adds Mr. Rosenstein. "We've got a ways to go in this crisis. The situation is compounded by the loss of the FMAP [Federal Medical Assistance Percentages]."

The loss of the FMAP funding, says Mr. Rosenstein, means that states will need approximately 30% more state revenue for their Medicaid programs. "That is a major hill to climb. That creates a crisis, I think, in almost every state," he says.

Some Medicaid directors are interested in implementing major delivery system or payment reforms, but aren't able to do so due to their current budget shortfalls, says Judith Solomon, co-director of Health Policy at the Center on Budget and Policy Priorities (CBPP) in Washington, DC. "Those broader reforms are harder to do. To the extent you can even forecast savings, they are not going to be, in most cases, in this budget year," she says.

Upfront costs too great

There are upfront costs involved in setting up a care coordination program which can eventually keep asthmatics or diabetics out of hospitals, notes Ms. Solomon. "The savings will be in the next two, three, or four years, with the need to balance the budget this year," she says. "That's why those things are often given short shrift, which is unfortunate."

Another obstacle is that many Medicaid programs are currently operating short-staffed due to budget cuts, says Ms. Solomon. "You need people to carry out these policies and design them. That is difficult in states that have people out on furloughs," she says. "It's easy to cut a benefit. You just stop providing it. It's a little harder to design a program that will better manage care."

Budget is priority

Adult dental services is a commonly cut optional benefit, notes Mr. Rosenstein, but doing away with this benefit is likely to increase costs down the road. "This is an optional benefit that states don't have to provide," he says. "But there is no question that ignoring dental disease will have negative health effects over the years, leading to ER usage and other problems."

Longer-term savings can be achieved by fraud prevention and better management, notes Mr. Rosenstein. "States should be doing those things, but right now they are forced to balance the budget," he says.

Medicaid programs are increasingly putting caps on services, such as the number of covered prescriptions or hospital days, says Mr. Rosenstein. "Nobody wants to do that, but it may be all they can afford. They may think it's better to cover the most critical prescriptions rather than no prescriptions," he says. "When you don't have enough money, you are forced to prioritize."

If a state invests in a program that will result in considerable savings three years later, says Mr. Rosenstein, that doesn't help to balance this year's budget. States are left with two choices, he says.

"You can look at reducing benefits—and some states have already gone pretty low—or you can reduce your rates and perhaps have lower access," he says. "The tradeoff is, is it better to have less access to a service or not have the service at all?"

Mr. Rosenstein says that is the question that is now confronting most state Medicaid directors every day. "They may decide that having less access to prescription drugs is better than having no access at all by eliminating it," he says. "These are all terrible decisions that policy makers have to make."