When all else has failed, group says, turn over Medicaid to states
Can states solve their fiscal problems without restructuring Medicaid?
The American Legislative Exchange Council (ALEC), a Washington, DC-based conservative think tank for state legislators, thinks the answer is a resounding "No!" The group has included a radical restructuring of Medicaid in a proposal that outlines a number of things it believes states must do to turn around their fiscal condition.
An ALEC Medicaid reform paper notes that the program has gone from $1 billion in 1967 to a budget-busting $226 billion in 2001, covering some 40 million Americans, something the group says never should have happened.
"The reason for this failure," according to report author Richard Teske, an independent health care consultant and writer in Washington, DC, who also has done work for the Heritage Foundation, another conservative think tank, "is that Medicaid’s original structure remains essentially intact.
"The result is that the poorest, disproportionately minority, most illiterate, least educated, non-English speaking, blind, disabled, elderly, mothers, and children with the least experience choosing a physician or knowledge of accessing the health care system receive the second tier’ level of care. This is a national disgrace," he says.
It’s Mr. Teske’s position that the only way to fix Medicaid is for Congress to mandate a change from Medicaid’s welfare entitlement defined benefits structure to a market-oriented defined contribution structure and give all responsibility for Medicaid to the states.
He argues that the incremental reforms of the last 30 years — health planning, certificate of need, construction moratoriums, wage and price controls, deregulation, new federalism, acute care-long term care swaps, mandatory managed care, block grants, and per-capita caps — all have failed to provide successful reform.
Benefits approach = problems
Will all health programs designed around three essential elements — eligibility, benefits, and cost — Mr. Teske argues that almost all of Medicaid’s problems stem from its defined benefits approach in which eligibility and benefits are essentially fixed and costs are the variable.
"There are major problems with Medicaid’s benefits structure," he says, "including an outdated reimbursement formula, inefficient benefits delivery, and a rigid benefits structure that offers all benefits to all recipients regardless of need. There are major problems with Medicaid’s eligibility structure, including a history of eligibility gaps resulting in large poor populations remaining outside Medicaid; the loss of coverage for the sake of a job, destroying continuity of care and encouraging the use of emergency rooms for primary care, and the growth of the middle class using Medicaid as their long-term care assurance by abusing the spend-down requirements while hiding assets. There are also major problems with Medicaid’s financial structure. Doctors and other providers in the Medicaid system often are reimbursed at levels lower than their costs. This however does little to halt Medicaid’s huge and ever-growing outlays."
A market-oriented approach
Under Mr. Teske’s proposal, states would implement and administer a market-oriented consumer choice plan using a defined contribution approach. In such a structure, costs and eligibility are constant and benefits are variable. He notes that a variant on this proposal has worked for 40 years in the Federal Employees Health Benefit Program (FEHBP) that covers members of Congress, congressional staff, and 9 million federal employees and retirees. But in contrast with Medicaid, FEHBP is seen as providing high levels of patient satisfaction at a controllable cost.
Mr. Teske says the federal financial participation should continue at its present level in the form of a nationally calculated individual refundable tax credit adjusted for age and poverty level that would pay for a catastrophic acute and long-term care policy. States would pay all deductibles and copays up to the catastrophic amount for the eligible poor. Medicaid consumers would then purchase personal insurance from a variety of state-approved plans (including medical savings accounts, fee for service, and managed care) through an independent broker.
States also should pass small market insurance reforms, Mr. Teske says, with a policy goal of returning as many people as possible to the private market rather than absorbing them in a broadened Medicaid program.
The goal should be to make health coverage private, portable, and not a disincentive to employment. In the past, states have combined as many disparate populations (i.e. elderly, children, uninsured, uninsurable) in the same one-size-fits-all medical assistance program, Mr. Teske says, adding that we have learned that different populations should be handled differently.
For example, certain populations (like the present long-term care or mental health populations) may not fit an insurance model. Medicaid reform accompanied with small market insurance reform would provide a seamless and greatly improved safety net for the greatest number of Medicaid recipients and providers alike.
Quality shouldn’t slip
Mr. Teske insists that loss of federal quality standards would not jeopardize quality of care because states have as much interest as the federal government in retaining quality.
In fact, he says, it is difficult to explain Medicaid’s present lack of quality and then argue for the retention of present federal regulatory oversight.
Of course, not everyone agrees with the significant restructuring ALEC believes is necessary. National Conference of State Legislatures Medicaid expert Joy Wilson tells State Health Watch she agrees with some of Mr. Teske’s ideas, but disagrees with others.
"Primarily, I disagree with the major premise that the problem lies in the defined benefits approach," she says.
"We see long-term care as a major problem, and right now there is no alternative to Medicaid for long-term care. And we don’t think it will work to tell people they have to purchase long-term care insurance."
Ms. Wilson says the problem is more that as a society, we haven’t grappled with the long-term care issue rather than a problem specifically of Medicaid. She also says Mr. Teske doesn’t offer a way to deal with the growing number of uninsured people in the country.
"[Mr. Teske’s] proposal assumes that there is an insurance market for medically uninsured people. But I don’t see that demonstrated anywhere," she says. "Using an insurance model for a program in which the majority of costs go to those who are medically uninsurable just doesn’t work."
Questions raised
Kaiser Commission on Medicaid and the Uninsured associate director Victoria Wachino tells State Health Watch that the ALEC proposal, like all other recommendations for change, has some significant drawbacks.
Significant costs to restructure
She says the costs of restructuring can be as significant as if there was a major infusion of money into the program because there will be an increase in the number of uninsured who have to be dealt with. And she echoes the concern that much of Medicaid goes for long-term care and the ALEC proposal doesn’t satisfactorily address that aspect of the program.
While ALEC would like to see Congress approve the core restructuring that its paper calls for, it says that even without congressional action, governors should apply for Section 1115 waivers to implement pilot research programs. Governors "can adopt the essentials of these reforms if Congress fails to act," Mr. Teske writes.
"This would force positive action on Medicaid reform similar to what was achieved by the dramatic leadership of Wisconsin governor Tommy Thompson in the area of welfare reform," he adds.
What ALEC is looking for now is one or more governors willing to go out in front of the rest of the states and seek waiver approval for some of these changes.
[Download the ALEC Medicaid report from http://www.alec.org. Contact Ms. Wilson at (202) 624-8689 and Ms. Wachino at (202) 347-5270.]
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