In Medicaid's happier days--a mere six or seven years ago--budget-flush states gave the program a jolt of youthful elixir. They increased income levels for eligibility, cut the red tape that had restrained signups and searched for citizens who were qualified for the program but hadn't applied. What's more, with the State Children's Health Insurance Program, six million uninsured children who weren't eligible for Medicaid were awarded a Medicaid-like package of health care coverage. The uninsured rate among low-income children dropped by a third between 1997 and 2003, despite the onset of a recession in 2001.
Those heady days are no more, in part because health care itself has become so costly. While inflation was in the 1.5 to 3.3 percent range from 2000 to 2003, health care spending went on a wild ride: Prescription drug costs rose 17.1 percent annually and inpatient hospital costs went up 11 percent a year. During the first few years of this decade, the economy slid into a downturn, causing Medicaid caseloads to grow. In the past five years, they have increased by 40 percent, taking on not only people who lost their jobs and became poor enough to qualify for the program but also employees of large companies that have become increasingly unwilling to pay the high costs of health insurance for many of their workers--a problem that will only grow as the nation continues to turn to a more service-oriented economy.
State revenues have not been able to keep pace with Medicaid's unremitting growth, and the federal government, with fiscal problems of its own, has grown ever more unhappy about footing its open-ended share of the bill. Medicaid's mission, meanwhile, is formidable. It finances not only acute care for low-income families but also long-term care and support for individuals with disabilities. Even more challenging is the demographic future. The number of elderly Americans is growing steadily, increasing demand for expensive services such as nursing home beds, other long-term care facilities or home-based care. Already, about one-third of Medicaid's budget goes to long-term care.
There is pressure from all levels of government to rethink all aspects of the program. The program is not fiscally sustainable, and things are not likely to get better without intervention. The net result is that states and the federal government are now X-raying the Medicaid system. What fills many advocates for Medicaid and for low-income beneficiaries with dismay is that the mechanism being used for the review may ignore the brain and heart of the program and focus exclusively on the wallet.
BALANCING THE BOOKS
There is, of course, a profound connection between money and care. When it comes to reimbursing its medical providers, for instance, Medicaid is stingier than either Medicare or commercial insurance. Compensation cuts have become one of the most expedient means for saving dollars.By low-balling compensation, however, the program ends up reducing the number of providers willing to take care of Medicaid patients. According to the California Health Care Foundation, only about half of California physicians participate in Medi-Cal, and the number is shrinking. A focus group of Medicaid participants with disabilities reported difficulty locating providers willing to accept Medi-Cal, particularly specialists.
The cause and effect between reimbursement rates and access to physicians is clear. For many of the fiscal fixes for Medicaid's problems, the unintended consequences of change may be harder to see.
The nation's health care system is often likened to a balloon: squeeze one part of it and another portion expands. This is true in Medicaid as well. Eliminate dental care for adult patients, for instance, and you may wind up treating them for malnutrition or reducing their chances of finding a job that might take them off of Medicaid. Reduce the number of asthmatics who receive preventive treatment through Medicaid, and the same people may wind up in emergency rooms for far more expensive care.
Then there's the relationship between Medicaid and private insurance. When an individual who has been cut from Medicaid enters a hospital for an emergency, that person cannot usually pay the bill. But hospitals have to balance their books. As a result, 42 percent of the cost of treating uninsured patients is shifted to private insurance, according to a 2004 report issued by the Urban Institute. That can and does raise private insurance rates. Partners HealthCare, a major academic health system in Boston, reports that Medicaid cuts in Massachusetts have required it to raise charges to commercial health plans by 4 percent.
There's a vicious cycle here. When health insurance costs increase, private coverage tends to fall, Medicaid absorbs some of those who lose coverage, and the ranks of the uninsured grow. But if insurance picks up only 42 percent of the cost of treating the uninsured, where does the other 58 percent come from? About a quarter of it is paid by the individuals themselves. Most of the rest comes from the states and the federal government, who pony up money for hospitals that provide a significant amount of charity care.
In the final analysis, as much as cuts in Medicaid may seem like real savings for the states and federal government, the bills for uncompensated health care don't go away. They're paid by average Americans and by a variety of state and federal programs. The illusion of real savings comes because those expenses don't flow through just one program and aren't easily tracked.
QUESTIONING VALUE
Although evaluations of Medicaid programs are plentiful, there are enormous holes in the kind of analytic information policy makers need to make positive change. Relatively few public dollars are spent on determining which treatments work best and how to encourage their use. Often, Medicaid's practices are driven by what is cheapest or easiest, what is politically acceptable and what has been done before--rather than through a determination of what is most effective.Even when pilot programs are successful, follow-up on those successes is often short-changed, so good ideas aren't replicated as much as they should be. The federal government has focused relatively little analytic attention on Medicaid, given the size of the program. "Compare the literature and resources going into Medicare versus those going into Medicaid," says Andy Schneider, a former congressional aide who is currently a Medicaid consultant. "There's just not an investment in Medicaid."
Part of the issue is that states don't have the luxury of waiting to see if a fresh idea will work. "You don't do a control group. You don't have a counterfactual," says Alan Weil, executive director of the National Academy of State Health Policy. "You do it because you think it'll work."
Vernon Smith, a health care consultant with Health Management Associates who was a Medicaid director in Michigan, argues that at the very least, Medicaid programs have an obligation to the taxpayers to get the best possible value for the money spent. It's hard to argue with that logic. But his point is easier understood than accomplished. Consider this: The Centers for Medicare & Medicaid Services (CMS) will pay up to 90 percent of any costs required to streamline or improve claims management. Yet a number of states haven't taken advantage of what would seem to be a golden opportunity. Why? "Even finding just the 10 percent is expensive," says South Carolina Medicaid director Robert Kerr.
AN AGE-OLD PROBLEM
So far, states have relied much more on cuts in services for the relatively healthy and young adult beneficiaries rather than the aged or those with disabilities. Politically, it's easier. It's also an illusion. Senior citizens and people with disabilities make up 25 percent of the Medicaid population but consume 70 percent of the costs.Clearly, any attempt to constrain Medicaid's growth and spending has to address the elderly and disabled--a tricky task since both groups have strong advocacy networks. "You can't balance your budget for this program on the backs of welfare recipients," Smith says. "There just aren't enough of them, and they are not very expensive people to serve."
A major component of spending for the disabled and elderly has been institutional costs for long-term care. But there is a large group of elderly and disabled patients that lives outside of long-term care institutions, and 40 percent of the spending for this group has been on hospital care--more than half of the individuals were hospitalized within the previous year. Other big expenditures were for home health care, at 24 percent of spending, and prescription drugs, at 18 percent.
Then there is the issue of "dual eligibles"--Medicaid seniors who are also eligible for Medicare. It's an Alice in Wonderland universe. The states, through Medicaid, are responsible for the bulk of long-term care for older Americans while the feds, through Medicare, provide most of the acute care. Medicare covers all elderly Americans, of course, while Medicaid is generally provided only to those with little or no money.
"If, at age 85, you have the good judgment to pass from this earth in an explosion of acute care services, Medicare will be perfectly willing to pay $100,000 to a hospital in a non-means tested program, with modest cost sharing," says James Tallon Jr., chair of the Kaiser Commission on Medicaid and the Uninsured. "God forbid that you choose dementia as the route of departure." In that case, Tallon notes, you kick into a national policy that worries about whether you should pay the cost of care out of your reverse mortgage or whether the state can go after your assets or how much cost sharing the state can get out of you. "That doesn't make any sense as a national policy," Tallon says.
FEDERAL TENSION
The two programs may not play well together, but neither do the states and their Medicaid partners, the feds. There is an increasing tension between the two. Governors are eager to see Medicare pick up more of the bill for older Americans. At the same time, the federal government is concerned about the ways in which states have amplified their efforts to "maximize federal dollars." In 2004, for instance, 34 states--up from 10 in 2002--used contingency fee consultants to help increase federal Medicaid reimbursements. According to the Government Accountability Office, Georgia paid a consultant $82 million between 2000 and 2004 to generate $1.5 billion in new federal Medicaid dollars.Some of the efforts to get a federal match for state expenditures are based on logic that aligns with the current nature of state responsibilities. Bruce Vladeck, who ran the Medicaid and Medicare programs from 1993 to 1997, notes that the big growth areas in the Medicaid program in the 1990s "were in services for the mentally ill, the retarded and AIDS patients. Historically, the states did take care of a lot of those problems on their own."
But many of the efforts have been somewhat less aligned. States are allowed to claim certain health services delivered in schools as Medicaid expenses, for instance. But the accounting required to allocate the appropriate amount of overhead dollars to these legitimately covered areas can be just fuzzy enough to allow some fiscal finagling. In Massachusetts, the Office of the Inspector General for the U.S. Department of Health and Human Services discovered that about $4.9 million was being unreasonably charged to the feds.
There are also a variety of complicated but legal financing arrangements that states have used to attract additional federal matching dollars. One approach goes like this: States increase payment rates to nursing homes. The federal government reimburses the state for the higher amounts. The states then impose a tax on the nursing homes to recover the cost of the rate increase. The revenue goes into the general fund to be used however the state wants. The federal government has cracked down on this legal loophole, claiming that unchecked schemes like these could cost the federal government $5.8 billion over five years. But as quickly as one mechanism for siphoning federal dollars has been squashed, another seems to take its place.
At the same time, the federal government has become steadily less supportive of states' efforts to manage their programs well. One small way that the federal government could help states would be for it to identify a way to measure the cost efficiency per Medicaid beneficiary for each eligibility class, says Arizona Medicaid director Anthony Rodgers. "If I saw that some states were doing much better than us for the same type of beneficiary, I could go to those states and see what they're doing."
Many of the states have been unable or unwilling to take up the slack--or don't have the administrative resources. "Neither the feds nor the states have invested in running these programs well," says Schneider.
Perhaps the biggest bone of contention is over waivers--the exemptions from established law that the states need in order to experiment with their Medicaid programs. Waivers can take years to win approval from CMS. But even more to the point, advocates for Medicaid beneficiaries are concerned that waivers may not effectively balance cost savings with the need to retain quality and access. For example, they may include limits on the number of people served, which can result in long waiting lists for valuable services.
Meanwhile, governors complain that for some ideas that have already been tested, there shouldn't be a requirement to get a waiver from federal rules. For instance, states are still required to get waivers to provide long-term care in home- or community-based settings as an alternative to a nursing home. The rule persists, even though a million people already get their care this way and federal officials say they believe home and community care hold the potential for great success.
There is, of course, little patience in most circles for inefficient bureaucracy. When it happens in, say, a department of motor vehicles, the fallout--citizen rage over long lines or interminable waits--can be felt immediately in the governor's mansion and legislators' offices. But at least DMV inefficiencies only cost valuable time. When Medicaid doesn't work as well as it can--and when fiscal constraints keep care from the needy--people can die. If ever there were a state program crying out for close consideration and remodeling--not just to tame costs but to improve service--this is the one.
