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When's the Next Recession? Ask Medicaid Directors.

Health care costs can tell officials a lot about a state's fiscal temperature.

Last October, Dan White and his colleagues at Moody’s Analytics published a report, Stress-Testing States, that looked both at how states fared in the last recession and how well they were prepared for the next one. You will probably not be shocked to learn that the Moody’s team found that only 16 states have the revenue to weather the next downturn. There were, however, a couple of surprising facts in the report.

First, in the last recession the increase in expenditures was a bigger hit for states than the loss of revenue. Second, while it’s not news that a big part of that increase in expenditures was for Medicaid, the magnitude of the long-term growth of state spending on that program was an eye-opener -- about two and a half times the increase in state revenues since 1965. Medicaid expenses were an early warning signal of the Great Recession. They began to accelerate nine months before state revenues began to fall. There “was at least one person in most every state,” the Moody’s team wrote, “who knew, or should have known, that we had entered a recession far earlier: the state Medicaid director.”

An inescapable conclusion is that states’ preparations for managing the next recession must include a plan for controlling not only Medicaid expenditures but also health-care costs in general. At a recent Governing roundtable, I heard about three strategies states are beginning to incorporate to reduce those costs without hurting quality: hubs, networks and alternate payment methods. All have third-party research showing that they work. 

As described in the journal Health Progress, a hub is “a neutral clearinghouse that brings together the many agencies trying to reach those who are at greatest risk.” It “receives referrals, determines eligibility, enrolls clients, conducts training for community health workers and monitors their performance along with provider performance.” Payments are tied to health outcomes.

Health-care networks plan, prioritize, invest, evaluate and repeat the process. Communities with dense, comprehensive networks with strong central coordinators are seeing large population health gains, and the improvements are greater for low-income populations, according to professor Glen Mays of the University of Kentucky College of Public Health, who has studied community health systems for two decades.

Alternative payment methods are among the tools employed by the Cincinnati Health Collaborative, which coordinates among the region’s health-care providers, employers and governments. Doctors who engage in what the organization calls “quality improvement activities” are paid more.

Now is the time for states to be using tools like these and to be keeping a close eye on changes in Medicaid enrollment as they get ready for the next big fiscal storm. There is never a good time for complacency about economic conditions. As the Moody’s report notes, “No matter how high-flying an economy might appear, another recession is coming sooner or later.”

Caroline Cournoyer is GOVERNING's senior web editor.
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