• A glimpse into Medicaid’s future

    A short while ago, I argued that it would be very difficult to cut Medicaid without significantly attacking benefits, beneficiaries, or physician reimbursements:

    Make no mistake about it, under the block grant plan in the budget proposal approved by the House, states must innovate. Even if the ACA’s Medicaid expansion were eliminated, the House budget would reduce federal Medicaid spending by $163 billion in 2022. That’s a 34% reduction 10 years from now.

    How can states possibly account for that difference? Where’s the magic in innovation? If states refuse to cut benefits and spend the same per enrollee, then even if the Medicaid expansion of the ACA never takes place, an additional 19 million people need to be dropped from the 2021 Medicaid rolls to meet budget cuts. That’s about one-third of all people on Medicaid. If states cut benefits or somehow slow spending to that of GDP growth, they still need to remove 13.8 million people from Medicaid in 2021, in addition to forgetting the ACA Medicaid expansion. If states act to protect the elderly and blind or disabled persons by holding their spending/benefit reduction to 10% (which is still a large cut), then 27 million people, most of them children and pregnant women, need to be dropped from Medicaid in 2021 even if ACA’s Medicaid expansion never occurs.

    Yesterday at Politico, Matt Dobias gave us a glimpse of how “innovation” might occur:

    House Republicans want to stop rewarding states for finding and enrolling low-income children in Medicaid and the Children’s Health Insurance Program, and public health advocates are livid.

    The Republicans say it’s a smart fiscal move that will better protect the program against fraud; their critics say it’s undermining years of progress states have made in identifying and enrolling a hard to serve population…

    Energy and Commerce Committee Republicans voted last week to strip about $400 million earmarked for a bonus program created by the 2009 law to extend the Children’s Health Insurance Program. The bonus payments run through 2013.

    The provision, sponsored by Rep. Joe Barton (R-Texas) and passed without Democratic support, is part of a $115 billion package of health care savings included in the House’s reconciliation process. The House Budget Committee plans to mark up the reconciliation package on Monday. And although the package won’t make it through the Senate, some of these health cut proposals could resurface this year.

    Some of the supporters of this measure have argued that provisions like this bonus program lead to “fraud” in Medicaid. But none of those reports of fraud have linked the potential waste to this program, or to children’s health care. Others have argued that while the federal government is subsidizing the increased rolls now, when that support ends, the states will now have to pay for the new children enrolled in Medicaid.

    Ironically, that’s exactly the problem with shifting Medicaid entirely to the states for “innovation” and “block grants”. States will be left on the hook, unable to run short term deficits when they need to. They’ll be responsible for all coverage, as the amount given to them shrinks and shrinks.

    I’ve long argued that there are no easy answers here. We’ve seen an early example as to how Medicaid might be cut – by making it harder for kids to become beneficiaries. And there are still many more cuts to come.


    • Myself and many others have long argued that the policy of shifting Medicaid to block grants is simply a way of

      1. Reducing Federal expenditures on health care for low income people, primarily women, children and the disabled


      2. Avoiding the blame for the cuts by shifting that responsibility to the states.

      We have also argued that this will not save health care dollars, as the costs of operating the health care system are largely fixed costs and so the costs of providing health care in total will not decrease. Furthermore, given than lower Medicaid services will result in less preventive and early care, health care costs may actually rise in total with the reduction in Medicare programs. This means the res of us, the non Medicaid group, will pay more for health care, not less.

      Illustrative Question Aaron: If the services (patient visits, tests, procedures etc) you provide are reduced by say 5%, how much will the costs of operating your practice go down?

      Will there be lower staff? Will equipment be sold off? Will your compensation be reduced by 5%? I suspect the answer is none of that will happen and that the answer is much closer to zero reduction in costs than 5%.

      If so, how do you make up the lost 5% revenue? Simple, you raise prices.

    • Another name for reducing benefits to poor women and children is ‘rationing’. So the GOP is proposing rationing healthcare if it affects poor children. No doubt doing so because it’s a prolife view of healthcare.

      I don’t understand why we can’t ration healthcare to the old, terminally ill, chronically ill, rather than to children. The GOP already wants to ration healthcare. Why give it to those who have no future rather than to those whose future awaits them?

    • Once again, policymakers who seek savings by reducing the number of children on Medicaid make the mistake of not considering the distribution of costs within the Medicaid population. In other words, children are not driving Medicaid spending. Roughly, 90%-93% of children are healthy and inexpensive. The other 7%-10% percent are children who are developmentaly disabled, have birth defects or congenital anomalies, or who are in Foster Care and require additional behavioral and social support services. It’s unlikely that States would eliminate services for any of these three groups.

      In June 2007, researcher Embry Howell studied children in San Mateo County, california and found that, “..the financing burden for children’s public health insurance programs is concentrated in the top tenth of health care users, while the other 90% of children are very inexpensive. This finding suggests that early identification and greater efficiency in care management for high-cost children could free up funding to expand public insurance services to more low-cost children. As states evaluate the feasibility of public health care for all children, it is important to examine the distribution of costs and services within existing programs, in order to better plan services for the highest cost children.”
      High-Cost Children in Public Health Insurance Programs
      Who, Why, and How Much?

      As always, the best method for reducing spending is to identify, manage and deliver more effective care to persons with the highest costs, rather than cutting services for the low-cost individuals who didn’t have much of a fiscal impact in the first place.

    • Re Cost Shifting:

      I may not have made my points totally clear. In basic Econspeak, there is no such thing as a free lunch.

      If a medical provider has revenues of $20 million and cutbacks in Medicaid reduce revenues by 5% or $1 million dollars from limiting treatment and costs do not go down because the practice is largely a fixed cost business then a $1 million cost shift takes place on somebody.

      Either the practice raises prices by about 5% to regain the lost revenue, or because costs have not been reduced the practices has $1 million less in net profit. Either way the costs of health care are shifted from government/taxpayer to others who pay for health care (individuals or private plans) or to the providers. This is not theory, it is simply basic math. Somebody is going to out of pocket here.

      The key here is not cost shifting, which as an Economist I understand only too well, but to acknowledge the fixed cost nature of the health care industry and the fact that reducing care by relatively small amounts does not reduce costs in the short run and so by definition costs are shifted to somebody.

      My concern in bringing this up is that commentators and policy makers do not understand the concept of fixed and variable costs. We see this all the time in public education from people who push for vouchers. They argue that if a school system spends say $8,000 per student per year, then every student who moves out of the system and into private schools saves the system $8,000 a year. Their phony math says that if the state takes say $5,000 from the school to provide a $5,000 voucher the school is actually ahead by $3,000 because it has one less student to educate who on average costs $8,000 per year. That is absurd.

      The same assumption that taking a Medicaid patient and reducing their treatment by $8,000 saves $8,000 in the operating costs of the health care system is equally absurd, but my fear is that policy makers believe this the same way they believe it about schools. Of course, for tax cutters and for those wanting to reduce government spending, it is a very convenient belief.

      Finally, not related to the topic but germane anyway is that every single legislator who is proposing cutbacks in Medicaid has government provided health insurance. And we are not talking bare bones coverage, but extremely generous plans. It says much about the character of those people who enjoy the best health care money can buy funded by taxpayers that they would deny basic health care to those who cannot afford health care services on their own or are so disabled that they can only obtain health care with a program like Medicaid.

    • I can see that fraud might be rampant in Welfare programs. Many people would rather sit at home and collect an income than work, so having many individuals fraudulently claiming to be disabled to collect a government check is plausible.

      However, medical care is something that few people want to consume above and beyond what is necessary. I doubt Medicaid reimburses spa-like treatments.

      So, I would imagine fraud would be concentrated in the providers and larger scams. The late-night TV ads for “Free” electric scooters. Are the states the best place to tackle that? Or are these nation-wide scams? Or scam artists who switch states at the first sign of heat?

    • Most healthcare expenses come from a small % of the chronic ill, identify and manage the health of that population, you save many dollars. If providers identify and extensively manage the chronic ill health populations, the need to provide expensive treatments is reduced (incentivise “healthcare” rather than “sickcare”), Govt and provider expense goes down, health outcomes rise, and money is still available for profits for the successful. See below : (OR governor was a rural hospital ER Doc)

      May 04, 2012

      The federal support will help Oregon’s Medicaid Coordinated Care Organizations as they try to cut health costs by 2 percent over two years using preventive care to keep patients healthy.

      The Wall Street Journal’s Health Blog: Oregon Gets Extra Funds To Test New Medicaid Method
      Controlling costs is a major priority for virtually everyone involved in funding health care, including federal and state governments, employers and insurers. … One state, Oregon, reckons it can cut health costs by two percentage points within two years — and improve health outcomes — through a new way of delivering care under Medicaid, the state/federal program for the poor (Radnofsky, 5/3).

      The Associated Press: Feds To Put Up $1.9B For Oregon Health Overhaul
      The Obama administration is buying into an ambitious health care initiative in Oregon, announcing Thursday it has tentatively agreed to chip in $1.9 billion over five years to help get the program off the ground. Oregon hopes to prove that states can save billions on Medicaid without sacrificing the quality of health care. Gov. John Kitzhaber’s plan would invest in preventive care to keep patients healthy so they don’t need expensive hospitalizations (Cooper, 5/3).

      Modern Healthcare: Ore. Coordinated Care To Receive $1.9 Billion From Feds
      Oregon’s plan to create a network of Medicaid Coordinated Care Organizations moved forward as the names of 14 applicants were released, and it also received a boost as the CMS announced preliminary approval to provide the program with $1.9 billion over five years (Robeznieks, 5/3).

      Politico Pro: ACO Concept Reaches Oregon Medicaid
      On Thursday, CMS and Oregon announced that they have reached an agreement on a $1.9 billion demonstration program to create Coordinated Care Organizations in the state’s Medicaid program, which Oregon estimates will save $11 billion over 10 years (Feder, 5/3).

      Oregon Statesman Journal: Oregon To Get $1.9 Billion From Feds To Pay For New Health Plan
      Although lawmakers approved the overhaul in their February session, some expressed concerns that it would not result in the $239 million in budget savings projected for the year starting July 1. But Kitzhaber said he anticipated negotiating a deal with the federal government, such as the one announced today, that would produce more aid to cover any potential gap (Wong, 5/3).