• There are still good reasons to fix Medicaid

    Although we’ve posted before on the fact that Medicaid does a better job than expected with respect to controlling health care spending increases, that doesn’t mean that it’s not taxing state budgets. One part of the problem is that as the economy worsens, more people need it. This means that at times when revenues are shrinking, more money is needed for Medicaid. The other part of the problem is that states, unlike the federal government, can’t run deficits. So whenever there is a recession or worse, states are truly crushed. Like now:

    The problem is that many states are contending with costs that are rising even faster, as help from the federal government dwindles. Total spending has returned to levels seen before the recession.

    The biggest culprit has been Medicaid. State spending on the joint federal-state health-care program for the poor surged by 20 percent this year, following a rise of 23 percent in fiscal 2011.

    Officials say the increases are expected to be much smaller next year, but states are still struggling to close the gap.

    Jumps in Medicaid spending have doubled the pace of growth in education spending over the past decade, the report said. Overall, Medicaid accounted for 17.4 percent of state general-fund spending last year, making it the second-largest category of spending, behind K-12 education at 35 percent.

    While the federal government was picking up some of the increased spending in recent years from “stimulus” spending, that source is drying up. Even as states start to recover, they’st still being hit by an increasing Medicaid population. Enrollment went up 5.1% last year, will go up 3.3% this year, and is expected to go up 3.6% next year. Couple that with rising costs of care per beneficiary, and you’ve got a recipe for disaster.

    It’s never made sense to me that caring for the elderly is a federal job, caring for the poor is a local one, and caring for the poor and elderly is split. There aren’t a lot of good reasons to treat these populations differently. This is a perfect example of why we shouldn’t.


    • This reminds me of Reihan Salam’s suggestion for federalizing Medicaid – http://www.nationalreview.com/agenda/296647/josh-barro-mitt-romneys-evolving-approach-medicaid-reihan-salam#

      Salam presents this largely as a means of political exchange to get the federal gov’t out of K-12 education, but I don’t see why states wouldn’t have a basic actuarial incentive to get Medicaid off the (often) budget-constrained books.

    • I don’t think that the public understands the extent to which these budget pressures are warping and distorting Medicaid policy. State Governors are are completely focused on looking for policy changes that will produce the largest amount of hypothetical “savings” that can be booked in the next budget cycle, and not on what will be most beneficial of their programs or their beneficiaries over the long-term. Often what may produce the most savings in the short-term may cause damage or addtional cost in the long term. Conversely, policy changes that may produce savings or benefits over the long-term, may require and up-front initial increase in cost in the short-term. For example, with the encouragement of the Obama administration state Medicaid agencies are shifting as many beneficiaries as possible into managed care health plans, without taking the time to consider issues such as adverse selection, network adequecy, whether risk adjustment is appropriate and which methodology to use, the impact of carved-out services or the loss of data on the actual costs of care once the Medicaid program become totally dependent on the sporadic and incomplete encounter data provided by the plans.

    • If you want to read something that will give you pause, read the 2010 ACTUARIAL REPORT ON THE FINANCIAL OUTLOOK FOR MEDICAID, by CMS.


      See table 3 on Page 31 which shows the cost of the Medicaid program increasing by 84% between 2012 and 2019, from $456 billion to $840 billion. State expenditures rise by 67% while Federal expenditures are projected to more than double. Assuming that the US economy remains fiscally unstimulated and in the doldrums for perpetuity, as is the intent of current economic policy, one as to wonder where the addtional revenue will come from to pay for this.