• Why it would be hard, and painful,to cut Medicaid

    Given the discussions recently on the need to cut entitlements, and the inability to recognize so much spending as entitlements, it’s inevitable that eventually we will get back to discussing how we need to cut Medicaid. Every time someone suggests doing so, though, I start to cringe. I’ve long argued that Medicaid is almost the ultimate safety net program. It’s health care for people who need it and can’t afford it. It’s hard to abuse, after all. You can’t buy cigarettes or cake with it. It’s just reimbursements to practitioners.

    But that’s not the whole story. For that, we need to look at some data. Let’s start with how Medicaid spending is distributed among different groups:

    The biggest share of the pie, or the greatest percentage of Medicaid money, is spent on the blind and disabled. It’s going to be difficult, if not impossible, to cut care from that group. The next largest share of Medicaid goes to the elderly. Yes, even after they get Medicare, the very poor among those age 65 or older also get Medicaid. We call them dual-eligibles. Does anyone think that we’re going to cut from seniors after the 2010 elections? Unlikely. Should we cut from kids in foster care? Or perhaps “BCCA Women”, or women who are getting breast or cervical cancer assistance. No?

    That pretty much leaves children or adults. Let’s own that it’s more difficult, politically, to cut spending on children (although it is possible). So it’s probably going to fall on adults.

    There are two problems with that. The first is that Medicaid is already pretty crappy for non-elderly adults. If you don’t have kids, then in the majority of states in the US, it does not matter how poor you are, you can’t qualify for Medicaid. Even when you can, it’s pretty hard. And lots of adults on Medicaid are pregnant women. Should we cut from them?

    The second problem is this:

    I’ve graphed the number of beneficiaries in the bars and the left-hand y-axis. The red line and the right-hand y-axis are the numbers of millions of dollars we spend on each group. As you can see, although we spend a ton on the blind, disabled, and elderly, there are relatively few of them on Medicaid. Kids, on the other hand, are very numerous, but cheap. So are the adults.

    Let’s look at this one final way:

    This is the amount spent per beneficiary in each group. As you can see, the amount we spent per blind or disabled person, or per elderly person, is much, much more than the amount we spend per child or adult. This means that if we really want to cut Medicaid spending, and we want to do it on the backs of adults or children, we will have to drop many, many more of them to make a real impact on spending.

    Let me put it another way. If we cut 1 million elderly from the Medicaid rolls, we reduce Medicaid spending by about 5%. If we cut 1 million adults, however, we reduce Medicaid spending by only 1%. We need to cut 5 times as many adults. If we want to cut Medicaid spending by 10% (which is far less than some propose), we’d need to drop more than 10 million adults from Medicaid. That’s almost three-quarters of all of them. If we want to cut overall Medicaid spending by 20%, then we’d need to drop all non-elderly adults, including all pregnant women, as well as about 10 million kids, or more than a third of them.

    So what will we do? Should we cut some of their benefits instead? Again, look how little we already spend on children and adults. If we cut spending on every child and every non-elderly adult by 25%, that will reduce overall Medicaid spending by less than 8%.

    Or do you want to go after the money we spend on the blind and disabled? Women with breast cancer or colon cancer? The elderly? Until I hear some specifics, I’ll continue to look at the idea with skepticism and dismay.

    UPDATE: Please also remember that when you recommend cutting spending, you’re also recommending cutting reimbursement. Physicians already complain that payments are too low in Medicaid, and lots of people like to demonize Medicaid for underpaying docs. They say it means too few physicians will accept it. That will also get worse if you cut Medicaid.

    • I’m going to guess that the Republicans, if they have their way, will cut adults and kids. They’ll cook up some phony solution in the unregulated private market (like allowing insurers to sell across state lines).

      They’ll put the disabled and seniors in managed care companies. To be fair, Medicaid managed care has saved a few percent for adults and kids (aside from a few unique states like AZ, managed long-term care hasn’t been conclusively proven on seniors and disabled).

    • This is a great post. By marshaling actual facts, it unmasks the GOP crowd’s base-pandering sloganeering — much the same way that facts about foreign-aid spending demonstrate how little savings would be achievable by cutting it.

      The truly significant point is the last one, of course. One element’s expense is someone else’s revenue, and most Medicaid spending goes to hospitals and doctors and nursing homes. You can already hear them squeal whenever NY state proposes Medicaid payment cuts; federal cuts (which would be multiplied at the state/local level) or block-grant repackaging will be even less welcome.

      • It occurred to me too, as I read this, that Medicaid is the health policy analog to foreign aid.

      • -“One element’s expense is someone else’s revenue, and most Medicaid spending goes to hospitals and doctors and nursing homes.”

        Revenue? Yes. Net operating profit? Not always – not by a long shot. If it were otherwise, providers wouldn’t be contriving various methods to avoid seeing them or limit them as a percentage of their patient load.

        -Is incorporating simple incentives and/or VBID into Medicaid politically or practically impossible? Seems like just combining VBID with trivial co-payments would be relatively un-controversial, low-hanging low-hanging fruit that could be plucked before concluding that the only way to address rising costs is through cuts.

        -There are significant pressures on state budgets outside of Medicaid spending that are providing the impetus for Medicaid cuts.

        -I find it fascinating in Washington, the state is proposing to save money (will go into effect April 1) by retrospectively denying re-imbursement for patients that it retrospectively deems to have had non-emergent conditions, rather than introducing much more rational reforms that would save far more money in both the short and long terms. My only explanation is that the state is constrained by Federal Rules that make it difficult or impossible for them to do so.


    • After reviewing this information it should be obvious why the Block Grant approach to funding Medicaid cannot work. During economic downturns demand for Medicaid coverage rises while state tax revenue available to pay for it decreases. Most states, however are legally required to balance their budgets. Addtitionally Medicaid represents the second largest budget item from most states, after education. So faced with the need to balance state budgets, and with no addition federal funding forthcoming, states, will have no choice but to make very large cuts to their Mediciad programs. severely limiting either the services that can be provided or taking services away altogether from some very vulnerable populations.

    • This is a really great post. I also didn’t realize that breast & cervical cancers got special coverage. Is that just due to strong lobbying? Why not cover treatment for other cancers? I’d suggest cutting that if it weren’t such a tiny sliver of the pie.

      It looks to me like the best slice of the pie to take money out of would be the Disability population, and it would be by making the definitions of “Disabled” which qualify someone for lifelong assistance more narrow. That would have the added benefit of reducing spending for non-healthcare entitlements that the “Disabled” population also receives.

    • Deceiving. There’s crossover with adults/children/disabled. And the ease of getting medicaid is ridiculous..My sons mother got off and on when she pleases to my dismay. The validity of claims should be in question. ie Im fat and cant work. I pumped out 5 kids and I’m irresponsible..etc etc.

    • This may be a silly question, but: why do doctors and other medical professionals HAVE to make so much than the same workers in other countries? Are they that much more inherently smarter or more capable?

      • Bokun-

        In this country medical students have to pay their way through school (or have rich daddies) instead of letting the government pay it. Also, the costs of malpractice insurance are much higher. There are increasing costs just to keep the doors open, too numerous to delineate here. I would give you the point that I think sub-specialists make too much and that is part of the reason for the overall costs to the system. Make primary care more attractive for students, and the cost will be more manageable in the future.

    • In MA, there is no asset limit for someone under the age of 65. While we should not ask recipients to spend all of their own money first, like those over 65 required to spend down to the current limit of $2,000, we should set the expectation that those under 65 will also pay some before relying on this entitlement to ensure it is available for those in true need.

      With some medications upwards of $600/month, drug companies should be required to either better control their R&D costs, or pay a penalty to help offset the exorbitant cost of medications.

      In response to the post about non-healthcare entitlements for the disabled population; this would be an optimal area, except that these programs and services actually help to prevent more costly health related hospitalizations and other health related issues. If someone who is newly legally blind who is isolated in the community and has nobody to help read their mail, take them grocery shopping, assist with their finances, many would be at increased risk of eviction, malnutrition, and stress related illnesses.

    • Once again, those who suggest that we can reduce Medicaid costs by excluding disabled individuals who “aren’t sick enough”, are failing to consider several really important points. First it is the sick, and not the healthy who drive costs. “… the top 1 percent of the population accounted for 27 percent of aggregate expenditures … the top 5 percent of spenders accounted for more than half of health spending in both years, while the top 10 percent accounted for more than two-thirds” (“The Concentration Of Health Care Expenditures, Revisited”,
      Marc L. Berk and Alan C. Monheit, 2001), Eliminating healthy people from Medicaid programs won’t save that much money because the healthy didn’t cost that much money in the first place. A second important consideration is that providing Medicaid coverage to the “healthier” disabled person today, represents an investment in costs savings in later years if the progression of chronic diseases can be slowed or arrested. It’s much less expensive to provide a glucose test to a “healthy” diabetic, then to pay for the amputation, dialysis or retinopathy that may result from allowing that disease to become more severe from lack of proper medical management.

    • The people on Medicaid are, without exception, those Americans who have no jobs, and/or those whose employers do not take care of them either before or after age 65.

      The people who pay for Medicaid are, without exception, those with decent jobs and income. (since Medicaid is covered by the Federal Income tax, and you do not owe federal income tax if you have a bad job.)

      Almost all the people who have good jobs get some amount of health insurance tax-free.

      Therefore, if you follow my logic, Medicaid is a kind of indirect way to tax employer premiums.

      That is a good thing in my book. Let it continue.

      Bob Hertz
      The Health Care Crusade

    • I believe the best way to lower medical costs is an ongoing national effort to promote good health, and educating the public about diet, excercise, dangers of tobacco, drug and alcohol use and abuse.

    • We should remove the burden from the states and place it onto the back of the Federal government, where we don’t need to worry about balancing budgets

    • Wow. Didn’t know how most of the money was actually spent. The biggest cut of the pie was also shocking.

    • I’m legally blind and have nobody monitoring my health whether Medicaid administrators or anybody at all. I haven’t seen a doctor in like three or four years and am getting sicker and sicker because of it. Medicaid isn’t availible and when it is that it is filled with the same old people with large families and morons. I’m ttired of poor people like me repocreating too much that strains expendetures more than they need to be because of idiots having idiots.

      Peter from Alabama