Unbiased Analysis of Today's Healthcare Issues

Federal Medicaid Spending: The Worst is Yet to Come

Written By: Jason Shafrin - Jun• 09•11

As the economy worsened, Medicaid enrollment has risen.  In the short-run, however, States have been able to avoid large increases in Medicaid spending because the Federal government has footed the tab.  According to the HHS:

Over the past three years, despite rising enrollment due to the economic recession, nationwide State spending on the Medicaid program dropped by 13.2 percent (equivalent to a 10.3 percentage point decline in the State share of the total costs of the program) as a result of the added Federal support provided to State Medicaid programs through the American Recovery and Reinvestment Act of 2009 (the Recovery Act). In 2009 alone, due to this action, State Medicaid spending fell by 10 percent even though enrollment in Medicaid climbed by 7 percent due to the recession. However, this enhanced Federal Medical Assistance Percentage (FMAP) support is set to expire on June 30, 2011.

Additionally, in 2014, States will need to expand Medicaid to cover adults and children with income up to 133 percent of the Federal Poverty Level (FPL) (currently about $27,000 income for a family of three).  Again, the federal government will cover most of these costs.

Can the federal government expand services, maintain quality, and slow the growth rate of healthcare spending costs?  Some options for doing this include:

  • Beneficiary cost sharing.  Although regulations limit to some degree the amount of cost Medicaid can charge beneficiaries, economists have long shown that cost sharing reduces utilization and decreases cost.  Will this cost sharing decrease the rate by which Medicaid beneficiaries receive unnecessary services or will patients forego necessary care? [Healthcare Economist: The answer is both].  If patients forego preventive services, will hospitalization rates increase and aggregate spending increase [Healthcare Economist: In some cases yes, but on aggregate costs will go down with more cost sharing, especially if inpatient cost sharing increases].
  • Benefits: States have the ability to cut optional benefits; change the amount duration or scope of the benefit; or offer “benchmark benefits.”  Benchmark benefit plans must provide equal coverage to one the following existing commercial plans: the standard Blue Cross/Blue Shield preferred provider plan offered to Federal employees; state employee health benefit, or the largest commercial Health maintenance organization (HMO).
  • Improve Efficiency.  Examples include:
    • “Money Follows the Person” demonstration grants to help transition people from costly nursing home settings to more integrated community settings
    • Change payment policies to reduce unnecessary cesarean deliveries.
    • Improve post-acute care benefit to reduce costly hospital re-hospitalizations.
    • ACOs.  I have written much about these in the past.
    • Health Information Technology and Electronic Medical Record initiatives.
    • Provide more integrated care models for dual-eligible beneficiaries.
    • Reduce fraud through initiatives such as the Medicaid Integrity Institute (provides free training to State Medicaid agency staff), better screening of providers (as mandated by the ACA), and synergies with Medicare fraud investigations.

Will any of these interventions work?  Reducing cost means either reducing prices or reducing utilization.  Since cutting Medicaid prices would drastically reduce poor individual’s access to quality medical care, the only solution is reducing utilization.  The key is identifying eliminating care that is either unnecessary not cost effective (e.g., an MRI for any minor injury), even if many beneficiaries like costly interventions.

Source: U.S. Department of Health and Human Services. Medicaid Cost-Savings Opportunities, February 3, 2011

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  1. […] Economist predicts the worst is yet to come for Medicaid. Despite rising enrollment in recent years, state spending on […]

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