Politics & Policy

“Growing and Collapsing”

Medicaid, in need of a new prescription.

The Medicaid program finances health coverage for one in six Americans–52 million people. This joint federal-state program will cost more than $300 billion this year and is growing rapidly.

The program’s escalating costs have put it at the center of the political debate over the congressional budget-reconciliation process, defining the battles between those who want to take modest steps to begin to rationalize spending and those who are using the proposed changes as political scare tactics.

Medicaid, which was designed to finance health care for the poor, covers more people and spends more money than Medicare does on the elderly–this for a program that was an afterthought when it was created in 1965 as part of the Medicare legislation. And Washington has given Medicaid little serious thought since then.

But the time has come when Medicaid can no longer be pushed aside.

Energy and Commerce Committee Chairman Joe Barton says, “Medicaid works so well it is going broke… It is both growing and collapsing.” The federal government picks up an average of 57 percent of Medicaid’s tab–much more in some states and a little less in others.

Medicaid is the biggest item in many state budgets. Governors don’t see how they will be able to continue to sustain Medicaid and also pay for roads, schools, and public safety. Medicaid’s caseload has increased by 40 percent in the last five years, and costs have risen more than 50 percent in that time.

Barton has proposed several relatively minor changes to the program as part of the budget reconciliation process to give governors more control over the program. The House proposals would slow Medicaid’s growth by .3 percent (that is correct: .3 percent) over the next five years while the program will still grow by 7 percent over that time–an increase of $66 billion.

Chairman Barton wants to:

‐Allow states to slightly increase the $3 medical co-payments for some Medicaid recipients and give governors the authority to enforce the co-payments (which they can’t now do and are therefore often ignored.)

‐Give governors more flexibility in the structure of Medicaid’s overly generous benefits package, allowing it to reflect benefits in plans offered to state employees or by the most popular private plans in the state.

‐Cap the amount of home equity a beneficiary could have at $750,000 before qualifying for taxpayer-supported nursing home care.

Modest as these changes are, they have provoked heated battles on Capitol Hill. House Minority Leader Nancy Pelosi took to the House floor to denounce the changes, saying, “Republicans are launching an attack on America’s children, America’s families, and America’s middle class… Republicans give new meaning to the words, ’suffer little children.’”

This despite the fact that vulnerable beneficiaries will be exempt from even the possibility of new cost-sharing, and cost-sharing will rise to only $3.58 by 2010 for those who are asked to pay.

Those who resist reform to Medicaid would do the most damage to those who need the program the most. Medicaid is an important program for people with severe disabilities and the poor who have no other options for health care. The more political leaders expand this program to the middle class, the fewer resources there will be to take care of the truly needy.

Legislators have swollen the ranks of their Medicaid populations in good times, seduced by federal matching funds that match at least one dollar for every dollar states spend and that match 3 federal dollars to every $1 that poorer states spend.

But the lure of this federal Medicaid 3-for-1 sale has been a bad deal for states that have repeatedly expanded access to the program. When times get tough, they either must cut benefits or throw hundreds of thousands of people off the rolls. That’s what is happening in Tennessee, where the state’s decade-long experiment with TennCare has reached a political and fiscal crisis.

But it isn’t just the expense: The program’s complexity befuddles government experts, politicians, and especially recipients. The New York Times in October ran a series of articles on Medicaid. Here was one conclusion: “Too many people who need Medicaid are bewildered by it,” wrote correspondent Richard Pérez-Peña.

“A daily parade of people passes through [New York City’s Morris Heights Health Center], struggling with the one essential demand Medicaid makes to get insurance and keep it: paperwork. Many fail to do it, or do it incorrectly or too late. Some think they have insurance but do not, some have it but do not know it, some lose it and some never get it.”

Those on Medicaid are often consigned to seeking medical care in hospital emergency rooms because the program often pays private doctors so little they can’t afford to see Medicaid patients.

And the complexity is hard for even political leaders to follow: Medicaid requires mandatory service for mandatory populations, and allows optional services for mandatory populations. It has mandatory services for optional populations, and optional services for optional populations. Follow that?

The program’s complexity is not surprising, given that it has been allowed to grow through bureaucratic initiative without clear redirection for 40 years.

It is an extraordinarily expensive entitlement program, and is causing major budget woes for states and the federal government. In the long run, it is hurting poor people.

But the program also provides an irresistible lure for the states. They have hired batteries of lawyers to figure out how to get more money from the government by gaming the system. For example, some states impose fees on providers, run them through Washington to collect the match rate, and then rebate funds back to the providers.

In addition, Medicaid has become much more than a program to provide health care to the poor. Lawyers specialize in helping affluent clients hide their assets to get nursing-home care paid by taxpayers, sometimes called “Medicaid for Millionaires.” The result: Medicaid pays $1 of every $2 spent on nursing-home care in the U.S. With the Baby Boom generation aging, that number is likely to grow ever faster when 70 million of them hit retirement age over the next 20 years.

As urgent as the need for change is, some political leaders just don’t have the stomach for this battle. Senate Finance Chairman Charles Grassley has taken the politically easier route of getting much of his healthcare savings from imposing higher taxes on pharmaceutical companies through increased drug rebates and by draining the fund that is keeping private plans in Medicare.

So why do political leaders need to tackle Medicaid? Because the program is a giant sponge that is growing uncontrollably, and there will never be an easier time than now to try to get control of this spending beast.

By supporting small steps toward Medicaid modernization, members would send a strong statement about the importance of individual and fiscal responsibility.

Governors can begin to shape the Medicaid program to look more like private health coverage, which would help recipients transition into the workplace. Governor Jeb Bush of Florida already has taken a big step in that direction, winning approval of a Medicaid waiver that brings private, competing health plans into Medicaid and offers new incentives for recipients to be careful with their spending.

In most states, Medicaid recipients have access to medical services and prescriptions at virtually no cost. But the uninsured, making just a few dollars over Medicaid’s ceiling and often working two jobs with no health insurance, must pay full fees for their medical care. Many Republican and Democratic governors believe those on Medicaid should have to spend at least a few dollars to show they value health coverage that is worth thousands of dollars.

That’s why governors want the option to impose small co-payments and why Chairman Barton has included this provision in the legislation.

Medicaid is in serious need of major reform. If Congress is forced to back down over Barton’s changes, it likely will be a long time before other politicians have the courage to step forward. Tinkering with numbers and putting a further squeeze on price controls will not solve the fundamental problems with this program. It’s time to start giving governors the tools they need to begin to bring the program into the 21st century.

The time is now.

Grace-Marie Turner is president of the Galen Institute, a research organization based in Alexandria, Va., that focuses on free-market ideas for health reform. She is a member of the Medicaid Commission, but the views expressed here do not reflect the views of the commission..


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