Medicaid Spending Will Be More Than Advertised
According to the Centers for Medicare & Medicaid Services, spending on Medicaid, the jointly funded state-federal welfare program that provides health benefits to low-income people, increased 6.7 percent in 2013 to $449.5 billion. And it will keep growing at a fast rate:
Total Medicaid spending is projected to grow 12.8 percent in 2014 due to increased enrollment of nearly 8 million beneficiaries. Primarily driving the increase in enrollment are states that chose to expand coverage to adults up to 138 percent of the federal poverty level.
As some states are expected to expand their Medicaid programs after 2014, an additional 8.5 million people are expected to enroll in the program by 2016. Medicaid spending is expected to grow by 6.7 percent in 2015, and 8.6 percent in 2016. For 2016 to 2023, Medicaid spending growth is projected to be 6.8 percent per year on average.
This comprises a massive increase in welfare dependency. I think it’s a low-ball estimate. The Office of the Inspector General of the U.S. Department of Health & Human Services has just released a Spotlight article on Medicaid, summarizing a decade of research on how states game the system to increase spending beyond that which the federal government anticipated. The incentive lies in Medicaid’s perverse financing merry-go-round. In a rich state like California, for example,
the federal government (pre-Obamacare) spent 50 cents on the dollar for adult dependents. So, if California spent 50 cents, it automatically drew 50 cents from the U.S. Treasury. And most states had a bigger multiplier. What politician can resist a deal like that? The Spotlight describes the grossest abuses seen by the OIG:
- Pennsylvania’s gross-receipts tax on Medicaid managed-care insurers is used to fund the state’s share of Medicaid, resulting in higher federal costs of $1 billion in 2009-2012.
- New York’s state-operated developmental centers for people with intellectual and developmental disabilities artificially inflate operating costs to increase Medicaid reimbursement. In 2009, this increased costs $1.41 billion, of which $701 million was federal.
- New York’s state-operated residential rehab facilities cost twice as much as comparable private facilities. This increased Medicaid costs by $592 million, of which $346 million was federal.
In 2012, the OIG published a Compendium of Unimplemented Recommendations. How’s that for a pessimistic title? It noted that:
A January 2007 proposed rule that effectively addressed our concerns was estimated to result in $120 million in savings during the first year and $3.87 billion in savings over five years; however the final rule was vacated and withdrawn.
Despite reams of OIG reports, the federal government has proved unwilling to crack down on states’ abuses. The situation will deteriorate because Obamacare’s Medicaid expansion significantly increases states’ perverse incentives to game Medicaid financing. Obamacare expanded Medicaid eligibility to people with incomes up to 138 percent of the Federal Poverty Level (FPL). This is expected to result in a massive increase in the number of Medicaid dependents: From 73 million in 2013 to 93 million in 2024. These new dependents will be a lot more profitable to states than the current crop is. Newly eligible Medicaid beneficiaries will be fully financed by the federal government for 2014 through 2016. Then, it slides down until the federal government funds 90 percent of their costs starting in 2020, with the states footing 10 percent. Think of the cunning with which states developed ways to abuse federal taxpayers when they could only double their money from Uncle Sam. The new normal is that they will be able to get ten times their money! Their creativity will be truly unleased, and Medicaid costs will increase beyond what is currently estimated.
Does this surprise anyone?
True, aggregate estimates of that nature are often low-ball.
“This [anticipated increase in Medicaid spending] comprises a massive increase in welfare dependency.”
Perception is a remarkable thing. I would have used the words ‘health care availability’ instead of ‘welfare dependency’.
Those between 100 and 138 percent of poverty can now secure services in the medical industry (i.e. Docs have more customers) or will be less of a revenue drain on the medical industry (i.e. Doctor and Hospitals bills will now be paid).
Medicaid participation was designed to increase through the ACA, therefore no surprises on your statistics. Since the ACA will remain in effect, your stated concern about the ‘cunning’ State governments leads me to believe that you are suggesting additional Federal Medicaid auditing staff and costs to police the cunning states more closely? Bigger government? How Liberal of you. I agree.
Not sure I entirely agree with your claim that suggests states are “making a profit” on Medicaid expansion. While indeed states are not surprisingly seeking to maximize the share paid by federal funds (in fact, states have a fiduciary obligation to do so) that does not mean states are spending less on Medicaid – they are in fact spending more – the only question is “How much more?”
The so called liberal Governor Jerry Brown in the supposedly liberal state of California in fact has been restraining some further efforts at expanding MediCal (the state’s version of Medicaid) due to fears about the additional commitment of State money even with a substantial share paid by federal funds.
I would expect every state to look for ways to minimize its share of the cost – whether or not they are being “cunning” is in the eye of the beholder.
The other tradeoff here is how much state and federal money was being “spent” in subsidizing providers for uncompensated care through various tax offsets – and how much those costs will be reduced by the expansion of Medicaid.
The other issue is that the expansion of Medicaid in many cases may result in some added care costs at the “front end” in giving some more preventive care to those without it previously – but it may also reduce the costs of catastrophic care – often at significant public expense – in doing so.
It is not as straight forward as you suggest.
“The other tradeoff here is how much state and federal money was being “spent” in subsidizing providers for uncompensated care through various tax offsets – and how much those costs will be reduced by the expansion of Medicaid.”
Patrick, you bring up a very valid component of the equation.
Thank you. I think the word “profit” was a poor choice. It is a benefit to the taxpayers but harmful to the taxpayers.
As for preventive care for Medicaid beneficiaries, or the idea that Medicaid spending will cut uncompensated care, we have many, many articles at this blog debunking those notions. Evidence to the contrary pops up so often that we are a broken record on those topics. Please look under the Medicaid or Hospitals tabs on the right.
With nearly 9 in 10 Americans who bought health coverage on the federal government’s healthcare marketplaces received government assistance to offset their premiums, it seems that Obamacare in conjunction with Medicaid is simply healthcare welfare. There’s no cost savings here, just rearranging the deck chairs on the titanic … And spending a couple of trillion for the pleasure.
That is much of the reason many states refused to expand Medicaid. The savings are front-loaded, the burgeoning costs will come later.
Hi John:
Only a note to say that MediCal (California’s version of Medicaid) pays rates that are so low they are a loss for most physicians taking MediCal patients, so access is already severely limited.
A more nuanced reading would be to separate the hospital and long-term care dollar from the doctor dollar. By reducing the number and duration of hospital and nursing home stays (and incentivizing doctors and patients to do so); and by creating continuum-of-care-organizations (COCO’s) to manage post-acute care cost-effectively, we can reduce Medicaid costs by nearly 15%. I am working on COCO’s very actively, particularly for Medicare Advantage patients, and the savings are astonishing. I would be happy to consult with anyone wishing to explore this model in their market. Feel free to contact me at cb@patientphysicianalliance.com
Cheers,
Charlie Bond
Thank you. One thing I think we need is more sophisticated analysis of differences in Medicaid across the country, especially with respect to managed care plans.