Reasons to Reform Medicaid
Senators Orrin Hatch (R-Utah) and Tom Coburn (R-Okla.) have produced ten. Here are my top four:
1. In the State of Oregon, as many as one out of five individuals enrolled in Medicaid aren’t even eligible for the program.(Source: HHS Secretary Kathleen Sebelius letter to Senator John Cornyn. February 25, 2010.)
2. You can own a half a million dollar luxury home and still qualify for Medicaid. (Source: The Social Security Act: Section 1917(f).)
3. An entire consulting industry now teaches how to do financial planning around Medicaid’s long-term care offerings, and not surprisingly, taxpayers now finance 40 percent of long-term care services in America through Medicaid. (Sources: The Center for Long-Term Care Reform: Medicaid Planning Quotes and Kaiser Commission on Medicaid and the Uninsured: Medicaid and Long-Term Care Services and Supports. March 2011)
4. Individuals with an income of $64,000 a year — nearly $15,000 higher than the median household income in the United States — can now qualify for Medicaid. (Sources: U.S. Census Bureau: Income, Poverty and Health Insurance Coverage in the United States: 2010. September 2011 and Associated Press: Millions of middle-class people could get Medicaid. June 2011)
Let’s abolish it completely.
The solution put forward by most conservatives is to block grant the program and give states complete control over operating their programs.
Since many of the things on both lists have to do with how states are mishandling and mismanaging the program, how would sending a $300B blank check of federal taxpayer dollars to these SAME states make anything better?
Block grants would eliminate the dysfunctional incentives created by the current scheme in which neither the federal government nor the states bears the full cost of their policy initiatives. The current Medicaid financing structure is a very big deal that grossly inflates spending.
Thanks to matching funds, everyone at the state level seeks to maximize federal payments whether it makes sense or not. People at the federal level are fine with it as they seldom see a federal expansion that they don’t like.
The result is thousands upon thousands of rent seekers intent on continuously expanding coverage so that they can increase federal money flowing to their coffers. They do absolute harm by lobbying for new provider taxes on the health care of people who pay for their own care, thereby raising health care expenditures for all. They lobby for laws that disadvantage the private provision of health care in order to benefit the Medicaid empires being built in the states. The object is always to capture more federal and state taxpayer money by continuously expanding the program and putting more people on the dole.
I agree with Linda. If the federal government did not subsidize Medicaid spending at the margin, states would do a better job of managing their Medicaid programs. When the feds reward wasteful spending by paying 50% to 85% of the cost, wasteful spending is often considered an economic development initiative in many states.
With respect to Chris’s point, I am curious as to what formula the federal goverment will use for block grants, if any.
With all due respect Linda and Devon, all a block grant would do is subsidize state Medicaid programs with few or no Federal oversight strings attached. And there is nothing within the structure of a block grant that would eliminate incentives for overspending since between 50-75% of all spending will still be subsidized by the Federal government. Unless block grant advocates want to start adding federal “strings” confining the use of funds (going against the principle of a block grant), then we get into the same complaint by states under the current Medicaid program.
And as to the claim about lobbyists adding benefits, the addition of benefits are most frequently done through a state legislature, rarely at the federal level. In fact, having federal law delimit the instances in which states can expand Medicaid benefits and still receive federal matching funds serves to limit how states may receive federal funds — a protection that would not be there under a block grant. So again, turning Medicaid back to the states with nominal federal oversight would not address the problem of overspending, inappropriate spending, or special interest-driven spending in Medicaid. It would retain the status quo and probably exacerbate the problems you cite.
I do agree that many states abuse the Medicaid matching rates for non-health care purposes. However, that is justification to address the problem of the abuse of provider taxes (something both Republicans and Democrats have sought to do). It’s not an indictment of the entire FMAP system.
Chris, if my state spends $1.00 more at the state owned hospital on a kid insured under SCHIP it gets $2.00 additional dollars from the federal government under current Medicaid rules. This distorts incentives. It gives the state a big incentive to spend big bucks on the healthy SCHIP population rather than to take care of the disabled because $1.00 in extra spending on the disabled brings in only $1.00 more. Don’t get me started on the waste in the programs that have a 90 percent match.
Federal matching funds give the state every incentive to spend on Medicaid. If the state reduces costs, and prices, at the state owned hospital, it loses $2.00 for every $1.00 it saves. Why bother. States have little incentive to look for fraud as a dollar reduction in fraud costs $2.00. It gives states an incentive to impose provider taxes as it gets both the additional revenue (which people who pay for their own health care have to pay) AND extra money from the federal match to fund the tax.
As for lobbying, there are a lot of optional services in Medicaid as well as income limits and enrollment requirements that can be changed to expand the program at the state level. Various non-profit providers mount huge lobbying operations at the state level to increase coverage because it expands their revenue base. So do foundations with an agenda of expanding Medicaid as a basis for a national health system. The Robert Wood Johnson Foundation, for example, explicitly adopted a policy of expanding Medicaid in the states as a way to achieve national health care after ClintonCare imploded. It has spend millions and millions on this effort at the state level and has virtually paid state executive departments to push specific laws through state legislatures.
Finally, the entire FMAP system sends more money to states that are wealthy because they can afford the optional programs that increase their federal matching funds. So much for Medicaid as a program for the very poorest.
Block grants remove the incentive to spend money simply to get more federal funds and remove incentives to allocate funds to specific populations that don’t necessarily need them but carry a larger federal match. They have also vastly reduced administrative costs.
So, to address some issues, Ill start with the last first.
First, the highest FMAP percentages do not go to the wealthiest states, they go to the states with the lowest per capita incomes. The top five states by income all receive the lowest matching rates, while the lowest five states by income all receive the among highest matching rates. Its an a faulty comparison to say that FMAP sends more money to the richest states when those states are in fact only having the Federal government pay 50% of their Medicaid programs while the poorest states are getting 70-75% of their program paid for by the federal government. Poor states pay a much smaller proportion of total Medicaid programs than do wealthy states.
Second, you make my point. Nothing will prevent any provider group, drug manufacturer, medical device manufacturer, or patient advocacy group (not all advocates in the Medicaid world are non-profit providers) from equally lobbying the states to expand their Medicaid programs to cover all sorts of things. My argument is that lobbying at the state level will get worse and the program will become fully captured by special interests. Today, there are Federal limits on what benefits will and will not receive federal reimbursement. As a federal taxpayer, I want to be sure that someone is keeping an eye on how a state spends my block granted money (even more so if I do not live in that state). I lose that oversight power under a block grant.
Third, by your rationale, every state should be expanding its Medicaid program in today’s bad economy because it will bring a windfall of federal money in the middle of this bad economy. The flaw in your thinking is that those dollars aren’t disbursed until health care services are delivered — so a state that is in a budget crunch (like most are today) isn’t going to expand Medicaid to get the extra federal dollars. In fact, they will do what we are seeing today — looking for every way possible to cut Medicaid, regardless of the loss of federal match. A state could expand the Medicaid program to the max, but not one federal dime is spent on that expansion until services are provided.
And as an aside, a state that has no incentive to root out fraud today (again, I disagree with the premise) will have NO incentive to root out fraud when they begin receiving federal dollars with no strings attached. They will spend those dollars however they want because block granters will have eliminated federal oversight and handed states a blank check.
Finally, I’m not sure about your comments conflating CHIP and Medicaid. States operate either a CHIP-only program or they implemented CHIP through Medicaid. And your idea of a “state spending more at a state owned hospital” is equally confounding. If a person is eligible and enrolled in Medicaid and receives services at that hospital, Medicaid (federal and State dollars) pays the bill. The federal government doesn’t sends states a check where it sits in an account, waiting to be used. Medicaid funding does not create a slush fund for states to use however they want — Federal dollars are only disbursed after a Medicaid beneficiary has received a service.
On the relationship between Medicaid spending and state population in poverty: see Robert B. Helms, 2007. (http://www.aei.org/docLib/20070111_200701AHPOg.pdf)
Your contention that everything is fine because no payment is made until services are delivered ignores the fact that much Medicaid service delivery is unnecessary and inefficient.
The claim that states will be handed a blank check and will therefore be able to do whatever they want with Medicaid money because the feds won’t be watching is an insult to state lawmakers who are often far more responsible than their federal counterparts. And ignores the fact that block grants DO come with strings attached.
As for the incentives facing state owned hospitals–price setting has been the subject of a great deal of Medicaid regulation because the shared financing gives local authorities an incentive to pad their bills.
“Your contention that everything is fine because no payment is made until services are delivered ignores the fact that much Medicaid service delivery is unnecessary and inefficient.”
It also costs much less than most other forms of insurance.
“The claim that states will be handed a blank check and will therefore be able to do whatever they want with Medicaid money because the feds won’t be watching is an insult to state lawmakers who are often far more responsible than their federal counterparts.”
Argument by assertion. Evidence please. There are plenty of states facing serious financial problems. Also, what is the historical evidence that when given large amounts of money with no strings attached that politicians will spend carefully?
Steve
Linda, please, let’s maintain some respect by not pushing biased opinion-based papers on this discussion. I have not pushed propaganda from left-wing think tanks like Center for American progress as evidence of anything, please don’t push right-wing propaganda from AEI on me. I will receive it the same way you receive those advocacy organizations with which you disagree.
Also, let’s maintain a respectful dialogue by not putting words into each others mouths, shall we?. I have never claimed that everything in Medicaid is “fine” nor have I suggested the program doesn’t need reform – in the area of IGTs and other drawdown strategies, I think reform is needed.
But we were talking about block grants, state roles, and the incentives under the FMAP…and given the diversions you provided to my last post, I can only assume you have no response to my points. If you think you are going to find an opponent of improved efficiencies, reducing waste, fraud and abuse, etc. in me, you are mistaken.
Even with the problems that federal health programs have, the fact is that Medicaid (and Medicare for that matter) has much lower administrative costs as a percentage of spending than nearly all commercial insurers do…an inconvenient point you did not raise. In addition, Medicaid is more cost-effective in provider reimbursement than commercial insurance. Both of these represent greater efficiencies under Medicaid than the private sector.
Likewise, your critique of the inefficient allocation of health care sources through the delivery of unnecessary services is an indictment of the American health care system and fee-for-service medicine in general, and not Medicaid specifically. Since many states have implemented or are moving toward the use of managed care for the delivery of Medicaid benefits (within the current FMAP, federally overseen system I might add), I anticipate that any over-utilization in Medicaid services that is caused by FFS will continue to be addressed. More importantly, with the Obama Administration’s approval of California’s and New York’s Medicaid waivers, aged, blind, and disabled populations (the highest cost beneficiaries under the program) will begin moving into managed care plans — an even more promising sign that improved care coordination, reductions in unnecessary utilization, and greater efficiencies are on the horizon for those states. Other states will surely follow.
Again, I emphasize that this is being done under the CURRENT system…no block grants needed.
And as to your skepticism that states will responsibly spend unmonitored federal dollars, I would point to your own criticism of the way states are currently manipulating the funding mechanisms under the current system of federal oversight. If that is being done today with “strings attached,” what will be done when federal oversight of the state expenditures of federal dollars is curtailed or eliminated entirely? You can’t criticize states for abusing the current system on the one hand, then claim that those same states will act virtuously when the Federal government isn’t watching — it just doesn’t wash.
I would also appeal to your common sense. Like you, I am an American citizen, but I am also a resident of a state and because of that I question the trust you place in the inherent virtue of state politicians relative to federal politicians. I see exactly how state government works and because of that, I think it requires a monstrous leap of faith to think that state politicians will act virtuously with a big pot of unrestricted federal money. That reality, coupled with the relative lack of media oversight, government watchdogs, and public engagement in state level politics indicates to me that abuses are more likely, not less likely, to occur. It doesn’t pay to be naive and suggest that state politicians are more virtuous or less prone to corruption than federal politicians…it doesn’t pass the laugh test for anyone who pays attention to state governments. It seems to me that a system regulation and oversight by the federal government is necessary and appropriate.
I also notice you changed the subject and refused to respond to the fact that states have been cutting Medicaid, despite your assertion that they should be expanding Medicaid to the maximum extent possible in these economic conditions.
I look forward to your response.
Oh, and as part of your response, can you please provide for me the stings that you believe should be attached to any block granting of Medicaid, particularly those that will restrict the use of funds?
Sorry, strings…
Yes. You have the option to ducedt EITHER your state and local income taxes OR your sales tax (based on a table, unless you have receipts for everything).