December 11, 2012 Liz Borkowski, MPH 0Comment

Several of my favorite health policy bloggers have explained why raising the Medicare eligibility age is a terrible idea — in short, it would save the federal government money, but increase spending overall (with states, employers, and existing Medicare beneficiaries all facing higher costs) and create the most hardship for lower-income and minority individuals between age 65 and the higher eligibility age. Seniors have a lot of political clout, though, so I’m sure our elected officials will hear plenty about why raising the Medicare eligibility age is a bad idea. What I’m more worried about is that Medicaid cuts will become part of a fiscal cliff/debt ceiling compromise, because the Medicaid population has limited clout on Capitol Hill.

First, a little background on Medicaid: States run their own Medicaid programs, with funding from the federal government. In order to participate in the program (and get the billions in federal dollars that entails), states must agree to cover certain low-income beneficiaries: pregnant women, children, the blind and disabled, and the elderly. The Affordable Care Act would have added to that list adults up to 133% of the federal poverty level, but the Supreme Court decision made that coverage expansion optional. States have long had the ability to go beyond the minimum federal requirements, covering individuals with incomes above the federal cutoff for their group, or providing benefits not mandated by the federal government. Each state also sets its own provider payment rates, and states that pay Medicaid providers more have more providers willing to accept Medicaid patients.

The federal government does spend a lot on Medicaid: $263 billion in FY 2010 (with states contributing another $125 billion). In FY 2009, Medicaid covered 63 million enrollees. The majority of its spending — 65% in FY 2009 — is for aged and disabled enrollees, and roughly one-third of Medicaid spending is for long-term care. (Medicare generally doesn’t pay for long-term care, so Medicaid picks up the tab for over 40% of US long-term care.)

Even with the substantial challenge of covering care for many of the nation’s neediest patients, Medicaid does a pretty good job. Its per-enrollee spending is far below that of private insurers, and Medicaid managed care beneficiaries are more likely to rate their experiences as above satisfactory than commercial-plan members are. (The Partnership for Medicaid has more details on the program’s value here.)

In a New England Journal of Medicine Perspectives piece, Sara Rosenbaum (disclosure: she’s a professor at the George Washington University School of Public Health, where I work, and I’ve taken classes with her) explains why cutting federal Medicaid spending would be a bad idea:

The problem is that Medicaid’s cost is driven by high enrollment, not excessive per capita spending. As a result, there’s very little money to wring out of Medicaid without shaking its structure in ways that reduce basic coverage. Medicaid is part of the base on which health care reform rests; if it is not expanded per the ACA, the nation will lose its chance at near-universal health insurance coverage, which is essential to achieving systemwide savings and halting a $50 billion annual cost shift to insurers and patients. Deep federal spending reductions could lead states to abandon Medicaid expansion as a result of a confluence of factors — the still-fragile nature of many state economies, the continuing ideological opposition to Medicaid expansion, and the Supreme Court decision to permit states to opt out of such expansion altogether.

Medicaid is indeed large. But considerable evidence shows its effectiveness: most recently, a study by Sommers et al. documented its positive effects on health and health care. Experts in Medicaid spending also acknowledge the program’s operational efficiencies, achieved by states through the aggressive use of managed care and strict controls on spending for long-term care. Much of the health care that Medicaid beneficiaries receive is furnished through safety-net providers such as community health centers, which are highly efficient and accustomed to operating on tight budgets with only limited access to costly specialty care. Furthermore, Medicaid’s physician payments are substantially lower than those from commercial insurers and Medicare — a disparity that unfortunately limits provider participation even as it helps to keep per capita spending low. Indeed, the CBO has found that insuring the poor through Medicaid will cost 50% less per capita than doing so through tax-subsidized private insurance plans offered through state health insurance exchanges.

She walks through a few of the proposals for Medicaid cuts (block grants, changes to the formula for calculating federal contributions, per-capita limits on federal spending) and explains why each is problematic. Then, she concludes, “This is the time for delicate and careful strategies to gradually slow Medicaid growth rates, not for blunt-force strategies that simply slash federal financing and cripple Medicaid at a pivotal juncture in its evolution.”

Cutting federal Medicaid spending might help the federal budget appear healthier, at least in the short term. But in reality — as with the proposal to increase the Medicare eligibility age — the costs won’t go away, they’ll just be shifted. State and local governments will either spend more on Medicaid to make up for decreasing federal contributions, or they’ll reduce payments to providers and benefits to enrollees. People who might otherwise be eligible for Medicaid benefits but lose out due to cost-cutting will forgo needed care; some children won’t get the care that could help them develop healthily, and that some adults will become disabled and leave the workforce sooner than they otherwise would. These kinds of long-term impacts will be weighing on federal, state, and local budgets for years to come.

A deal on the “fiscal cliff” and the debt ceiling is important for keeping the US from spiraling into another recession, but Medicaid shouldn’t be a bargaining chip in the negotiation.

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