A Health Affairs study indicates that enrollment growth was the primary driver of increased Medicaid spending from 2000 to 2003, raising questions about the effectiveness of the administration’s proposed efforts to save money in Medicaid by cracking down on what officials have called accounting loopholes that states use to obtain additional federal funds.
The study, conducted by John Holahan, who directs the Urban Institute’s Health Policy Center, said there were rapid increases in enrollment of children and nondisabled adults, largely due to the economic downturn, which led to declines in income and made more people eligible under existing eligibility standards.
"The enrollment growth among children and adults in Medicaid [as well as SCHIP] undoubtedly kept the uninsurance rate from increasing more than it otherwise would have," Mr. Holahan writes. "The large increase in Medicaid and SCHIP enrollment for children offset the decline in enrollment in employment-sponsored insurance, and as a result, the number of uninsured children declined slightly. Medicaid enrollment among adults also rose, but the increase was much less. As a result, it only partially offset the decline in employer-sponsored coverage, and there was a large increase in the number of uninsured adults."
Spending up one-third
Medicaid spending — federal and state — grew by about one-third, from $205.7 billion to $275.5 billion between FY 2000 and 2003, causing fiscal problems for state governments trying to deal with depressed revenues. Mr. Holahan reports the slow growth between 2000 and 2003 returned Medicaid spending growth close to levels of the late 1990s.
Enrollment among the aged and disabled grew about 2.9% per year during the entire period. Enrollment for families increased 11.6% between 2000 and 2002 and another 7.1% between 2002 and 2003.
Because of the economic decline, the number of people below 300% of the federal poverty level greatly increased, making more people eligible for Medicaid under existing eligibility standards. Mr. Holahan tells State Health Watch that growth during the period also may reflect some of the state coverage expansions that occurred in the late 1990s.
During the past few years, he says, several states cut back coverage and curtailed efforts to increase participation rates. But those cutbacks were overwhelmed by large enrollment increases resulting from three years of slow economic growth.
In addition to job and income losses, there also were reductions in rates of employer-sponsored coverage, occurring in part from reductions in employment in large firms and in industries with high rates of employer-based coverage, but also from rapid increases in insurance premiums.
Medicaid effective safety net
The study said Medicaid played its role as a safety net, providing coverage to those facing economic declines and loss of employer-sponsored coverage, but the result was a sharp increase in program costs.
Mr. Holahan says it’s important to recognize that tight caps on Medicaid spending growth would not have allowed the enrollment increases that have been seen. But without those enrollment increases, the number of uninsured Americans would have grown much more than it did, and there would have been strong pressure on local hospitals and clinics to increase the amount of free care provided. And cities, counties, and states would have had to finance that care without the federal matching payments that come through Medicaid.
In a presentation early in his career as the secretary of Health and Human Services for President Bush’s second term, Mike Leavitt, former governor of Utah and Environmental Protection Agency administrator during part of the president’s first term, talked about three Medicaid myths, three changes, and three opportunities.
Mr. Leavitt said he would define success in reforming Medicaid through three components: keeping faith with the commitment the nation has made to provide access to acute and long-term care services to people with low income, disabilities, the elderly, and children; creating enough flexibility in Medicaid that states are able to continue serving optional groups and expand the number of people they serve; and assuring Medicaid’s financial sustainability by returning integrity to the funding partnership.
He said the three reform myths he wanted to explode were:
1. Reform would break the commitment to the nation’s neediest and most vulnerable citizens.
2. The administration would propose a block grant system like the one discussed in 1995.
3. There would be a cut in available resources.
Mr. Leavitt flatly declared there will be no block grant, and also said that while the search for ways to make Medicaid efficient and slow its growth will continue, Medicaid will continue to be one of the fastest growing items in the federal budget, growing at an average rate exceeding 7% per year and costing nearly $5 trillion in the next 10 years.
Changes needed
Three changes are necessary to remove the vulnerabilities that threaten Medicaid’s vitality, Mr. Leavitt said.
First, the program must find every efficiency, because waste means covering fewer people. He called for a change in the law so that states pay the same lower price for drugs as paid by pharmacies and Medicare.
Also, according to Mr. Leavitt, Medicaid must not become an "inheritance protection plan." He said many older Americans take advantage of Medicaid "loopholes" to become eligible for Medicaid by giving assets to their children and called for those loopholes to be closed so Medicaid’s resources can be focused on those who really need the program’s help.
The third change sought by Mr. Leavitt is what he called an "uncomfortable but necessary conversation with the federal government’s funding partners, the states. "As a former governor, I understand the pressure state budgets face, particularly given the lack of flexibility in the current Medicaid law," he said. "However, state officials have resorted to a variety of loopholes and accounting gimmicks that shifts the costs they claim to pay to the taxpayers of other states."
Given the myths and changes, Mr. Leavitt focused on three opportunities for improving Medicaid coverage. The first is to ensure that seniors and people with disabilities get long-term care where they want it. "Home care and community care can allow many Americans with disabilities to continue to live at home, where they can enjoy family, neighbors, and the comfort of familiar surroundings," he said. "Medicaid should not force these people to live in institutions. Just as importantly, we can serve more people." He contrasted Vermont, with a highly developed home- and community-based care system that allows 85% of the Medicaid population older than 65 to live at home, with New Hampshire, which still relies on institutional care and has only half its 65+ population at home. "Vermont spends less than half as much per elderly person on Medicaid as New Hampshire, freeing up money that can serve more people," Mr. Leavitt declared. "Providing the care that lets people live at home if they want is less expensive than providing nursing home care. It frees up resources that can help other people. And obviously many people are happier living at home."
His second opportunity is to expand access to more children through increased flexibility. And the third opportunity is to improve coverage of optional populations, while recognizing they may not need as comprehensive a solution. "Most of them are healthy people who just need help paying for health insurance," Mr. Leavitt said. "We’ve already proven a way to provide that help. The SCHIP program has allowed 5.8 million children in low-income families who don’t qualify for Medicaid to have health insurance."
According to Mr. Leavitt, one of the keys to SCHIP success is that it allows states to answer the question of what constitutes basic health care coverage. "Each state can choose from five answers," he explained. "They are the health benefits state employees get, the benefits federal employees get, the best private health plan in the state, Medicaid, or some hybrid of private and government plans. . . . It costs states less, on average, to provide health insurance than to provide comprehensive care. Wouldn’t it be better to provide health insurance to more people, rather than comprehensive care to a smaller group?"
States have concerns
Governors, lawmakers, and advocacy groups immediately raised opposition to Mr. Leavitt’s perspective. National Governors Association chairman Mark Warner, governor of Virginia, said the cuts
Mr. Leavitt discussed "cause grave concern because the states are still reeling from the budget woes of the last five or six years. To have a major shift that simply passes costs from the federal government to the states will really slow the recovery that most states have started to experience."
And Kaiser Commission on Medicaid and the Uninsured executive director Diane Rowland said, "It’s always a challenge to see how resources can be stretched without jeopardizing care."
Mr. Holahan tells SHW there is a debate over how much money really is involved in the so-called loopholes and accounting gimmicks that Mr. Leavitt wants to close. He says that talking of saving $4.5 billion over 10 years doesn’t make much of a dent where there is a projected spending of $2 trillion in federal money.
(Download Mr. Holahan’s article from www.healthaffairs.org. Mr. Leavitt’s presentations are at www.hhs.gov. National Governors Association information is at www.nga.org.)
A Health Affairs study indicates that enrollment growth was the primary driver of increased Medicaid spending from 2000 to 2003, raising questions about the effectiveness of the administrations proposed efforts to save money in Medicaid by cracking down on what officials have called accounting loopholes that states use to obtain additional federal funds.
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