The states’ focus on Medicaid spending

January 16, 2014

Two political war horses, former Federal Reserve chairman Paul Volcker and Richard Ravitch, who helped restructure New York City after its near bankruptcy, released the final report of the task force they have led for the last three years. Their group, the State Budget Crisis Task Force, came to this conclusion:

The Task Force recognizes the difficulties inherent in government change. It also recognizes the urgency for change. The primary reason the Task Force was created is that insufficient attention is directed to the fiscal imperatives of the states. States, and the local governments they create, are charged with providing the most important domestic government services. Yet important decisions on the national level often do not consider the impact of those decisions on their ability to deliver those services.

For the most part, state governments, with their requirement to have a balanced budget every year, are better-run than the federal government, which rarely faces hard choices on prioritizing spending. I agree with the task force’s observation that the federal government does not take state needs enough into account when setting the federal budget and regulations. Medicaid spending has become the biggest expense for states, and yet they have little control over this spending.

The report states:

Medicaid is not immune from system-wide health care cost pressures. Both health care costs and utilization have increased significantly over the last three decades due to the use of expensive and lifesaving technology and improved life expectancy. In spite of these system-wide cost pressures, Medicaid has been able to contain per enrollee health care cost increases more effectively than either private market insurance or Medicare.

Medicaid must absorb the financial burden of overall health care cost increases as well as rising enrollment due to the increasing share of Americans who are low-income and must turn to the program for health care, long-term care, or both. In spite of these pressures to drive up program costs, an improving economy, strenuous state cost containment efforts, and the expiration of enhanced federal Medicaid funding under the American Recovery and Reinvestment Act have resulted in slower-than-projected program cost growth. Total cost growth dropped from 9.7 percent in 2011 to 2 percent in 2012.

Hard economic times swell the Medicaid population:

The recent recession has forced more Americans to turn to Medicaid, increasing the program’s overall cost. However, Medicaid’s per-enrollee costs for the typical working age adult and their children is modest. The program’s per-enrollee cost growth is greatest for the disabled, the dually eligible adults who are either disabled or elderly, adults with behavioral-based illnesses, and low-income Medicare recipients who need long-term care. While the per-enrollee costs of the special populations are relatively expensive, were it not for Medicaid, many of these individuals would have little or no access to health or long-term care services.

Here is the ticking time bomb in Medicaid spending:

Medicaid spending on long-term care services for all enrollees accounted for 31.5 percent of all program spending for service in 2010, according to the Kaiser Commission on Medicaid and the Uninsured. The Center for Medicare & Medicaid Services (CMS) Actuary points out that, ‘As the number of people age sixty-five or older increases — and especially the number of those over age eighty-five — there is a corresponding projected increase in the amount of long-term care spending, since elderly beneficiaries tend to use more long-term care than younger beneficiaries.’

This is where the greatest state and federal collaboration must be: Improving the quality of care and reducing its cost by creating alternatives to nursing home care:

Many states have instituted delivery system reforms that reduce long-term care costs by increasing the share of disabled and aging adults cared for in their homes, rather than nursing homes. These reforms have dramatically slowed the annual cost increases associated with long-term care. However, as the population ages, the cost implications for the Medicaid program for long-term care services suggest that substantial changes are needed both to ensure access to these critical care services and ensure the sustainability of the Medicaid program.

The political leaders who chair and serve on the State Budget Crisis Task Force would do a great service to younger generations by continuing to focus on the issue of long-term care for the aged and disabled. It’s a significant cost for taxpayers, and nothing is more inhumane than a poorly run nursing home.

Chart source: National Association of State Budget Officers  

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