Need for Medicaid Reform Grows

Michael Greve and Jinney Smith presented a paper entitled, ?What Goes Up May Not Go Down: State Medicaid Decisions in Times of Plenty,? at a forum yesterday hosted by the American Enterprise Institute. Respondents included Dennis Smith, Medicaid Director of the Department of Health and Human Services, and Alan Weil of the Urban Institute. Bob Helms of AEI moderated the discussion. Nelson Sabatini, secretary of health and mental hygiene for the State of Maryland, delivered a luncheon address.

Michael Greve, director of the Federalist Project at AEI, and Jinney Smith, a doctoral candidate at Northwestern University, examined the reasons Medicaid expenditures rose from 1994 to 2000 from a political science perspective. Greve and Smith observed rapidly rising Medicaid expenditures from 1994 to 2000, just at the time when the economy was strong and poverty rates were declining. While the poverty population declined 18.4% during this period, state and federal Medicaid expenditures rose 30.8%. They looked at the variation among individual states to try to determine why Medicaid expenditures increased during this time period. Greve and Smith attributed much of the increase in Medicaid expenditures to state revenue growth and an increase in Medicaid expenditures in proportion to other items in state budgets. ?State legislatures tend to sustain and expand Medicaid expenditures at a rate that they deem ?affordable,? regardless of changing poverty conditions,? said the authors.

Greve drew three conclusions from their research. First, independent state decisions have driven rising Medicaid expenditures. Second, the Medicaid funding formula is set up in such a way as to encourage growth in Medicaid expenditures in good times and bad. In many ways, increasing Medicaid spending is the easiest thing for state legislators to do because they get at least one federal dollar for every dollar they spend. Finally, the Medicaid program administered by the states provides the best opportunity for proponents of a government-run health care system to succeed. Bailing out the states financially would only aid this effort.

Alan Weil found areas to disagree with Greve?s conclusions. Weil said Medicaid?s funding formula is inherently inflationary, but he did not believe that was a problem, rather an advantage since more people can be covered with more services with more money. Weil disagreed that Medicaid provides a model for government-run health care. ?If you wanted a single-payer system, you wouldn?t leave it up to the states,? said Weil. Weil also had several areas of contention with the methodology of Greve and Smith?s research, including their premise that Medicaid spending is cyclical, the time period the two analyzed, the aggregate nature of their data as opposed to a year-to-year analysis, and their use of the scientific method. Weil concluded that, ?Broad distribution of this paper would be irresponsible.?

Dennis Smith focused on steps the administration is taking to reform Medicaid. He said the administration is focused on long-term care because expenditures on long-term care are growing faster than acute care. He emphasized the need for new models of long-term care delivery and encouraged states to develop new delivery systems. Smith said the Medicaid Cash and Counseling program is a good model and that he would like to see the federal government provide additional incentives to states to implement similar programs. In the area of acute care, Smith said the State Children?s Health Insurance Program (SCHIP) provides a good model for reform. He said SCHIP gives flexibility to states to design a ?realistic? benefit package while giving them a capped allotment of money. He concluded that a variety of approaches are needed to improve Medicaid and that any strategy offered should encourage beneficiary involvement and improve beneficiary satisfaction while examining government expenditures.

Nelson Sabatini said the best strategy for Medicaid reform might be to, ?Let the whole thing fall apart and rebuild it from scratch.? He said that in many cases, a family of four in Maryland is spending more on taxes to fund Medicaid than the family spends on its own health insurance. Maryland Medicaid spent $19 million last year on non-emergency transportation. And Sabatini doesn?t think waivers and demonstration projects can help because, ?they are nothing but program expansions.? Instead, Sabatini would segment the Medicaid population into healthy uninsured families, long-term care recipients, duel eligibles, chronic disease patients, and prescription drug coverage. Sabatini believes each category has specific needs that would best be addressed separately. Sabatini also thinks Maryland could cover more uninsured with a block grant enabling the use of tax credits to allow people to purchase a basic benefits package and by implementing cost-containment techniques used in the private sector, such as aggressive prescription drug management programs.

Follow this link to Greve and Smith?s paper: www.aei.org/publications/pubID.17115/pub_detail.asp

–Joe Moser
Galen Institute

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Michael Greve and Jinney Smith presented a paper entitled, ?What Goes Up May Not Go Down: State Medicaid Decisions in Times of Plenty,? at a forum yesterday hosted by the American Enterprise Institute. Respondents included Dennis Smith, Medicaid Director of the Department of Health and Human Services, and Alan Weil of the Urban Institute. Bob Helms of AEI moderated the discussion. Nelson Sabatini, secretary of health and mental hygiene for the State of Maryland, delivered a luncheon address.

Michael Greve, director of the Federalist Project at AEI, and Jinney Smith, a doctoral candidate at Northwestern University, examined the reasons Medicaid expenditures rose from 1994 to 2000 from a political science perspective. Greve and Smith observed rapidly rising Medicaid expenditures from 1994 to 2000, just at the time when the economy was strong and poverty rates were declining. While the poverty population declined 18.4% during this period, state and federal Medicaid expenditures rose 30.8%. They looked at the variation among individual states to try to determine why Medicaid expenditures increased during this time period. Greve and Smith attributed much of the increase in Medicaid expenditures to state revenue growth and an increase in Medicaid expenditures in proportion to other items in state budgets. ?State legislatures tend to sustain and expand Medicaid expenditures at a rate that they deem ?affordable,? regardless of changing poverty conditions,? said the authors.

Greve drew three conclusions from their research. First, independent state decisions have driven rising Medicaid expenditures. Second, the Medicaid funding formula is set up in such a way as to encourage growth in Medicaid expenditures in good times and bad. In many ways, increasing Medicaid spending is the easiest thing for state legislators to do because they get at least one federal dollar for every dollar they spend. Finally, the Medicaid program administered by the states provides the best opportunity for proponents of a government-run health care system to succeed. Bailing out the states financially would only aid this effort.

Alan Weil found areas to disagree with Greve?s conclusions. Weil said Medicaid?s funding formula is inherently inflationary, but he did not believe that was a problem, rather an advantage since more people can be covered with more services with more money. Weil disagreed that Medicaid provides a model for government-run health care. ?If you wanted a single-payer system, you wouldn?t leave it up to the states,? said Weil. Weil also had several areas of contention with the methodology of Greve and Smith?s research, including their premise that Medicaid spending is cyclical, the time period the two analyzed, the aggregate nature of their data as opposed to a year-to-year analysis, and their use of the scientific method. Weil concluded that, ?Broad distribution of this paper would be irresponsible.?

Dennis Smith focused on steps the administration is taking to reform Medicaid. He said the administration is focused on long-term care because expenditures on long-term care are growing faster than acute care. He emphasized the need for new models of long-term care delivery and encouraged states to develop new delivery systems. Smith said the Medicaid Cash and Counseling program is a good model and that he would like to see the federal government provide additional incentives to states to implement similar programs. In the area of acute care, Smith said the State Children?s Health Insurance Program (SCHIP) provides a good model for reform. He said SCHIP gives flexibility to states to design a ?realistic? benefit package while giving them a capped allotment of money. He concluded that a variety of approaches are needed to improve Medicaid and that any strategy offered should encourage beneficiary involvement and improve beneficiary satisfaction while examining government expenditures.

Nelson Sabatini said the best strategy for Medicaid reform might be to, ?Let the whole thing fall apart and rebuild it from scratch.? He said that in many cases, a family of four in Maryland is spending more on taxes to fund Medicaid than the family spends on its own health insurance. Maryland Medicaid spent $19 million last year on non-emergency transportation. And Sabatini doesn?t think waivers and demonstration projects can help because, ?they are nothing but program expansions.? Instead, Sabatini would segment the Medicaid population into healthy uninsured families, long-term care recipients, duel eligibles, chronic disease patients, and prescription drug coverage. Sabatini believes each category has specific needs that would best be addressed separately. Sabatini also thinks Maryland could cover more uninsured with a block grant enabling the use of tax credits to allow people to purchase a basic benefits package and by implementing cost-containment techniques used in the private sector, such as aggressive prescription drug management programs.

Follow this link to Greve and Smith?s paper: www.aei.org/publications/pubID.17115/pub_detail.asp

–Joe Moser
Galen Institute

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