Medicaid budget woes mount for states, Congress

July 1, 2005

Rising Healthcare costs and growing uninsured populations are prompting state health officials to look for new ways to care for low-income and disabled populations.

Rising Healthcare costs and growing uninsured populations are prompting state health officials to look for new ways to care for low-income and disabled populations. Medicaid provides care for about 42 million individuals, at a cost of about $300 billion a year, which is shared by federal and state governments. As Medicaid budgets soar, states are restricting coverage, eliminating optional services and cutting payments to hospitals and providers. Tennessee's long-troubled TennCare program, for example, plans to cut more than 200,000 beneficiaries to balance its budget.

SEEKING SAVINGS Alternatively, states are shifting Medicaid populations into managed care plans. A recent analysis of Pennsylvania Medicaid by The Lewin Group documents that managed care is more cost-effective and offers higher quality of care compared with the state's Medicaid fee-for-service program, as seen in the ability of Pennsylvania's HealthChoices program to save more than $2.7 billion over the last five years.

States and the federal government are spending "a lot of money on pretty lousy care," comments Maura Bluestone, president of the non-profit Affinity Health plan of New York City. She noted that Medicaid is valuable, but in need of improvement, as seen in Affinity's emphasis on disease prevention, early intervention, coordination of care and extensive outreach.

GETTING SQUEEZED Despite these promising signs, state and federal policy makers are looking to make serious cuts in Medicaid spending as efforts to overhaul the program run into political roadblocks. State governors fear that Washington will shift costs to them, and Democrats oppose Bush administration initiatives. Congress rejected a White House proposal to curb Medicaid spending by $17 billion over 10 years. Instead, the legislators proposed establishing a commission to find $10 billion in Medicaid cuts by September 1 and to identify long-term savings opportunities by year-end.

The concern for MCOs is that the continued squeeze on Medicaid budgets will force states to freeze payments to plans and providers, eroding quality care initiatives in the process. Managed care plans have to show state agencies that "we're a pretty good buy," McWaters says. MCOs can give states predictability in costs and help them manage trend increases, which he considers important assets.

MCOs are looking to more flexible Medicaid policies to generate further savings. The ability to alter beneficiary packages, to revise pharmacy charges and to impose patient co-pays on optional services and emergency room visits can have a big impact.

These are some of the issues to be addressed by the new Medicaid commission. Health and Human Services secretary Mike Leavitt plans to appoint 15 members, including governors, state Medicaid officials and representatives of health policy organizations. The commission's final report will address issues related to long-term care, program eligibility, benefits design, and ways to improve quality of care and choice in coverage. Unfortunately, Leavitt alienated members of Congress by leaving them off the panel. Without bi-partisan support for the commission's findings, the possibility of reaching consensus on Medicaid reforms are pretty slim.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.