Why Pennsylvania Medicaid is So Expensive, and What to Do About It

Last week, Gov. Corbett submitted his Medicaid expansion proposal to the federal government.  By most accounts, this proposal, which entails work-search requirements, premium payments, and changes to existing benefits, faces significant obstacles to federal approval.  Even if approved, Medicaid coverage for nearly 300,000 uninsured people will not begin until January 1, 2015 at the earliest.

Why didn't Pennsylvania choose to expand Medicaid on January 1 of this year, as 26 states have done?  According to Gov. Corbett, the current program (one of the costliest in the country) is too bloated and too inefficient to simply expand.  "We need to reform the entire Medicaid system that already exists before we do this other," he said.

But there's a problem in this logic. Gov. Corbett's proposal does little to address the reason that Pennsylvania's Medicaid programs costs so much.  It focuses on reducing the costs of working-age, non-disabled adults, both in the existing and expansion population.  They are not the costliest Medicaid enrollees, however.  Those are beneficiaries who are elderly and disabled, and the costliest services that they receive, long-term care, are not part of the proposal.

Why does Pennsylvania spend so much on Medicaid?  Let's compare per-person Medicaid costs in Pennsylvania and the U.S., as reported by the Kaiser Family Foundation in 2010:

The reason that Pennsylvania Medicaid is so expensive is that it has more elderly and disabled people than the national average, and it spends far more than other states on each elderly beneficiary.   According to the Governor's 2014-15 Executive Budget, 77% of the Medicaid budget is spent on the 41% of the Medicaid population who are elderly or disabled.

Medicaid covers long-term care services for elderly and disabled people whose acute care is covered by Medicare.  Not surprisingly, Pennsylvania devotes a greater part of its Medicaid budget to long-term care (35%) than the national average (29.5%).  And it spends more of that money (50%) on the most expensive form of long term care—nursing homes—than most states (41%). And far less of its money on the less expensive health and personal services that might keep its beneficiaries out of nursing homes to begin with.

Gov. Corbett recognizes this problem, and on Jan. 31, signed an executive order creating the Pennsylvania Long-Term Care Commission.  It will develop recommendations by December to improve the current long-term care system.

The financial sustainability of the state Medicaid program may very well reside in these recommendations, rather than in Gov. Corbett's proposal to expand Medicaid to non-elderly, non-disabled adults.  In the meantime, without a federally approved Medicaid expansion plan, 300,000 Pennsylvanians will go without insurance coverage this year.

Janet Weiner is Associate Director of Policy, Leonard Davis Institute of Health Economics, University of Pennsylvania.

Editor's Note: Cross-Posted on the Voices@LDI blog of the Leonard Davis Institute of Health Economics, University of Pennsylvania.