Health reform will increase Medicaid costs

By Laura Katz Olson

Although underplayed by political officials and the media alike, the proposed expansion of Medicaid is a simmering issue about to boil over.

Under most Democratic health-reform proposals, the nearly $340 billion federal- and state-funded Medicaid plan, which serves more than 59 million low-income Americans, is slated to add an additional 11 million individuals (by increasing eligibility nationwide to 133 percent of the federal poverty level). This would add about $287 billion to the program over 10 years, according to the Congressional Budget Office.

The financial stakes are high for the states, nearly all of which are struggling just to discharge their current Medicaid commitments - and that is with the extra $87 billion for the program in federal stimulus money that will end in 2011. Medicaid plans already are the second single largest expenditure on most state budgets, trailing public education. Governors are adamantly opposed to paying for any Medicaid expansion, and Congress has proven unwilling to take on the full costs, at least for the long-term.

There is, of course, constant noise emanating from governors about their fiscal woes: Unemployment, the number of medically uninsured households, and Medicaid caseloads are all rising, just as the states are confronting declines in their revenues. The ensuing deficits have short-circuited even the most ambitious state plans to cover more of their uninsured residents.

As usual, the states are responding by reducing provider fees (leading to less access to services), restricting eligibility, and slashing benefits. This year, at least half of the states proposed or implemented program cuts, and more places have targeted optional services for reductions. New Mexico is considering the elimination of all such benefits.

Besides the issue of costs, and who should pay for the expansion, there does not seem to be any discussion about whether Medicaid is an appropriate means for advancing greater coverage. To be sure, there are compelling arguments against it.

For one, the program is anchored in the states, producing an inequitable, haphazard distribution of health care across the nation. Different jurisdictions vary widely both in their fiscal ability to support Medicaid and their political will to meet the health-care needs of their residents.

New York, Minnesota, and Wisconsin, for example, are relatively generous, dwarfing the stingy offerings in states such as Missouri, Mississippi, Colorado, Idaho, and South Carolina. As a consequence, the type and level of services individuals obtain - and whether they receive any at all - depend on their geographic location or which party or governor is in power.

Medicaid policy-making at the state level is squarely in the hands of elected officials who are the most susceptible to pressure by special interests. Clearly, the costs of institutional care for the frail elderly, which compose roughly a third of state Medicaid outlays, are a testament to the power of the nursing-home industry.

What about access to care, or the quality of services? Only a limited number of dentists and primary-care physicians, and even fewer specialists, are willing to accept Medicaid patients, mostly (but not exclusively) because of low provider fees in nearly every state. In fact, one of the many ironies of our system is that despite an overabundance of specialists in many areas of the country, Medicaid enrollees have inordinate difficulty in finding one who will care for them. These patients often are limited to practitioners who engage in cursory, substandard care.

The evidence paints a disconcerting picture of significant treatment and outcome disparities between Medicaid clients and patients insured elsewhere. What is more, the states have been hastily forcing Medicaid participants into commercial managed-care plans without any concern for the compromised services they provide. The quality of nursing homes, too, falls far short of what older people deserve. The egregious conditions prevalent in these facilities, including widespread mistreatment and neglect of residents, are highly subsidized by Medicaid.

Adding millions of low-income people to the Medicaid rolls would only intensify existing problems and inequities. Newly insured people will still face second-class medical care, access impediments, and other wide-ranging failings of the program.

Medicaid and its state-based resources and practices plainly cannot be a substitute for or a backdoor approach to universal health care. If Americans are serious about health-care reform, Congress must go beyond simply expanding arrangements that have not served us very well.