Health Care Reform will Add to Medicaid's Importance; Help Maryland

Medicaid, the little health program that could, has already grown to be the single largest provider of health coverage in the nation. Over 60 million Americans, mostly children, receive their health coverage through Medicaid. Though it covers more people, Medicaid is often overshadowed by the more well known and more popular Medicare. Part of that lack of recognition stems from the fact that Medicaid is a state/federal partnership. The federal government establishes program regulations and provides at least half of the funding, but states are required to administer the program and have a certain degree of freedom to tailor it to their needs. In that regard Medicaid is actually 50 different programs.


If health reform is enacted (including Senate passage of the reconciliation bill), Medicaid will likely eclipse Medicare in name recognition. The legislation pending in Congress seeks to insure an additional 32 million Americans - and half of them would receive coverage via Medicaid. As currently structured, federal regulations limit the program's availability to childless adults - no matter how poor. But health reform would expand Medicaid to every American with income at or below 133% of the federal poverty line. This change will bring millions of new people into the program. Many states were concerned that the influx of new recipients would overwhelm already strapped budgets – remember, states share in the funding.

The legislation that would reconcile House and Senate differences addresses that concern. According to the proposed bill federal Medicaid matching payments for the costs of services to newly eligible individuals will be provided at the following rates: 100% in 2014, 2015, and 2016; 95% in 2017; 94% in 2018; 93% in 2019; and 90% thereafter. So states only absorb 10% of the cost. Some states have chosen to cover these adults, largely at state expense, and the bill will help them as well by reducing the state share of the costs by 50% in 2014, 60% in 2015, 70% in 2016, 80% in 2017, 90% in 2018. In 2019 and thereafter, these states would bear the same state share of the costs of all other states.

This could help reduce current Medicaid costs for states like Maryland and Massachusetts. In 2007, Maryland expanded coverage to childless adults with incomes up to 116% of poverty. An analysis conducted by the state's Department of Legislative Services (DLS) in January estimated the Medicaid expansion and enhanced funding in the Senate version of health reform would save Maryland roughly $135 million per year between 2014 and 2016 (due to the extra federal money). State costs would then begin to rise to around $200 million per year between 2017 and 2019 - owing to increased enrollment. Based on DLS estimates the expansion would impact 133,000 Marylanders - $200 million in costs would mean the state would be covering these folks for the bargain price of $1,500 each. The state would incur additional savings as well, the state maintains an uncompensated care fund for hospitals to offset the cost of covering the uninsured. Those costs topped $1 billion in fiscal 2009. The increased coverage would reduce those costs.  The state also manages a high-risk pools called the Maryland Health Insurance Plan (MHIP) - MHIP cost $111 million. MHIP would no longer be needed and those funds would be freed.

It is no secret that Medicaid saves money by paying providers less money than they would receive from Medicare or private insurance. In many states providers may earn as little as 35-45% of the usual rate for Medicaid patients. In the past year, 38 states (Maryland included) cut provider payments to try and squeeze savings out of Medicaid. This caused many to worry that the expansion of Medicaid would accomplish little as the newly insured would not be able to find participating doctors.

The reconciliation language requires that Medicaid payment rates to primary care physicians be no less than 100% of Medicare payment rates in 2013 and 2014 (an presumably thereafter). Given that many states could not afford such an increase, the federal government would provide 100% federal funding for the costs to States of meeting the requirement.

In short, the proposed health reform holds the potential of transforming Medicaid into a true national health insurance model. The expansion of the program to new, higher income individuals, and the provision of dramatically improved federal funding, holds the promise that Medicaid may soon become a federal responsibility – freeing states form the tremendous cost burden and freeing Americans from a situation where their access to health care depends on their state of residence.

Full text of the bill is here - Part C. Sections 1201 and 1202 directly address Medicaid.

The House has Posted the Health Reform Reconciliation Bill

The 153-page bill would make several changes to the Senate bill, including:

• Increase the tax credits for middle-income families who buy insurance.
• Reduce the penalty for not buying insurance from $750 to $695. But the bill also requires some people to pay a share of their income as a penalty and that number was raised from 2 percent to 2.5 percent.
• Close the gap in Medicare prescription drug coverage by 2011 and give seniors who fall into the gap this year a $250 rebate.
• Eliminate the Cornhusker Kickback (the special Medicaid deal for Nebraska) and covers 100 percent of the increased Medicaid costs of all states until 2016 and decreases each year thereafter.
• Though it appears to stop at a 10% state share, this is a significant development that should help already burdened states.
• It will also provide an enhanced federal match for states that have already expanded coverage to childless adults. This could mean millions of dollars for states like Massachusetts and potentially extra money for Maryland.
• Require that doctors that care for Medicaid patients be reimbursed at the full rate.
• This is also significant and should bring new doctors into Medicaid. The Feds will cover 100% of cost to bring physician pay in line with Medicare.
• Delay the tax on high-end insurance plans in keeping with the deal Democrats struck with the labor unions. However, it does lower the index at which plans will be taxed, making it likely that more plans will be affected over time.
• This change directly impacts Social Security revenue and may well be rejected by the Senate parlimentarian during the reconciliation process - if so, unions will scream.
• Impose a Medicare tax on unearned income for families making more than $250,000.

 More detail via Politico (the source for this posting).

The Need for Real Health Care Reform

A few weeks ago on the PoliProf Blog I cited a study by the McKinsey Global Institute (MGI) which found that the U.S. spends about 31% more per year on health care than would be expected based or our wealth, cost of living, and health. In a $2.5 trillion health care economy that translates into $775 billion in excess spending. Why do we over spend? We have higher administrative costs owing to the fragmentation in our system, but mostly the problem is the manner in which we pay for services. Since every patient and procedure is a source of revenue providers over-provide. Because our insurance frequently has no limit on the utilization of services, we over-consume. My argument then was that only system-wide reform could realize the substantial savings implied by the study.

The findings from the MGI study have just been confirmed by a new study conducted by Thomson Reuters. That study found that the American health care system wastes an estimated $700 billion a year, roughly one-third of the nation's healthcare bill. Among the key findings:

• Unnecessary care such as the overuse of antibiotics and lab tests to protect against malpractice exposure makes up 37 percent of healthcare waste or $200 to $300 billion a year.
• Fraud makes up 22 percent of healthcare waste, or up to $200 billion a year in fraudulent Medicare claims, kickbacks for referrals for unnecessary services and other scams.
• Administrative inefficiency and redundant paperwork account for 18 percent of healthcare waste.

According to a Reuters news account of the study "All this could help explain why Americans spend more per capita and the highest percentage of GDP on healthcare than any other OECD country, yet has an unhealthier population with more diabetes, obesity and heart disease and higher rates of neonatal deaths than other developed nations."

The Reuters story concludes with this "Democratic Senator Charles Schumer said on Sunday that Senate Democratic leaders are close to securing enough votes to pass legislation to start reform of the country's $2.5 trillion healthcare system."

The implication from that final line about Schumer and Democratic leaders being close to a deal on reform is that the reform may actually address the problems highlighted in the Thomson Reuters study - unfortunately, that is simply not the case. The current reform proposals being considered in the House and the Senate will not solve the systemic problems in the American health care system - in fact they will likely make the problems worse. The current reform proposals maintain our fragmented system and will even add to the fragmentation. The expansion of Medicaid and the creation of a public insurance option will only add to the plethora of insurance providers with which doctors and hospitals must contend. The reforms will do nothing to address the care-linkage deficiencies that result in the poor management of patients with chronic conditions (asthma, diabetes, heart disease) who consume 70% of our health care dollars. The reforms will not change the fact that our fee for service system makes every patient and every procedure a source of revenue - and therefore encourages overuse. The reforms will not alter our malpractice policies and the defensive medicine that results. Rather the proposed reforms will extend coverage to about 30 million Americans (a good thing), but it will accomplish this by dropping them into an inefficient, expensive, and broken system - the simple result will be even greater costs (a very bad thing).

In his recent book The Healing of America, T.R. Reid writes "Any proposal for reform that continues to rely on our fragmented structure of overlapping and often conflicting payment systems... will not reduce the cost or the complexity of American health care. Any proposal that sticks with our current dependence on for profit health insurers... will not be sustainable." Unfortunately our elected leaders have spent the past few months hammering out deals that will do those very things. While our press and our politics have been obsessed with whether or not reform would have a public health insurance option the real question should have been "will these reforms actually improve the American health care system?" Perhaps no one wanted to ask the question because the answer is so clearly "No."

President Obama has said repeatedly that he would like to be the last president to take on the challenge of health care reform... if he signs into law any reforms similar to the legislation being debated in the House and Senate he will fall well short of that goal.

There's a Public Option and Then There's a Public Option...

The Senate Finance Committee defeated two efforts to add a public option to Baucus authored health reform bill, but proponents have note ceded defeat. In fact, many are being heartened by recent statements from Harry Reid that “We are going to have a public option before this bill goes to the president's desk.”

What does this mean? Will Reid ensure that the public option is retained when the Senate Finance and Senate Health, Education, Labor, and Pension committee bills are merged? Does it mean that he will ensure that the public option survives the House/Senate conference process? Does it mean that he plans to use reconciliation to pass the bill and has sufficiently prepared for all of the challenges that would present?

Or does it mean that Reid is choosing his words wisely? Moments after his initial comments were made public his office offered a follow-up: “Sen. Reid believes that health insurance reform must include a mechanism to keep insurers honest, create competition and keep costs down… the public option is the best way to do that… we don't know exactly what that option will look like.”

I’d suggest that it won’t look like a federal public option, rather it is more likely to come in the form of the amendment drafted by Tom Carper (D-DE). Carper’s amendment would:

give states the authority to increase competition in health insurance markets by implementing one of the following mechanisms listed below. This would allow a state to offer a state public option; however, both the executive and state legislature would have to agree.

The state would have the option of implementing one of the following mechanisms:

1. Participate as grantees in the CO-OP program and apply for seed funding.

2. Open up that state’s employee benefits plan.

3. Create a state administered health insurance plan with the option of banding together with other states to create a regional insurance compact.

So states could participate in the co-ops created in the Baucus bill as a substitue for a national public option, open the state's insurance plans, or create a state based public option... This is hardly a significant change and arguably "allows" states to do things that they can already do.  So I would advise tempering any excitement over Reid’s comments.