Medicaid solutions start with the states

WASHINGTON, Feb. 17 (UPI) -- Medicaid spending has doubled in 10 years to more than $300 billion annually and analysts predict total program spending, which now goes to provide healthcare services to 46 million of America's poorest people, will continue to outpace the economy in the years ahead.

The entitlement program is a state and federal partnership, so spiraling costs present different sets of problems for each governing sector and, ironic, a wider range of solutions than if the program were like Medicare -- with major funding only by federal money.

States create Medicaid programs based on a list of mandatory coverage parameters. The federal government approves the plan and matches state spending at a rate generally between 50 percent and 70 percent; poorer states get a better match rate.

In the hearings this week on Capitol Hill, key issues for Medicaid included:

--More than 7 million beneficiaries have entered Medicaid since 2001, mostly because of the poor economy.

--Most states must balance their budgets, so increases in Medicaid, along with tight fiscal times, are forcing them to reduce benefits and cut coverage for optional populations.

--Annual prescription-drug costs are increasing faster than inflation.

--A disproportionate share of Medicaid money is spent on only a small percentage of beneficiaries.

--States are using creative bill characterization and loopholes in the law to get billions of dollars in improper federal-match money.

Health and Human Services Secretary Michael Leavitt told the Senate Finance committee he is working with the states to come up with legislation that would help solve some of Medicaid's biggest problems. These would include a lack of flexibility for states to adopt creative programs that use Medicaid money to cover not only mandatory populations, but also other groups, comprising people too poor to buy insurance but who still generally would not qualify for Medicaid.

States must obtain waivers approved by the Centers for Medicaid and Medicare Services before they can make any changes to their programs. This is a long, bureaucratic process Leavitt and governors want to fix, so states can become incubators for special coverage programs -- figuring out which work and which do not -- with successful innovations being easily adopted by other states.

Leavitt said he is convinced states can expand coverage to optional populations without increasing spending, but he warned failing to give them flexibility to manage their Medicaid money is resulting in budget crises, in which states cut optional programs as mandatory Medicaid expenditures increase.

"There are very few options ... in most states to meet their own budget needs," Leavitt told the finance committee. "They have begun to eliminate entire populations -- and that is not our goal."

For example, if states had the flexibility to treat the elderly and disabled at home or in outpatient settings, rather than in nursing homes, it would be far less costly and more in line with the wishes of most elderly beneficiaries and their families.

"A number of states have begun to seek waivers -- but this should not require waivers," Leavitt said.

"The only way you can get things to be better is by experiments," Thomas Saving, a professor at Texas A&M University and a Medicare, Medicaid and Social Security trustee, told the Senate Budget committee. He said small experiments done by states will result in far more effective solutions than trying to implement national changes.

Florida, for example, is exploring the idea of making Medicaid recipients shop for private insurance coverage to get the best deals. When Leavitt was governor of Utah, he won permission for a waiver that allowed it to take money from a more generous benefit package and use it to create a new program providing a basic healthcare program for the working poor without insurance.

Most of the $45 billion in net savings President Bush has proposed in his fiscal year 2006 budget for Medicaid come from issues of program integrity -- which Leavitt always calls "an awkward conversation" HHS is having with the states over who pays what.

States are hiring consultants to characterize Medicaid services creatively for billing purposes with an eye toward wringing out every possible federal match dollar. They also are using loopholes in the law to hike Medicaid payments artificially to providers to increasing their federal match.

Sen. Jeff Bingaman, D-N.M. a member of the finance committee, suggested formation of a national commission, with members appointed by the president and a bipartisan group of lawmakers, to look into Medicaid issues and "to resolve the debate on who's cheatin' who in Medicaid."

Leavitt said although a commission would be helpful and enlightening, the states need help now. "It's time for us to make decisions," he said. "There is a need for swift and early action."

Leavitt said HHS already is in negotiations with a number of states to resolve the funding issues.

HHS also wants to restrict further the ability of seniors to dump their assets -- putting them in their children's names or otherwise disposing of them -- to qualify for Medicaid, a move expected to reduce program nursing home costs.

Jeffrey Brown, assistant professor of finance at the University of Illinois at Urbana-Champaign, told the Senate Budget committee Thursday that 40 percent of all nursing-home care is paid for by Medicaid, which accounts for 25 percent of the program's budget. Meanwhile, children account for half of Medicaid's beneficiaries, but only $1 of every $8 of program funds goes to their care.

"Absent significant policy changes in long-term care, this will lead to rapidly rising Medicaid outlays in years to come (as the baby boomers retire)," Brown said.

One part of the solution is to encourage people to begin saving early for their retirement-healthcare needs or to buy long-term care insurance.

Medicaid now, however, serves as a disincentive for people, even into their 60s, to buy long-term-care insurance, which is relatively inexpensive compared to regular health insurance.

Even though it requires people to spend down their assets to be poor enough to qualify, Medicaid still is attractive enough it "does crowd out most of the private insurance," Brown said.

Sen. Blanche Lincoln, D-Ark., said she had worked with Finance Chairman Sen. Charles Grassley, R-Iowa, on a bill to create tax credits for long-term-care insurance and a tax deduction for premiums. That language, however, was omitted from Bush's budget plan and Leavitt said he did not know why.

Aside from direct program issues, Medicaid could save money through better productivity by the healthcare industry in general, Lois Quam, chief executive officer of Ovations, a UnitedHealth Group company based in Minnesota that provides Medicare and Medicaid services.

One key is to improve healthcare to the chronically ill, because 5 percent of beneficiaries use over 50 percent of the program money.

"We need to expand the effective ways and invent new ways to help them," Quam told the budget committee.

The goal is to keep the chronically ill as healthy as possible to keep them out of hospital. She noted an Ovation program targeted at the chronically ill in one Texas county saw a $123 million savings in healthcare costs.

Quam said if the entire healthcare industry's productivity was on par with the rest of the economy "we would not be having this discussion."

More effort must be made to persuade the industry to adopt best-practice standards and evidence-based health-benefit packages, as well as making sure healthcare providers implement successful research more rapidly.

Not all Democrats were ready to buy into the administration's Medicaid plans, however.

"We all want to make Medicaid more efficient and we all want to root out fraud and abuse," said Sen. Max Baucus, D-Mont., ranking minority member on the finance committee, "but I'm opposed to cutting Medicaid for the sake of meeting an arbitrary budget number."

Baucus said increasing Medicaid costs in a tight economy shows Medicaid is doing its job, "expanding to meet the need when times are tough."

He added Medicaid program spending growth is still lower, on a per capita basis, at around 6 percent, when compared to per capita spending growth in the private healthcare sector, which is around 12 percent.

He said any program cuts would have a real impact on real people.

--

E-mail: ebeck@upi.com