Prospects for Medicaid reform
- From: "GWhyte" <gwhyte3003@xxxxxxxxxx>
- Date: Sun, 25 Sep 2005 03:42:09 -0400
Swamped
Sep 22nd 2005 | BATON ROUGE
>From The Economist print edition
AP
http://www.economist.com/world/na/displayStory.cfm?story_id=4424740
Hurricane Rita is on the way. But Katrina has already dashed hopes of
reforming America's health-care system for the poor
AFTER sleeping on top of her fridge for three days to avoid the floods,
Maude Jordan was eventually rescued from New Orleans. She was taken to a
relief centre in Baton Rouge where, penniless and diabetic, she was miffed
to be served doughnuts for breakfast each day. On the plus side, she assumed
she would qualify for free medical treatment under Medicaid, the health
programme for the poor.
Her application was rejected, however. She received a letter which said she
was "unable to establish eligibility because cannot establish categorical
eligibility [sic]". That may make sense to a Medicaid bureaucrat, but to Ms
Jordan it was about as clear as the lake of diluted sewage that had swamped
her home.
Among the many things that Hurricane Katrina destroyed was any hope of
reforming Medicaid soon. The programme is one of the government's three
great budgetary headaches; the others being Social Security (pensions) and
Medicare (health care for the elderly). The other two get more attention,
but Medicaid, which is funded jointly by the federal government and the
states, is arguably in worse shape.
Before Hurricane Katrina (and now the prospect of Hurricane Rita) shook up
everyone's calculations, Medicaid was expected to cost $329 billion this
year, making it as large as Medicare and the single biggest expense for the
states. Even more striking is the rate of growth. Medicaid is expected to
swallow 2.6% of GDP this year, 13 times its share in 1966, its first full
year of operation. It has grown partly because medicine keeps getting more
expensive, but mostly because it now covers far more people than its
founders ever envisaged.
It is no longer just a safety-net for the poor. As private health insurance
has grown ever more expensive-the average family policy cost more than
$10,000 this year-small firms have stopped offering it. To prevent the
number of uninsured Americans from rising, successive governments have
relaxed the eligibility criteria for Medicaid. Some 52m people now receive
its benefits, a caseload that has soared by 30% in the past five years.
Before Katrina, Republicans in Congress had been planning to cut the
programme by $10 billion by 2010 ("cut by $10 billion" being
Washington-speak for "increase massively, but by $10 billion less than had
previously been planned"). Since the hurricane, however, no politician wants
to be seen denying health care to the needy, so plans for even mild
austerity have been shelved.
Katrina's direct effects on Medicaid will be severe. By destroying tens of
thousands of jobs, it has undoubtedly made more people poor enough to join
the programme, at least temporarily. It has also driven hundreds of
thousands of poor people into neighbouring states, where many will stay and
claim Medicaid benefits. This would probably have bankrupted Texas's
Medicaid programme, had the federal government not promised last week to
cover the extra costs imposed by the evacuees (costs that may rise again
after Rita).
In the long term, Katrina's main impact on Medicaid may be indirect: it
seems to have ruined everyone's appetite for serious reform. This is a
shame, for the programme has big flaws. Though it provides an essential
safety net for the poor and disabled, it does so with spectacular
inefficiency because "too many people are allowed in and too many are gaming
the system," says Robert Helms of the American Enterprise Institute, a
think-tank.
You don't have to be poor to qualify for Medicaid. In some circumstances, a
family of four can earn $40,000 a year and still get state-funded health
insurance for the kids. And although 75% of Medicaid's beneficiaries are
poor children and their families, some 70% of Medicaid spending goes on the
elderly and the disabled, who cost several times as much to look after.
No politician wants to be seen denying health care to the needy, so plans
for even mild austerity have been shelved
The elderly have their own health-care programme, Medicare, but it has big
gaps in its coverage. Medicaid fills these gaps: for example, it pays for
almost half the nursing-home care in America. In theory, Medicaid pays
nursing-home bills only for old people who cannot pay their own. But with a
shrewd lawyer, even the well-off can reshuffle their assets until they
qualify.
For low-paid workers, Medicaid's very generosity creates perverse
incentives. If they earn too much, they can lose their benefits. Since these
average more than $6,000 per beneficiary, a pay rise can make a single
mother simultaneously much worse off and more worried about her children's
health. In some states, Medicaid recipients are similarly discouraged from
saving or accumulating assets, such as a car that might get them to work.
This keeps many trapped in poverty they might otherwise have escaped.
Medicaid programmes are run by the states, but the federal government pays
most of the costs. For every dollar a state spends on Medicaid, Washington,
DC, has to contribute on average $1.30 (the rate varies between rich and
poor states). This gives states an incentive to spend more on health care
than on other equally desirable goals.
Medicaid's expansion, in turn, tends to "crowd out" the cheaper types of
private health insurance. No private insurer can offer its services free,
which is mostly how Medicaid appears to its recipients. Small firms are
stopping providing health insurance partly because they know the taxpayer
will pick up the slack.
Some attempts have been made to restrain spending. In the past three years,
all 50 states have tried to squeeze the prices they pay for drugs and
doctors. In addition, 38 have tried to tighten the criteria for eligibility
and 34 have reduced the range of benefits. Tennessee has made the most
controversial efforts, with Governor Phil Bredesen seeking to remove 323,000
beneficiaries from his state's Medicaid rolls.
The perils of reform
But Medicaid is popular, so most politicians try not to cut it much. The
only brutal cost-curbing measure applied nationwide is impenetrable
bureaucracy, of the sort that so flummoxed Ms Jordan, though this was
probably not designed as a cost-curbing measure.
Medicaid's defenders point out that without it, "the vast majority of its
beneficiaries would join the ranks of the 45m uninsured Americans," as the
Kaiser Commission on Medicaid and the Uninsured puts it. And though it may
be inefficient, it is no more so than the other parts of America's
higgledy-piggledy health-care system. Medicaid costs are increasing more
slowly than those of private health insurance, despite the fact that private
insurers often exclude those with expensive chronic conditions, whereas
Medicaid embraces them.
So no one is suggesting axing Medicaid. But some say it could be reshaped as
thoroughly as welfare was in the 1990s. Michael Cannon of the Cato
Institute, a libertarian think-tank, recommends targeting benefits to the
truly needy (by, for example, getting prosperous elderly folk to pay their
own nursing-home bills), eliminating perverse incentives and promoting more
competition between medical providers. He reckons that such tough reforms
could save $941 billion by 2015, wiping out 96% of the cumulative ten-year
federal deficit. Instead of which, Congress is offering golden sticking
plasters.
.
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