The latest news on Medicaid is another troubling wakeup call for members of Congress and state officials: More people signed up for Medicaid last year than at any time since the program began, as the worst recession in modern times wiped out jobs and workplace health coverage.
Nearly six million people have signed up for the low-income medical insurance program since the start of the recession in December 2007, according to a report released Thursday by the nonprofit Kaiser Family Foundation – boosting total enrollment to more than 48 million. The federal government provided more than $100 billion in additional Medicaid funding to the states beginning in the fall of 2008 to help cover growing numbers of people in need, but the long term budget implications are staggering.
Like many states, New York must cope with the critical role that Medicaid plays in its large and growing budget deficits. Medicaid spending—federal, state and local—makes up more than a third of the total state budget. The state’s own Medicaid spending is expected to grow at an annual rate of 18 percent in the next four years. If the states with heavy Medicaid spending do not get control over the growth in this spending, they will never get out of their budget troubles.
As lieutenant governor, I recently issued a report describing New York’s Medicaid problem and proposing steps to address it. The first step, the report began, is to make sure everyone understands what Medicaid is—that it is not Medicare, though the two programs can overlap. Medicare is primarily a health insurance program for the elderly (though it covers some disabled individuals), and it pays mainly for “acute care” services like hospital and doctors’ visits. In contrast, Medicaid pays for health care for certain low-income individuals. It is a joint federal-state program, with the federal government reimbursing states for a certain percentage of their Medicaid spending. Medicaid covers not just acute care but long term care, including nursing homes and home health care. The massive program covers more than 4.5 million beneficiaries in New York – almost one in four state residents.
The increase in New York’s Medicaid costs is driven partly by federal rules, partly by the general increase in health care costs, and partly by the policies of the state itself. New York has relatively generous Medicaid eligibility standards and benefits and has sought the maximum in federal dollars in order to expand its Medicaid programs. These state policies require large expenditures of state funds so as to attract large amounts of federal matching funds.
But because of history, political and bureaucratic inertia, the state’s Medicaid program is overly decentralized and politicized. Authority over Medicaid rate-setting and payment is so fragmented that the state lacks the capacity to control costs, let alone meet the requirements of the new federal health reform law.
First, New York stands virtually alone among major states in the extent to which its methods of calculating payments to health care providers are spelled out in statute by the State Legislature as part of annual budget negotiations. Even minor adjustments require legislative action. Therefore, the state has found it exceedingly difficult to control costs by updating its payment methods. My report recommended that the executive branch have the flexibility to set and improve such methods.
Authority over Medicaid payment is also fragmented within the executive branch. Most authority lies with the Department of Health; but the Department of Mental Hygiene has rate-setting authority over Medicaid services to people with mental, developmental and drug-and-alcohol-related disabilities—totaling $10 billion in spending, or 20 percent of the entire program. Similarly, because the Office of Long Term Care is separate from the Office of Health Insurance Programs within the Department of Health, it is harder to coordinate the payment of acute and long term care costs for services to beneficiaries who use substantial amounts of both. My report recommended that the Office of Health Insurance Programs have comprehensive authority over Medicaid purchasing in both areas.
Finally, in New York, authority over Medicaid rate-setting and management is fragmented between the state and the counties: It is the counties that make Medicaid eligibility determinations and manage home personal care and non-emergency transportation for Medicaid beneficiaries. Recent state legislation directs the Department of Health to create a plan for a state administrative takeover of these functions; we recommended implementation of the plan as soon as possible.
Even with administrative reforms, controlling Medicaid costs requires addressing cost pressures outside Medicaid. Among the major pressures in New York are the state’s medical malpractice system, whose reform could save hospitals and doctors $500 million annually; state Medicaid rules that allow abuse by people who divert resources from the needy to the less needy; and a federal reimbursement formula which penalizes states with income structures like New York’s. Like other states, New York also faces federal rules that limit the states’ ability to provide for medically complicated Medicaid beneficiaries through managed care and behavioral health issues like smoking, substance abuse, high blood pressure, and childhood obesity.
But outside pressures are no excuse for New York’s avoiding the political and administrative reforms that are within the state’s power. In New York, as in other states, avoidance will only allow Medicaid to continue crowding out investments in the infrastructure—both physical and human—that is critical to the states’ future capacity for economic growth.
Richard Ravitch is the lieutenant governor of New York and has held a number of other key government positions, including with the New York State Urban Development Corporation and the Metropolitan Transportation Authority.
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