February 18, 2005

What's So Bad About Medicaid?

Every now and again the "New Dem Dispatch" appears in my inbox, courtesy of the good folks at the DLC. About a week ago they sent out a piece on Medicaid which I wanted to comment on but didn't because, frankly, I've got a million things I want to write about and no time to do it. But now, oh now there's time...

Right, then. The DLC's basic idea is that cutting Medicaid blindly is of course silly. Medicaid may not be a perfect program (what is?), but clearly it helps people, and clearly the cost of scalping the program and letting people fend for themselves is untenable. (All that happens is that these destitute folks go years without treatment, fall gravely ill, heave their battered bodies upon emergency rooms across America, leave without paying the check, and then raise costs for the rest of the insured. Quelle horreur!) But it occurred to me that, yes, lots of people know that Medicaid provides health insurance for poor people and that its costs are rising very, very rapidly, but most people don't really know why costs are rising so much or what aspects of Medicaid are so terribly inefficient.

Even more disturbing, I flicked my cursor to and fro across the vast internets, and the only think tank providing an easy-to-understand critical assessment of Medicaid was Heritage, which a) might be pure hackery and b) is probably committed to phasing the program out no matter what. Gah. It would be nice if some liberal site could provide comprehensive and easy-to-understand issue briefs on these sorts of wonky topics. (The Center for American Progress is fun, but sometimes not all that cerebral, and more obsessed with producing "talking points" than real insight/analysis.)

So, with that much-too-long preface out of the way, below the fold are a few (quite a few) key points on Medicaid—its strengths, weaknesses, etc. Perforce this is an amateur work in progress, but somebody's gotta do it.


First, the basics: If you're poor and meet certain eligibility requirements—children, pregnant women, elderly, people with disabilities, parents—you can enroll in Medicaid and get fully funded health care, paid for jointly by the federal government and states. The federal government matches state expenditures on Medicaid in varying amounts (it depends on how wealthy the state is). As of 2002, the program covered 25 million children (1 in 4 kids), 13 million adults, 5 million seniors, and 8 million people with disabilities.

The elderly and disabled gobble up the bulk of Medicaid funds, naturally—and 40 percent of spending pays for Medicare premiums for low-income seniors. Oh, and lest you start crying about "welfare for bums!", do note that two-thirds of all Medicaid enrollees are in working families.

Over the past couple of years, the economy sucked, people lost jobs and income, and more and more people qualified for Medicaid. In fact, as John Holahan and Arunabh Ghosh recently demonstrated, the 10.2 percent growth in Medicaid over the last four years was largely driven by this enrollment growth, rather than any inefficiencies in the system. Medicaid, in fact, grew more slowly than private insurance costs.


There are any number of myths about Medicaid: It provides crappy health care! Er, no, Medicaid recipients tend to be about as happy with their health care as those with private insurance. Or how about: The program is a bureaucratic nightmare! Not really. In 2002, administrative expenses were $12 billion for a $257.2 billion program. Now I've heard that this understates the administrative costs, but this argument mostly has to do with interest on the debt that funds these programs (i.e. not problems with Medicaid per se).

On the other hand, there's a fair bit of Medicaid fraud, on the part of both providers and states. Which brings us to…

Actual problems!

1) Health care spending is going up across the board, either because of new treatments, expensive and shiny new medical technologies, and the emergence of a labor-intensive health sector (nursing homes, for instance). But in theory, over the long run, Medicaid's costs should rise much more rapidly than those in the private sector. For starters, it covers the sickest of Americans—the poorest, the disabled, the elderly. An aging population is putting the strain on Medicaid, as are increasingly strict standards for nursing home care, which ups the cost. In general, though, given the uphill battle it has to fight, Medicaid is controlling costs pretty well.

2) A major problem, however, is that Medicaid doesn't cover everyone. Usually the father of a family won't get coverage, though his kids will, and his wife will if she's pregnant. Meanwhile, many of the eligibility rules are extremely complex, and because there are so many hoops you have to jump through to apply, many poor Americans don't even apply. We can't even lead the horse to water half the time. Many inner cities have centers set up to help people apply for Medicaid, and apparently it's quite shocking how many people are completely unaware that they qualify for coverage.

3) As most doctors know, Medicaid sets its own prices and pays much, much less for care than do private insurance plans. This doesn't mean doctors won't treat Medicaid patients at all—only about 10 percent of Medicaid patients don't receive treatment when needed, as compared to 1/3 of uninsured patients—but at the same time, many doctors limit the number of Medicaid patients they see. Some refuse to see any at all. And usually, this just means that people on Medicaid must rely more heavily to outpatient and emergency care, which is almost always more expensive.

4) Medicaid is, by design, a volatile program. Thanks to the wild income swings prevalent in America, individual families often go in and out of Medicaid coverage. This, of course, makes it hard to enroll in an HMO or other managed care company for an extended period of time, which means that beneficiaries often don't receive the sort of consistent primary/preventive care that reduces costs over the long term.

5) Ah, the fraud factor. The GAO has been tracking fraud in the Medicaid system for at least a decade—mostly in the form of overpayment to private providers—with estimates of the total cost sometimes ranging as high as 10 percent. I'm not going to get into this really—it's a problem, sure, but it can be addressed through IT improvements, various antifraud measures, identifying improper billing, etc.—because it doesn't seem, in itself, a reason to scrap the program.

On the other hand, there is a serious tug of war going on between the federal and state governments over what to cover, what should be reimbursed, etc. etc. States always want greater flexibility with their Medicaid funds; some federal governments like to make some of the eligibility standards consistent across states, and so on. Plus, some states use all sorts of loopholes to squeeze more out of the federal government. "Voluntary provider taxes" were a popular accounting trick for awhile, but this sort of stuff can easily be (and in fact was) cracked down on.

Of those, I'd say 2), 3), and 4) are the big problems. All of the Bush administration proposals—block grants or health savings accounts or what have you—are more or less designed to address problems 1) and 5). The problem is that Medicaid's costs aren't rising any faster than health care costs in general, so cutting Medicaid spending without addressing that deeper cost issue will simply swell the ranks of the uninsured. As for the fraud factor, eh, I'm not impressed. There are easier ways to manage that.

Anyway, by my clock I've been writing for about 40 minutes, which is way too long for a single blog post, so I'll stop here and get around to What Is To Be Done later on.

Continue Reading "What's So Bad About Medicaid?"
-- Brad Plumer 3:55 AM || ||