Thursday, November 8, 2012

Medicaid in Post-Election Discussions of Deficit Reductions

by David Heymsfeld, AAPD Policy Advisor:
With the election over, and Congress scheduled to return next week, Washington’s attention will quickly shift to proposals to reduce the federal deficit.
It has been widely reported that during the last few months there have been extensive behind the scenes discussions, particularly by Senators, of “grand bargains” to reduce spending and increase revenues to make major reductions in the deficit.  Now these discussions will move to the public arena.   They will be dominated by a sense of urgency created by the so-called fiscal cliff across the board spending cuts and tax increases which will occur on January 1, unless Congress passes legislation to undo them.
Reports of the behind-the scenes discussions indicate that they include considering proposals to make significant reductions in the federal Medicaid program. This is an issue of great concern to people with disabilities; 8 million of whom rely on Medicaid for health care and long term supports which is critical to their ability to live healthy productive lives as independent members of their communities.
AAPD and other advocates have made it clear that we are willing to work with Congress and the Administration to develop proposals which reduce the costs of Medicaid, by reforms that will make the program more efficient without reducing the services provided.  We will oppose proposals that only reduce funding and lead to cuts in the number of beneficiaries or the services they receive.
Two general approaches for reducing annual spending for Medicaid have gained significant support.
The first, incorporated in the budget passed by the House earlier this year is known as the block grant approach.  It specifically sets funding levels for Medicaid for the next ten years.  The ten-year budget would reduce Medicaid spending by $800 billion compared to the current program.
The second approach, one that reportedly has been seriously considered in the recent behind the scenes discussions, is a “per capita” approach.  It would limit funding by establishing an allowable cost for each beneficiary under the program. This would permit increased funding if more persons were added to the program.
In evaluating any specific proposals to reduce funding with these approaches, it is important to bear in mind that there are two separate issues; how much is funding reduced, and what problems are created by the method used to set the caps.

Simply saying that the program will be changed to a block grant or a per capita program does not tell us how much funding will be reduced.  That depends on the details of the formulas.  
For example, total annual funding or per capita funding could be frozen at 2012 levels for the next ten years, or if increases are allowed, they could be less than general inflation or increases in health care costs.  Under either concept, the formulas could be set to result in reductions of hundreds of billions of dollars.
In this sense, cuts under a per capita approach raise the same problem as cuts under a block grant approach. The cuts will reduce the funds available to provide health care and long-term care, without improving the efficiency of the program.  The States are in no position to increase their funding to make up the shortfall.  The end results are likely to be reductions in the number of persons eligible for the program and/or the services they are provided.
Apart from the amount by which funding is reduced, it does make a difference whether reductions are made by the block grant or the per capita approach.
Both block grants and per capita caps would change the basic structure of Medicaid funding.   Medicaid has always operated as an entitlement program without preset funding caps.   Such caps might prevent the program from supplying the health care and long term services and supports needed by low income persons who qualify for the program.  Under the current entitlement approach, in a recession when more persons have their incomes reduced below the qualifying level, Medicaid funding would increase.
This does not mean that there are no restraints on the amount of federal spending for Medicaid. Federal funds are only available to match funds spent by State Medicaid programs, and States can only get increased Medicaid funding by increasing their own funding.  The State’s have strong incentives to operate their programs efficiently.  The States spend about $125 Billion a year on Medicaid and it rivals education as the largest cost in State budgets.  State budgets are under extreme pressure, and they are looking for ways to limit their Medicaid spending.
In fact, Medicaid does provide health care and long-term services at a lower cost per beneficiary than private insurance.
The block grant and per capita approaches would change the basic structure of Medicaid and limit its ability to respond to changing conditions.   In the block grant approach, the levels of spending would be set at an annual amount that could not be increased because of greater needs created by a recession.  In the per capita approach if a recession increased the number of eligible people, total funding would be increased to cover the new beneficiaries.  However, there are other problems with a per capita concept.
One problem that is analyzed extensively in a recent study by the Center on Budget and Policy Priorities  is that a per capita limit established on the basis of the costs of serving each Medicaid beneficiary in 2012 may not be a reasonable measure of the average cost per beneficiary 5 or 10 years from now. Our population is aging, and on average, older persons have health problems that are more expensive to treat. 
Another problem is that the nature of medical care may change in ways we cannot now foresee.  As CBPP points out, “History shows that advances in medical technology -- such as the development of new treatments and medications that significantly improve health and save lives, but increase costs—as well as changes in health care utilization patterns and the onset of epidemics or new illnesses (such as HIV/AIDS) can produce unanticipated increases in health-care costs.”
There are also serious technical problems in designing a cap. For example, in the recession, some States have made severe cutbacks in Medicaid that reduce their per-capita costs. A per capita allowance would lock in these cuts even if the State’s budget situation improved so it could restore services,  
In short, either the per capita approach or the block grant approach would create a new structure that would undermine the ability of the Medicaid program to serve as a safety net.  We need to continue to work on alternatives that will reduce costs without raising these problems.

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