Sunday, October 02, 2005

Medicaid: Numbers that will make your head and wallet hurt

Tom at BizzyBlog posts this excellent analysis of the New York State Medicaid system:

The previous post on Elliot Spitzer and Medicaid fraud linked to this item; see middle of Page 2 at link), where it was noted that The State of New York:

- will spend $44.5 billion on Medicaid in fiscal 2005-2006.
- will serve 4 million Medicaid recipients.

That’s $11,000 per person, $22,000 per covered couple, $44,000 for a four-person family.

It seems to me that the state could buy every Medicaid recipient traditional health insurance, PLUS long-term care insurance for every recipient over 50, for less than half of what it spends now, even with no underwriting (i.e., no exclusions for
“pre-existing conditions”). What am I missing?

The pubic hearing transcript, referred to above, includes the following two points on these huge expenditures:

Because fraud and abuse by their nature are unknown until identified, the amount of Medicaid funds lost through inappropriate payments cannot be quantified. While we believe that the often cited General Accounting Office (GAO) claim of a general 10 percent health care fraud rate is exaggerated, even a more realistic rate as low as 4.5 percent means a loss of approximately $2.0 billion annually.

Let’s stop to put this figure in perspective. Our counties combined, outside of New York City, will contribute roughly the same amount ($2 billion) as their total share of Medicaid expenses in 2006.
...We are also realistic and understand that the growth of the current program is unsustainable. A program that costs $44.5 billion and encounters double-digit growth each year is simply unsustainable.
In other words, if you're a citizen of a county outside of New York City, your Medicaid tax contributions go directly to fraud...right of the top!

Furthermore, contributions by the same non-New York City county tax payers towards fraud increase at a double digit rate. In 2003, New York's Medicaid budget alone was more than the total budget of 40 other states and 2.5 times the national average. Medicaid represents 29% of the New York State's budget (see: page 7 of 2005-06 Budget Analysis).

As Porkopolis has noted in the past, New York State is not alone in struggling with a Medicaid program that continues to consume more of the state budget. Here in Ohio, "Medicaid is the single-largest expenditure with total General Revenue Fund appropriations of $9.5 billion in FY 2006 (0.8% above FY 2005) and $9.9 billion in FY 2007 (3.7% above FY2006)". (see: page 1 of State of Ohio Complete Budget Highlights).

The total General Revenue Fund Budget appropriations for FY 2005 and 2006 are $25.3 billion and $25.9 billion, respectively; making Medicaid at least 37% of Ohio's total spending at the state level for the next two years. That's 8% more of Ohio's total budget as compared to New York's.

In 2003, Medicaid covered 1,881,640 Ohioans. That same year Ohio spent $10.7 billion dollars for Medicaid (see page 2 of Ohio Medicaid Report, January 2005 Update); resulting in a per covered person expenditure of over $5,700; a little more than half of New York's per person expenditure.

Our situation in Ohio prompted Robert A. Lawson, Ph.D of The Buckeye Instititute to write the following healthcare article in 1997 with specific recommendations to address Ohio's plight:

'Medicaid Busts Ohio's Budget' :

The Governor and General Assembly have just signed into law another two-year budget. Despite attempts to reign in spending growth, expenditures will continue to increase at almost twice the inflation rate.

One of the primary causes of the growth in state government has been the Medicaid program which provides health services to lower income people. The Medicaid program now constitutes nearly 30%
[ed.: as noted above, this has grown to 37% of the budget] of the State's operating budget.

But Medicaid does not have to be a budget buster. By adopting the cost-saving techniques of some other states, Ohio could easily trim millions of dollars from the Medicaid program.

Medicaid expenditures have risen so dramatically in Ohio because the state has expanded eligibility and coverage beyond reason.

In 1995, Ohio had over 1.53 million Medicaid recipients even though only 1.29 million people fall under the poverty line. This means that at least 20%, and probably closer to 30%, of Ohio's Medicaid recipients are not poor by official standards.

In addition, all states are required by federal mandate to provide certain basic medical services in the Medicaid program, but Ohio has added many expensive extras: chiropractic care, prescription drug coverage, podiatry care, dental care, vision care, alcohol and drug counseling, and others. The Medicaid plan is much more generous than the plan offered by most private employers.

No wonder Ohio now spends over $4,000 per recipient, or $16,000 for a family of four on Medicaid!

Based on a recent study I co-authored for the Citizens for a Sound Economy Foundation in Washington, D.C. , I have calculated potential savings for Ohio's taxpayers if Ohio were to adopt the practices of more frugal states like Virginia, California and Michigan.

Both Virginia and California spend about $1,000 less per recipient than Ohio and have mostly constrained the Medicaid population to the poor. If Ohio spent as little per person and restricted eligibility like these two states, the taxpayers could save over $2 billion annually.

Although Michigan spends a bit more per recipient on Medicaid than does Ohio, Michigan has successfully avoided increasing Medicaid rolls. If Ohio restricted eligibility as much as Michigan, we could save over $400 million each year.

All three states in question must comply with the same federal regulations and mandates as Ohio, and they appear to be fulfilling their obligations under the Medicaid program even though they spend comparatively less than Ohio.

Since the Ohio Medicaid Program is about 59% funded by the federal government, $2 billion in savings would allow $1.18 billion in savings for the federal government and $820 million for Ohio taxpayers. These Medicaid savings would open the door for a 17% state income tax cut in Ohio. Alternatively, the savings from serious Medicaid reform could be directed to meet the state's apparent need to increase funding for education to comply with the Ohio Supreme Court's school equity decision without raising additional taxes.

The answers to our health care problems do not lie in increasing the dependency of Ohioans on government health care. Ohio should strongly consider limiting coverage to the poor and rolling back coverage options not mandated by federal law. If the state really wants to help working, uninsured people it should consider direct health-care vouchers or Medical Savings Accounts as the best ways to foster self-reliance and to control taxpayer costs.


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