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Press Release

March 8, 2004

MEDICAID AND HEALTH CARE SPENDING

As states grapple with reduced revenues and pressures to cut costs, Medicaid spending is facing increased scrutiny at both the state and federal levels. Three articles in the Winter issue of INQUIRY examine cost, utilization and enrollment issues affecting Medicaid, a program that provides acute and long-term care coverage to more than 40 million low-income Americans.

If people with Medicaid coverage – with their poorer health status, disabilities, and chronic conditions – were given private insurance coverage, they would cost considerably more than they do today under Medicaid, according to this new study by researchers at the Urban Institute in Washington, D.C. Conversely, if privately insured individuals were given Medicaid coverage, spending for them would be less. The study found no evidence that the spending differences between low-income people with Medicaid and those with private coverage were due to Medicaid beneficiaries’ lower service use, leading the researchers to attribute most of the difference in expenditures to rates paid providers.
"These results strongly imply that Medicaid is not a high-cost program on a risk-adjusted basis," the authors write. "The program’s expenditures are in fact considerable, but it is primarily because of the population it serves – a population in significantly worse health than the low-income population with private coverage. The Medicaid program has held down costs successfully by limiting provider payment rates, and perhaps by limiting access to specialists and technology/intensive procedures."

The researchers analyzed cost differentials using data from the 1996-99 Medical Expenditure Panel Surveys to compare and simulate annual per capita medical spending for lower-income people – those with incomes under 200% of poverty – with either Medicaid or private insurance coverage. Their findings shed light on the debate about Medicaid: many have argued the program’s benefit package is rich compared to private plans available to low-income workers, and some have suggested that Medicaid enroll its beneficiaries in private plans or give them a fixed amount or tax credit to buy their own private coverage.

The authors say, however, "the notion that Medicaid is a ‘Cadillac’ program is a myth." Benefits offered as optional services that states can select to cover do not add much to costs; in fact, expenditures on similar services are actually higher for people with private coverage, they note. Moving those now on Medicaid into private coverage could further increase outlays. "Unfortunately, as long as most states are unwilling to raise taxes and unable to use deficit financing as a way of smoothing out cyclical fluctuations in revenues and Medicaid costs, they inevitably will face periodic fiscal crises they can solve only by drastic cuts in Medicaid enrollment and/or benefits," the authors conclude.

"Medicaid Community-Based Programs: A Longitudinal Analysis of State Variation in Expenditures and Utilization," by Martin Kitchener, Helen Carrillo, and Charlene Harrington

This study, by investigators at the University of California, San Francisco, found higher spending on Medicaid home and community-based service (HCBS) programs in states with greater percentages of aged people, smaller percentages of minority populations, higher personal income per capita, more generous Medicaid reimbursement rates and eligibility, and a larger supply of home health agencies. Identifying such factors is important because Medicaid regulations allows states discretion to expand three HCBS programs – home health, personal care and waivers for specific groups – to ensure access to those people with the greatest need.

The researchers looked at Medicaid HCBS use and expenditures for the period 1992-99. Their findings suggest that if states want to expand HCBS programs – which tend to cost less than institutionalized long-term care and are preferred by many consumers -- they might reduce the number of available nursing home beds, which "would not appear to compromise access and might allow policymakers to direct more funds toward the substitute HCBS." Other options for extending HCBS could be offering special grants to low-income states to help expand the number of participants and increasing the number of agencies and workers that provide HCBS. "The major stumbling block increasingly will be the potential cost implications for Medicaid," the authors write. "However, if the programs are designed as direct substitutes for institutional care, extending use of HCBS may require less capital and other investment than institutional care."

Nearly 20% of children entering Kansas’ State Children’s Health Insurance Program (SCHIP) and more than 25 % entering the state’s Medicaid program leave the programs before completing a full year of coverage, the first time that eligibility is re-assessed. This study, by a Kansas Health Institute researcher, attributes many of these puzzling disenrollments to eligibility systems and case management practices at local social service offices.

Looking at public health insurance enrollments from July 1,1998 to June 30, 2001, the study showed that children who were "walk-in" applicants at an office were considerably more likely to lose eligibility prematurely than mail-in applicants whose enrollments were handled by a clearinghouse. Results indicate that the complexity of the work may have something to do with this discrepancy: caseworkers at the clearinghouse manage public health insurance only, while those at local offices manage families receiving benefits from multiple assistance programs. The findings suggest that retention rates could improve with electronic systems that more fully automate the provision of continuous coverage. Notes the author: "Without significant improvements to the computerized eligibility systems, it is unclear whether caseworkers could administer such a wide variety of public programs with equal verve and minimal error given the extent to which the programs’ populations, rules and philosophies differ."

Abstracts and full text of the previous articles are available to reporters and INQUIRY subscribers at www.inquiryjournal.org Also on the website are these other papers from the Winter 2003/2004 issue:

This editorial focuses on two aspects of the new Medicare bill: the prescription drug benefit and a lesser-known component – Health Savings Accounts – which have the potential to radically alter employer-sponsored health coverage.

This paper discusses the performance of nonprofit health plans and shows they are not an "endangered species."

Using data from the University of Michigan’s Minimum Data Set for the mid-1990s, this study found that poor quality of care increased the likelihood of resident transfers from one long-term care facility to another. Also more likely to seek a change of provider were residents in for-profit nursing homes and homes with excess capacity. However, residents’ frailty and inability to participate in care decisions limited their ability to transfer.

This study suggests that "freedom of choice" (FOC) laws have a greater impact on managed care growth than "any willing provider" (AWP) laws. (Under FOC laws, members of health maintenance organizations [HMOs] can use a provider outside the panel; under AWP laws, plans usually have more providers than they would without presence of the law.) More comprehensive regulation has a bigger effect than less encompassing laws; also, laws that limit selective contracting with physicians are more effective in reducing HMO market share than are laws that cover hospitals or pharmacies.

This paper shows how to use masked design variables to compute standard errors in three software applications for the National Ambulatory Medical Care Survey and the National Hospital Ambulatory Medical Care Survey. It also discusses when masking overstates or understates "in-house" standard errors for these surveys.

INQUIRY, the journal of health care organization, provision, and financing, is a peer-reviewed scholarly publication. Now in its 40th year, it is published quarterly by Excellus Health Plan, Inc. Press releases and article abstracts are available on the Inquiry website at www.inquiryjournal.org under "Current Issue Table of Contents."