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April 07, 2011

Medicaid Savings in Ryan’s Plan Would Come At the Expense of the Poor

Naomi Freundlich

The “Path to Prosperity” budget proposed by House Budget Committee Chairman Paul Ryan (R-WI), includes a plan to revamp Medicaid —which currently provides federal funding to states on an "as-needed" basis to help cover the health care costs of the poor and disabled—into a block grant program. This one initiative alone, according to the budget bill’s supporters, would save $750 billion over ten years.

There is little in Ryan’s budget proposal to support just where these savings will come from, but it’s easy to imagine that state caps on Medicaid enrollment, cuts in covered benefits and lowered physician reimbursement, along with an increase in co-pays for beneficiaries will all play an essential role.

Currently, the federal government contributes an average of 57% toward state Medicaid programs ( this ranges from 50-70% depending on a state’s federal matching rate.) There is no cap or ceiling on how much federal funding is available for the health care costs and long term care services provided through Medicaid, nationwide or for any particular state. The Congressional Budget Office predicts that the program will cover 69.5 million Americans this year, including nearly one in three children, with the recession driving many previously middle-income kids into Medicaid and CHIP. Under the Accountable Care Act, in 2014 Medicaid will undergo a significant expansion to include all the non-elderly who live at or below 133% of the poverty line, including some 16 million previously uninsured Americans.

Under the Ryan budget proposal, the health reform law would be repealed—and with it would go the federal funding that would finance some 96% of the cost of this expansion. Block grants require that the federal government pay each state either a fixed dollar amount or cap payments at a specific level, with the state responsible for all Medicaid costs that exceed the cap. If Medicaid costs rise due to increases in enrollment, economic recessions, or even health epidemics like HIV/AIDS, the federal share would remain the same.

The number of uninsured low-income Americans is sure to rise under such a plan. According to Edwin Park, a health policy analyst at the Center for Budget and Policy Priorities, block-grant proposals “have far-reaching adverse effects. In particular, they would shift costs and risks quite significantly to the states, to tens of millions of low-income Medicaid beneficiaries, and to the health care providers that serve those beneficiaries.”

Meanwhile, the Republicans are betting that most Americans are either apathetic about Medicaid or are opposed outright to its fundamental design and financing.

In contrast, the various lobbies representing older Americans are powerful. By taking on the AARP and other senior advocacy groups the GOP knows that they are facing potentially formidable opposition from both liberals and the “Hands-off My Medicare” camps if they try and repeal health reform or try to turn Medicare over to a private insurance voucher system. (See Maggie’s post below on Ryan’s Medicare financing proposal). But the poor and frail elderly who depend on Medicaid are another story. Supporters of the “Path to Prosperity” plan probably figured slashing Medicaid and putting it in the hands of state officials would present less of a public relations problem.

It turns out they would be wrong. Medicaid is often given a bad rap—lacking support from both Conservatives who see it as a wasteful entitlement program and Progressives who complain about the wide state-to-state variation in Medicaid coverage and the problems recipients have in accessing care. But a recent study by the Kaiser Family Foundation and the Harvard School of Public Health shows that the American public does not necessarily agree. Support for Medicaid was surprisingly strong with only 13% of those polled indicating that they would like to see “major cuts” in the program. Some 47% would like to see no reductions at all, 39% would support minor spending reductions.

As Drew Altman, President and CEO of the Kaiser Family Foundation writes, “the conventional wisdom that Medicaid is an unpopular program that would be much easier to cut or change than the other big public programs could be exaggerated if not simply wrong.”

Everyone agrees that Medicaid needs reforming—especially if it is expected to provide coverage for so many of the uninsured. The “Path to Prosperity” proposal correctly identifies entrenched problems with Medicaid:  substandard reimbursement rates to providers, difficulty accessing specialists and in some cases, substandard care for patients. The proposal lists some examples: “Medicaid patients are more likely to die after coronary artery bypass surgery, less likely to get standard care for blocked heart arteries, and more likely to die from treatable cancer, than those with other coverage options. By some measures, such as in-hospital death rates following major surgeries, Medicaid patients fared even worse than the uninsured.” The proposal is also right when it charges that this “broken” system has created a two-tiered health care system where the poor receive sub-standard care amidst a “mountain of waste.”

One of the main criticisms the GOP has of Medicaid is that it is particularly vulnerable to states “gaming” the system. According to the Ryan budget proposal, “much of the federal government’s share of the spending is wasted because the bureaucracy cannot provide adequate oversight of this open-ended program: Medicaid’s improper payment rate is over 10 percent, more than three times the amount of waste that other federal agencies generate. This translates into $33 billion worth of waste each year.”

But the solution; repealing the Affordable Care Act in its entirety and replacing Medicaid with a state grant program is entirely misguided and will achieve none of the hoped-for benefits.

Right now, the only state to currently run a block-grant type Medicaid program is Rhode Island, which received a waiver in January 2009 from the outgoing Bush administration. An editorial in the Wall Street Journal describes the program as a block grant from the federal government with a global cap on expenditures over five years of $12.075 billion. So far, according to the Journal, “after 18 months, Rhode Island's Medicaid spending, which was projected to reach $3.8 billion, has declined to $2.7 billion.” (Of course, Rhode Island, like every state, benefited from stimulus funding during this period that dropped $400 million into its Medicaid program.)

The editorial attributes the savings to the following actions: “The state implemented a blizzard of reforms, including wellness programs, co-payments, audits of hospitals and nursing homes, fraud prevention, and letting seniors move from nursing homes into home and community care. The state has also saved a bundle by replacing federal ‘any willing provider’ rules — which require that Medicaid dollars flow to any federally approved doctor or hospital regardless of cost — with competitive bidding.”

But the Center on Budget and Policy Priorities says the Rhode Island program is not a good example of how Medicaid would work under Ryan’s plan. According to CBPP’s Judy Solomon, “the waiver was actually a sweetheart deal between the outgoing Bush Administration and Rhode Island’s Republican governor.  No state would get that deal today:  the waiver gives the state more federal funding than it would have received under normal program rules. Normally, block grant proposals are designed to shrink deficits by giving states less federal funding and by shifting financial risk and costs to the states.”

Additionally, the Rhode Island waiver program, according to the Journal editorial, “is not a pure block grant, because the state agreed not to drop coverage for anyone eligible under federal Medicaid rules and retains the federal-state cost sharing for Medicaid expenses.” The Ryan budget proposal does not stipulate either of these provisions. Rhode Island can also revert back to a traditional Medicaid program if things don’t work out in the long run—not a possibility if health reform is repealed and Medicaid is turned into a block grant program.

The Center for Budget and Policy Priorities’ Park points out that critics of the current Medicaid funding mechanism continually charge that costs for the program are growing out of control, but in reality, “average annual Medicaid cost growth per beneficiary over the last 30 years has been no greater than health care cost growth systemwide.” He adds, “in fact, Medicaid’s costs per beneficiary have been growing less rapidly in recent years than costs in private insurance. In addition, the average cost per beneficiary is significantly lower than under private coverage.”

Park continues; “cutting federal Medicaid spending in isolation, irrespective of the rate of health care cost growth systemwide — as proposals to block grant or cap Medicaid generally would do — represents a deeply flawed approach. It would shift costs and risks to states, low-income beneficiaries, and health care providers and lead to more of a two-tier health system in which poor people receive considerably less adequate care than other Americans. It also would likely unravel the health reform law, driving up the number of people who are uninsured and underinsured, while failing to address the problem of systemwide cost growth that affects private as well as public insurance.”

Solving the Medicaid riddle will ultimately require more, not less federal oversight and control of the program. Mandating a basic, humane, set of benefits for all states and following through with the promise to cover all Americans who live at or below 133% of the poverty line is the first step in creating parity in our current hodge-podge Medicaid system. To cut costs and improve performance, regulators also must embrace some of the innovations coming out of various states, like Rhode Island, that have been operating under waivers. As Judy Solomon writes, “moving seniors and people with disabilities from nursing homes to the community and getting the best possible price for medical services and supplies, are certainly worth supporting,” but she adds, many states are already making these reforms without taking the extreme step of converting Medicaid to a block grant program.

The same is true for the problem of Medicaid fraud. Other states besides Rhode Island have instituted programs that provide better oversight of federal payments and the Center for Medicare and Medicaid Services has had success in several of its anti-fraud initiatives. Putting state officials in charge of designing their own Medicaid systems is no guarantee that kick-backs, fraudulent billing and other methods for “gaming” the system won’t occur.

The Ryan budget proposal is wrong on many different levels. In a nutshell, it would cut benefits for the poor, frail and elderly while improving the fortunes of only the very rich. But, as David Dayen writes on Firedoglake.com, it might well be successful in reducing the budget deficit—although collateral damage would be extensive: “Ryan actually correctly tackles the drivers of the deficit – health care spending. He does so by systematically reducing and eliminating American’s health care. If Republicans want to make that their 2012 platform, so be it.”


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