For fiscal year (FY) 2001, 39 of the 49 states
surveyed experienced Medicaid shortfalls. For FY 2002, 28 states
were anticipating shortfalls. Of the 49 states surveyed, 47 took
action in 2002 to rein in Medicaid spending or are expected to take
action in 2003. States have been employing a
wide array of strategies to control Medicaid costs. All essentially
embody two approaches: asking Congress for more money and making
various cuts in their programs. Both approaches will fail to bring
the real reform needed.
WHY STATE OFFICIALS NEED TO BYPASS
MEDICAID'S OUTDATED STRUCTURE
Medicaid is the joint federal-state
entitlement program established by Title XIX of the Social Security
Act in 1965 to finance medical care for certain low-income
individuals. There are basic similarities among programs in the 50
states, the District of Columbia, and the five territories, but no
two are alike. States administer their own programs and have broad
authority to set eligibility standards, covered benefits, and
payment rates for providers. Thus, a person eligible in one state
may not be eligible in another, and even if he or she is eligible,
the same treatments may not be covered.
Formula-Driven
Spending
In addition to setting broad policy guidelines, the
federal government's role includes the Federal Medical Assistance
Percentage (FMAP), commonly known as the federal match. This is the
formula that dictates how much money each state receives from the
federal government to supplement its Medicaid program. Ten states
get the lowest federal match of 50 percent; Mississippi gets the
highest at 76 percent. The national average is 57 percent.
For
all states, the FMAP has inherent incentives for ever-higher
expenditures on Medicaid. In Mississippi, for example, one extra
state dollar of spending is worth three "free" federal dollars,
whereas cutting a dollar of state spending "costs" the state three
federal dollars under the FMAP system. It is easy to see why
states, regardless of their match rates, are always at the federal
trough. Such a system also encourages states to define "Medicaid"
spending creatively, thereby further increasing the drain on state
and federal funds.
There are 14 categories of mandatory
services that states must include in their Medicaid programs in
order to be eligible for the federal match. These include, among
others, inpatient and outpatient services, childhood vaccines,
prenatal care, and rural health clinic services. States are also
eligible to receive additional federal match dollars for 34
optional services such as prescription drugs, diagnostic services,
and prosthetic devices.
Soaring
Costs
According to the CBO, total Medicaid outlays for 2001
were $226 billion and total spending for 2002 is expected to be
$258 billion. The CBO also projects that Medicaid spending will
reach $578 billion by 2012. The National Association of
State Budget Officers found that total state Medicaid spending
increased 10.6 percent in FY 2001 and estimated that it would
increase 13.3 percent in 2002. In 1992, Medicaid spending
represented 17.8 percent of total state spending. For 2002, it was
over 20 percent, with projections showing continued
disproportionate growth.
It
is also important to keep in mind that Medicaid includes spending
for long-term care. In fact, this part is approaching half the
Medicaid budget. With the aging of the population, this portion of
Medicaid spending alone is expected to quadruple by 2020. The
effect of such an increase could well leave at least some states
bankrupt. State lawmakers who care about any other budget item--be
it education, law enforcement, road maintenance and construction,
or environmental protection--must therefore tame Medicaid spending.
If they fail to do so, no money will be available for other
priorities.
WHY PREDICTABLE MEDICAID DEBATES ARE OFTEN
UNPRODUCTIVE
Virtually all debates heard today over
Medicaid policy fall into one of four general categories:
- Raise or lower income eligibility
requirements;
- Add or subtract covered benefits;
- Increase or decrease reimbursement rates
to doctors and hospitals; and
- Attempt to squeeze more dollars from the
federal government.
Sorely lacking is the long-overdue
questioning of whether or not the system itself needs a fundamental
overhaul. Instead of perpetuating the same old policy discussions,
the new Medicaid debate must begin to focus on how the current
system can be restructured to accommodate the beneficiaries and the
doctors, hospitals, and other health care professionals who serve
them in the most effective manner possible.
Medicaid is a product of the 1960s--a very
different era. It retains a system of rigid government price
controls and a defined benefits package. Like many other government
health care initiatives, it is wide open to influence from
lobbyists who represent special-interest groups before state
legislatures; but, for all practical purposes, it is closed to the
individuals and families who depend on the program. The interests
of Medicaid beneficiaries come second to those of other players in
the system.
Medicaid beneficiaries are thus dependent
on the decisions of others when it comes to key components of their
medical care. Beneficiaries are also limited to providers willing
to accept Medicaid reimbursement rates that are generally far below
what is paid by private-sector insurers, and even by Medicare. This
is characteristic of all the Medicaid programs across the country.
Willing providers must also accept the large and growing "hassle
factor" associated with the Medicaid bureaucracy.
By
restricting their options to minor tinkering with the status quo,
governors and state legislators are engaged in a debate that cannot
be won and will never end so long as Medicaid remains a closed
system of government-defined benefits. In an age of rapid medical
progress, advancing research, and increasingly sophisticated
technology, politicians are unqualified to determine which benefits
should or should not be covered by Medicaid and at what rate
doctors, hospitals, and other health care professionals should be
paid. Markets, driven by consumer choice and open competition,
remain the best mechanism for efficiently producing and
distributing products, including goods and services relating to
health care. Moreover, patients, as consumers, should be able to
rely freely on meaningful assistance from family members,
appropriate aides, family doctors, or other professionals in making
such important decisions.
MEDICAID CASH AND COUNSELING: PUTTING
PATIENTS FIRST
Arkansas, New Jersey, and Florida were the
first states to be granted Section 1115 waivers to participate in a
demonstration project designed to empower certain disabled Medicaid
beneficiaries by giving them a cash allowance with which to
purchase needed services. At the national level, this
experiment is called the Cash and Counseling program. Its
purpose is to evaluate how Medicaid beneficiaries (consumers) would
fare in a system that allows them to buy their own personal and
community-based services, assisted by a consultant, with a defined
contribution from their state's Medicaid program. Initial reports
have concluded that the experiment is overwhelmingly popular with
Medicaid beneficiaries.
Before Cash and Counseling began for these
eligible populations, the state typically would contract with a
home care agency to provide services to an eligible Medicaid
recipient without input from the beneficiary being served. This
often meant the beneficiary would have little or no say with regard
to how, when, and by whom they were served.
Such
an approach has several obvious drawbacks. First, it was especially
hard on beneficiaries who preferred care at odd hours or on
weekends when agencies hired by the state might not be available.
Second, because some of the services involve intimate assistance
such as bathing and grooming, the beneficiary would be forced to
rely on a stranger of someone else's choosing to perform such
tasks. Finally, it was nearly impossible for a Medicaid beneficiary
unsatisfied with his or her service to fire the bad provider and
hire someone else. All of these problems are eliminated with the
Cash and Counseling approach.
Under Cash and Counseling in all three
states, the beneficiary must first be enrolled in Medicaid, meet
age and eligibility requirements, and require personal assistance
services. Each participant receives a
cash allowance, the amount of which is based on the level of
professional assistance needed. Under the waiver, the program must
be budget neutral, so the amount is generally equivalent to the
value of services purchased by the state. While beneficiaries have
considerable flexibility to hire, fire, and alter service
providers, their allowance under Cash and Counseling must be spent
on health care needs. A counselor or consultant reviews the list of
services being purchased to ensure proper usage. The state also
provides a fiscal intermediary to cut the checks, pay the
appropriate taxes, and handle associated paperwork. The fiscal
intermediary represents a final check on spending decisions of the
beneficiary to weed out fraud and abuse.
Lessons from
Florida. Of the first three states to receive Section 1115
waivers, Florida went the furthest toward empowering this group of
Medicaid beneficiaries. Called Consumer Directed Care (CDC) under
the state's Section 1115 waiver for the Cash and Counseling
demonstration project, and with 2,820 enrolled participants,
Florida's program cashed out the entire list of services covered
under its Section 1915c waiver for home and community-based
services. The qualifying groups included:
- Frail elders (ages 60+);
- Adults (ages 18-64) with physical
disabilities;
- Children (ages 3-17) with developmental
disabilities; and
- Adults (18-64) with developmental
disabilities.
Consumer
Directed Care. Consumer Directed Care for frail elders and
physically disabled adults is available in 19 counties, and
statewide for developmentally disabled adults and children. In early
2002, both houses of the Florida legislature voted unanimously to
continue this approach and give expanded rulemaking authority to
all of the necessary departments.
Two
methods are used to determine the amount of money "cashed out" for
each consumer. First, the consumer's expenditures in the Medicaid
waiver for the previous 6-12 months are averaged. Second, if the
consumer has not been in the program that long, the dollar value of
a consumer's waiver care plan is calculated.
Once
the amount has been determined, the consumer and his or her
representative develop a purchasing plan that lays out
expenditures. A specially trained consultant provides the needed
technical assistance and training. The consumer can select from a
wide array of allowable purchases:
- Personal care,
- Homemaking,
- Consumable medical and personal care
supplies,
- Adaptive services such as wheelchair ramps
and grab bars,
- Home repairs and maintenance, and
- Pest control and yard work.
The
consumer is then free to hire traditional providers, family
members, neighbors, or friends for various tasks and pay them a
mutually agreed upon wage every two weeks. To ensure that the
employer is clearly identified, the name of the Medicaid
beneficiary, not the state of Florida, appears on the paycheck
received by employees.
Consumers can also set aside money each
month if they wish to save for a larger item related to their care.
For example, a lift chair or a wider front door might better serve
the beneficiary. Thus, not only does Consumer Directed Care allow
consumers to choose for themselves, but it also puts the proper
incentives in place for beneficiaries to spend wisely on their
routine care.
It
is important to note that participating in CDC is a choice for
beneficiaries. The demonstration project has proven very popular,
but it is not necessarily suitable for everyone. Some beneficiaries
are content with the old system and are free to remain in it. CDC
is particularly popular with parents of disabled children and
adults who are willing and able to be more involved with their own
care. In other words, it is suited to most Medicaid
beneficiaries.
Medicaid fraud traditionally has been a
serious problem across the states. However, by placing the dollars
in the hands of beneficiaries, Florida's Consumer Directed Care
approach has all but eliminated fraud. According to Kevin J.
Mahoney of Boston College, the national program director for Cash
and Counseling Demonstration and Evaluation, after three and a half
years of study, the program has been "without any major instances
of fraud and abuse."
Satisfaction rates among beneficiaries are
extraordinarily high. Mathematica Policy Research, Inc., the
evaluation contractor chosen to study Cash and Counseling, released
an interim memorandum in April 2002 based on a survey of 231 of the
initial participants in Florida's Consumer Directed Care.
Mathematica found that 99 percent of beneficiaries were "satisfied
with their relationship with their caregivers" and that, of those
that were satisfied, "96 percent described themselves as 'very
satisfied.'" Studies of participant
satisfaction rates in the Arkansas and New Jersey experiments found
virtually identical results.
Budget
Impact. Under the Section 1115 waivers, Cash and
Counseling is initially budget neutral. However, it has the
potential for considerable savings in the long term.
First, it moves Medicaid away from its
traditional bias in favor of institutional care toward home care.
As mentioned earlier, nursing home and institutional care account
for the largest and fastest growing portion of Medicaid spending,
approaching 50 percent of the Medicaid budget in some states.
Second, by creating the proper incentives
for appropriate use of care and engaging Medicaid beneficiaries in
their own health care decisions, it puts market forces in play in
an arena where they have never before existed. A properly
functioning market in any economic sector will always improve
quality while simultaneously bringing down cost. As evidence,
beneficiaries in Cash and Counseling have received more care of
better quality, resulting in higher satisfaction rates.