Last week, the Department of Health and Human Services (HHS) announced new initiatives intended to provide states with increased flexibility to better manage their Medicaid programs. However, these initiatives do not seriously address states’ mounting Medicaid crises.
The first HHS initiative is to improve coordination of care for individuals enrolled in both Medicare and Medicaid, the so-called dual eligibles. Under Obamacare, 15 states will receive up to $1 million through a new bureaucracy focused on duals. While reform should address the problem of coordinating care for the duals, HHS’s approach will likely fail because it ignores the root of the problem. Currently, incentives to coordinate care between Medicare and Medicaid are lacking, since taxpayer funds (and not private-sector profits) are at stake for poor management. Cost-effective care would occur naturally if incentives were properly aligned.
The second initiative is to allow easier access to home health care so that Medicaid beneficiaries can receive care outside of institutions like nursing homes. Most states already have waivers to do this, so it is unclear how this initiative will create additional flexibility. In fact, the available data suggest that this initiative will not lower taxpayer costs. This is because states that have rebalanced their programs (transitioning individuals from institutions to the home or community) to a greater degree have experienced relatively large spending increases for Medicaid long-term care. When Medicaid begins to pay for services that individuals value highly, such as home-based care, more people want to be on the program. The result is that rebalancing does not simply remove one beneficiary from a nursing home and place him or her in the home or community—it actually causes more individuals to use the service. Many states consequently have lengthy waiting lists for Medicaid-financed home and community services.
HHS also proposed a 90 percent federal reimbursement for state spending to revamp health IT systems for better processing of Medicaid enrollees. While upgrading IT may be advisable, using federal funding to cover such a large portion of the cost will reduce state incentives to invest wisely and will therefore waste valuable resources. This proposal is emblematic of larger issues related to the unsustainable growth in Medicaid spending, which occurs because states can pass on most of the cost of their program to taxpayers outside their state.
These HHS initiatives will do virtually nothing to reverse the program’s significant problems. Real flexibility would allow states to make bold transformations, such as transitioning enrollees toward premium assistance, without seeking approval from the federal bureaucracy. The bureaucratic process responds too slowly and blunts state efforts to innovate. Real flexibility would allow states to target taxpayer benefits to truly deserving populations in ways that limit the crowd-out of private coverage (individuals replacing private insurance with Medicaid), which economists estimate at 60 percent for Medicaid expansions.
Obamacare worsens the Medicaid crisis by adding up to 25 million non-disabled adults to the program through a one-size-fits-all mandate to states. In most cases, the health care law prohibits states from reducing program eligibility. This has resulted in states slashing provider payment rates as a way to save money. In January, all 29 Republican governors sent a letter to Congress and the White House pleading for the Obamacare maintenance of eligibility requirement to be lifted. While this would be a productive first step, sustainable Medicaid reform would eliminate the incentive for states to pass costs to federal taxpayers and would reduce or eliminate federal barriers that inhibit states from transforming their programs. These reforms are contained in House Budget Committee Chairman Paul Ryan’s (R–WI) budget proposal that passed the House last week, and the Senate should seriously consider them.
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