Friday, February 11, 2011

Three Hits on State Budgets

As the Administration keeps putting out talking points about states’ supposed flexibility to manage their Medicaid programs, it’s worth examining some of the issues and implications surrounding this issue:

  1. CBPP Report a One-Sided Argument:  To bolster the Administration’s case, the Center for Budget and Policy Priorities released a paper yesterday arguing that eliminating Medicaid maintenance of effort (MOE) requirements included in the health law would cause individuals to lose coverage, and “would also slow economic growth and job creation.”  However, the paper contains numerous flaws in its logic:
    • The study talks about beneficiaries losing Medicaid coverage outright if the maintenance of effort provisions are weakened or eliminated.  But granting states additional flexibility (by loosening the MOE mandates) would also allow them to take actions that would PREVENT beneficiaries from losing coverage – for instance, modest cost-sharing increases (see item #2 below) or enrollment checks to make sure only eligible beneficiaries are receiving taxpayer-funded assistance.  A modest co-payment increase is NOT equivalent to losing all Medicaid coverage – but the CBPP study conflates the two.
    • While the paper argues that “deep cuts in Medicaid eligibility would likely be used, at least in part, to free up room for bigger tax cuts,” it does not mention the tax INCREASES that states are being forced to consider to close their fiscal deficits, because Washington will not grant them permission to change their Medicaid programs.  Does anyone believe that Illinois’ recently passed 66 percent tax increase will help that state’s economic growth?
    • Similarly, the CBPP paper does not address the cuts in other areas of government that states may have to contemplate if not given the ability to reform their Medicaid programs.  Most of these cuts would come in the areas of law enforcement and education, where states traditionally spend most of their budgets.  It is highly presumptuous of Washington bureaucrats to believe that Medicaid alone should be a higher priority for state budgets than other important programs like education – to say nothing of the fact that cuts to education spending could have a larger negative economic impact than adjusting Medicaid spending.
  1. Flexibility HOW?  The Hill reported yesterday on a speech by Gov. Gary Herbert (R-UT) at the Heritage Foundation.  In his speech, the Governor indicated Utah would be seeking a waiver from the federal government not to cut beneficiaries from the Medicaid rolls (as the CBPP report argues), but instead “to charge richer Medicaid beneficiaries higher co-pays” – which ordinarily cannot exceed $3 for a doctor’s visit.  In addition, “Utah wants the Centers for Medicare and Medicaid Services to approve a request made eight months ago allowing the state to communicate with Medicaid beneficiaries via e-mail.”  The speech may prompt some to ask:  If a state cannot charge a $5 co-pay for a doctor’s visit – and cannot use electronic messaging to communicate with its beneficiaries more efficiently – without obtaining Washington’s permission, how exactly is the Medicaid program flexible?  And if CMS officials need to take more than eight months to approve a state’s request to contact its beneficiaries via e-mail, is Washington really being as flexible to states’ needs as Secretary Sebelius claims?
  2. Churning Beneficiaries Will Burn States’ Administrative Costs:  Last week the journal Health Affairs published an interesting article (subscription required) about low-income Americans’ eligibility for Medicaid or Exchange insurance subsidies.  The study found that within three years, nearly three-quarters of low-income adults with incomes initially under 200 percent of poverty would have an income change impacting their insurance coverage – and more than three in ten (29.3%) would have at least FOUR changes in insurance eligibility during that three-year time span.  (Remember: Individuals with incomes under 133% of poverty are eligible for Medicaid; those above that threshold will receive subsidies to purchase coverage on state Exchanges.)  This constant “churning” back and forth between Medicaid and Exchange coverage could prove taxing to beneficiaries – however, it will likely also strain states’ budgets, as state Medicaid programs and Exchanges will have to administer (and re-administer) eligibility determinations.  There is also the fiscal “tug-of-war” this churning could create – the federal government may look to keep as many beneficiaries on Medicaid for as long as possible, because Medicaid coverage will be cheaper than Exchange plans (due to low provider reimbursement), and because states are forced under the health law to fund a portion of the Medicaid expansion (unlike the Exchange subsidies).  Unfortunately, if the federal government proves as uncooperative in implementing the Medicaid expansion in 2014 as it has been with states during their current fiscal crisis, state governments may be left holding the bag for much more Medicaid spending than even they anticipate thanks to the unpopular 2,700 page health care law.