Dems’ Health Bills Keep Medicaid Funding Flaw Intact

Sen. Max Baucus (D-Mont.) (Jay Mallin/ZUMA Press)

It happens in every recession: Medicaid enrollment leaps at precisely the same time that states are least able to afford the additional costs. The structural flaw has left state lawmakers threatening program cuts, Congress scrambling to find emergency funds to prevent a coverage crisis, and children’s health advocates urging an overhaul in the way Medicaid is funded.

Trouble is, the Democrats’ health reform proposals do nothing to address the problem.

[Congress1]Despite the Medicaid expansion at the center of both the House and Senate bills, neither chamber takes aim at the underlying funding flaws of the program, which is bankrolled by a combination of state and federal money. That decision, policy experts warn, leaves some of the poorest folks in the country vulnerable to losing health care coverage during economic downturns when they’re likely to need it most.

“From time to time, we’re going to have these economic downturns,” Stan Dorn, senior health policy researcher at the Urban Institute, said last week during a kids’ health forum on Capitol Hill. “Rather than react in the same panicked way every single time, is there a way we can rethink how we structure the underlying program?”

The answer is yes — and lawmakers are well aware of it — but Congress isn’t acting on it. Indeed, last November, just days after the Democrats won the White House, Senate Finance Committee Chairman Max Baucus (D-Mont.) proposed to create a trigger that would automatically hike the federal share of Medicaid funding when states, which are required by law to balance their budgets, hit tough times.

“Medicaid must be strong and stable so that eligible individuals can rely on it, especially in times of economic distress,” the Baucus paper explained.

Dorn endorsed that approach, arguing that such a mechanism would “provide automatic counter-cyclical relief so that when state conditions decline, federal help is forthcoming, and when state conditions improve, federal help retracts.”

“Not only would that help states,” Dorn added, “it would mean that federal dollars, which are in short supply, … would be much more closely targeted to need.”

Yet less than a year later, when Baucus unveiled his health reform proposal — legislation featuring a Medicaid expansion up to 133 percent of the federal poverty level — the funding trigger was noticeably absent. Baucus’ office did not respond to requests for comment Tuesday, but some health policy observers say it’s likely that cost concerns kept that provision out of the final bill.

Without such a trigger, Congress has been forced to step in twice in the last decade to help states weather recessions without dumping thousands of Medicaid patients. Between 2001 and 2002, for example, Medicaid enrollment jumped 8.6 percent, while tax revenues fell 7.5 percent, according to the Government Accountability Office. The trend led Congress in 2003 to provide $20 billion in emergency funding to stabilize program enrollment.

More recently, the economic stimulus bill contained $87 billion to provide a 6.2 percent increase in federal Medicaid funds, with additional help going to those states with the highest unemployment. The money was conditional: states accepting it could not restrict their eligibility requirements. All complied — with good reason. The Kaiser Family Foundation reported last month that state Medicaid enrollment jumped by an average of 5.4 percent in the year that ended July 1.

But that extra funding expires at the end of 2010, leaving kids’ health care advocates concerned about the future — particularly in high-unemployment states like Michigan, Nevada, Rhode Island and California, where Medicaid rolls are most likely to swell most rapidly.

“We could fully expect major cuts in Medicaid if there isn’t some continuation of that fiscal relief,” said Jocelyn Guyer, co-executive director at Georgetown University’s Center for Children and Families.

Some lawmakers have the problem on their radar. The House health reform bill, for example, would extend the additional Medicaid funding through June of 2011 – a provision the Congressional Budget Office estimates will cost $23.5 billion.

Meanwhile, however, the legislative uncertainty is forcing state health officials to craft their budgets as if the funds will expire Dec. 31, 2010 — just halfway through most state budget calendars.

Nate Checketts, head of Utah’s Children’s Health Insurance Program, described the potential effect that that expiration would have on the state. Before the stimulus bill became law in February, he said on Friday, state lawmakers had worked out all the details of a plan to cut adults, including medically needy folks, from the Medicaid rolls. The stimulus bill prevented that step, but with the enhanced funding set to expire, “those items are back on the table again,” Checketts said.

The current Medicaid funding scheme also creates dilemmas of moral hazard. Checketts noted that, before the stimulus bill passed, Utah had considered creating an emergency Medicaid fund, to be fed in the good years and tapped in the lean ones. “When the stimulus funds continue to come in the bad years,” Checketts said, “it sort-of undercuts that concept of needing to have a Medicaid rainy-day fund.”

“States are beginning to act as if these funds may always come,” he added. “There needs to be a decision about whether that’s really going to happen [in the future]. If not, states need to change their behaviors.”

The saga highlights the central dilemma facing Democratic leaders as they push forward with their sweeping health reform proposals: how to cover tens-of-millions of uninsured Americans while keeping new federal costs to a minimum. The expansion of Medicaid, an essential component of both the House and Senate bills, has been an attractive way to extend that coverage precisely because it’s cheaper than other alternatives. But the low cost comes at a price.

Indeed, according to a September survey conducted by the Center for Studying Health System Change, only about 40 percent of physicians accept all new Medicaid patients — versus 58 percent for Medicare patients — while roughly 28 percent don’t accept any new Medicaid patients at all. For dental care, the figures are even worse. Less than 27 percent of dentists surveyed by the American Dental Association in 2007 said they treat Medicaid-insured patients, leading to severe access problems surrounding oral health. The trends have raised questions about the value of an insurance program that few providers accept.

The House bill tackles the reimbursement issue head on, increasing Medicaid rates for primary care services to 100 percent of Medicare rates by 2012. Initially, the federal government would pay for the entire rate hike, though states would assume 9 percent of the increase beginning in 2015. The reform doesn’t come cheap. That provision alone would cost taxpayers $28.7 billion over the next five years and $57 billion over the next 10, the CBO estimates.

In the eyes of many experts and advocates, even if the House reimbursement changes don’t pass as part of the final bill, the expansion of Medicaid represents a step in the right direction. “As bad as Medicaid reimbursement is, it’s better than zero,” Dorn said. “For low-income folks, it will certainly be better than being uninsured.”

Yet Checketts said that Utah health officials — like those in many states — are wary of the expansion, which they estimate could double Utah’s Medicaid population.

“I don’t think [doctors and dentists] would be able to handle that with the current reimbursement rates,” Checketts said. “Some sort of change will have to be made.”