Medicaid's future is bleak
California HealthCare Foundation
Health Currents
February 22, 2003
In Time of Need, Many to Lose Medicaid Coverage
by Robert Rosenblatt
If misery loves company, then Governor Gray Davis has a front-row seat in a packed house. Each of the nation's 50 governors is singing the blues about fiscal woes. And all of them are trying to balance their books by taking a bite out of Medicaid, the massive health program for the poor.
At least a million people in just 11 states, including California, are going to lose their benefits, according to a recent study by the Center for Budget and Policy Priorities, a liberal Washington research group. That figure could grow by several million more when all of the states have completed cuts needed to balance their budgets.
The conventional view is that recessions come and go and people go on and off the Medicaid rolls. But there is something much more ominous at work here: a combination of factors that could menace the future of Medicaid, which has become the workhorse of the national health care system, delivering services to 47 million low-income people.
It is even bigger than Medicare, which serves 40 million people (35 million over age 65 and 5 million disabled Americans). Rich or poor, they qualify for benefits because of their age or because they have been certified by the Social Security Administration as being disabled. But Medicaid eligibility is strictly determined by income and assets-it is only for those deemed poor enough to meet the rules.
Medicaid is the largest single insurer for children under 18, pays for a third of all births in the United States, and pays for more than 40 percent of the cost of nursing home care. It offers a comprehensive package of benefits: hospital care, doctor services, laboratory tests, and x-rays. States have the option of offering additional services and California provides dental care and eyeglasses under the Medi-Cal program.
Medicaid is a joint effort, with the federal government paying from 50 percent to 77 percent of the total tab, depending on how poor the state is. Last year's bill was $130 billion from Washington and $94 billion from the states. With prescription drugs leading the way, Medicaid has become the fastest growing social program, with spending up 10.8 percent in 2001, the fastest rate of growth since 1993. At the same time, enrollment rose 8.5 percent, reflecting the fact that more people were drawn into poverty during the recession.
There is no relief in sight because of the worsening fiscal situation for state governments. The federal government can simply print money and run unlimited deficits, but states are mandated by law to balance their budgets.
Last year, total revenues of the 50 states declined for the first time since anyone began keeping accurate records. But this did not just happen because of the plunge in revenue from capital gains taxes on the sale of stock in the aftermath of the dot-com bubble.
On a more basic level, the states' tax systems, with their heavy dependence on sales tax revenues, are outmoded. They were designed for the manufacturing economy of the 1950s. But the volume of goods on which sales taxes can be levied is growing at a comparatively slow pace. Instead, "Services are growing and we don't tax them," Raymond Sheppach, executive director of the National Governors Association, said at a recent briefing on the Medicaid crisis. And then there is the Internet, where growing volumes of commerce escape taxes entirely. Nobody knows for sure about the revenue loss, but Sheppach offers a guess that $10 billion to $20 billion a year in potential revenue is escaping untouched through the Internet.
State pension obligations, meanwhile, are taking up a bigger share of the budget, further squeezing Medicaid, which, even in the best of times, has little support among middle class voters. During the fat years of the stock market boom, state governments didn't have to send much money to the pension funds because the market was taking care of things. Between 1993 and 2000, pension payments by the 50 states rose from $52 billion to $100 billion. However, state earnings on stock and bond investments, which soared from $74 billion to $232 billion, dwarfed these obligations.
The stream of cash has dried up and may never return. In 2001, investment earnings plunged to $53.6 billion. State receipts, including contributions by workers and governments, along with earnings from stocks and bonds, totaled $118 billion, barely enough to cover the pension payments of $111 billion. The states will be hard pressed to meet their pension obligation to retired public workers and Medicaid will certainly be a prime target.
In the first two years of recent budget cuts, the states began trimming payments to providers, the doctors and hospitals and nursing homes that deal with Medicaid patients. But they can't do that anymore. If they cut too deeply, there will be no doctors left who accept Medicaid patients.
So California and other states now plan to trim the Medicaid rolls by tightening income eligibility standards and making it harder for people to qualify for benefits. Lots of health care that is now routine will become exceptional.
But there are limits to what the states can do. Women without health insurance will still give birth. The nursing homes will still be filled with hundreds of thousands of Alzheimer's patients who have exhausted all their savings and now rely on Medicaid to pay the bills. And millions of poor children will still need their immunization shots and their bones mended when they get hurt in schoolyard accidents.
Without help from Washington, and with a budget crunch that will persist for years, the states are likely to keep looking for additional ways to trim Medicaid benefits. It will be painful.
The process is called "going back to the trash can," according to Velvet Miller, a former deputy commissioner of the New Jersey Department of Human Services. Miller added, "These are ideas that you absolutely threw out [because] they were too harmful-now you have to revisit [them] again and again."
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Comment: The clear message is that underfunding of Medicaid is here to stay. Health care for low-income individuals will be doled out from the "trash can."
The solution is obvious. Fund health care for low-income individuals at the same level as care is funded for the rest of us. Eliminate the profound inequities inherent in a "poverty program," inequities that are now also pervading our system of benefit-rich health plans for the wealthy, and deficient, Spartan plans for those with moderate income. Even the generous plans negotiated by unions are being paid for by dramatic reductions in the disposable income component of the paychecks of union members, or even by failure to provide inflationary increases required to fund the most basic needs. A disproportionate share of global health care funding is now being shifted to union members.
Health care spending for 2003 is $5775 per capita (CMS). Pooled together, we are spending $1.66 trillion. By eliminating the roughly $200 billion in excess administrative waste, we would have more than enough funds to pay for truly comprehensive health care services for absolutely everyone. And we could free up another $250 billion by reducing in half the current inappropriate utilization of our resources, a not unrealistic prospect if we had a single, integrated method of funding care. That would provide a nice buffer for new technological advances (worth funding as long as they provide value in health care).
Or shall we, instead, follow our current course and send the poor to the "trash can," and start sending moderate-income individuals to the "thrift store" of health care?