Tag Archives: Medicaid

New Medicaid Case Study Highlights the Role of Politics in Policy

Last week, Scott Beaulier and Brandon Pizzola released new research on Medicaid, conducting case studies of five states that have implemented reform measures designed to control program costs. They find that the political climate is essential to the success of reforms.

Medicaid is a cost driver in state budgets for several reasons, but an important factor is that most states have designed the program so that a formula determines the amount of federal money they receive based on state-level Medicaid spending. Reforms which move to essentially a block grant program, as implemented in Rhode Island and Washington, have so far successfully reduced Medicaid spending by eliminating this incentive. These two states have moved to a system where the federal government pledges a fixed yearly amount toward their Medicaid spending. If the full amount is not spent, the remainder can be transferred to the general fund. This reverses the incentive from spending as much as possible to searching for cost savings. Both states have also introduced measures of individual patient responsibility, requiring, for example, that Medicaid recipients do not rely on emergency rooms for routine care. While it is too soon to tell if Rhode Island and Washington will manage to control costs in the long run, both states appear to have achieved improved incentive structures for doing so.

These states passed reform bills not by making a gradual transition to new policies, but by moving decisively. In contrast, Florida lawmakers attempted to test reforms in two counties before expanding them to apply to the rest of the state. This time lag served as an opportunity for interest groups to block further changes. Rhode Island and Washington developed support from these interest groups by framing the issue as the state against the federal government rather than one of winners and losers within the state. In Tennessee reform has not been successful because key interest groups like the Tennessee Medical Association did not get behind proposed reforms, making them unworkable in practice.

Despite the apparent successes in Rhode Island and Washington, the federalism research that Ben and Eileen explored last week reveals that block grants are not a panacea. Block grants, like all intergovernmental spending, carry with them fiscal illusion. This obfuscates program costs to taxpayers by spreading the funding across multiple layers of government. While moving from a matching funds formula to a block grant is an improvement in transparency, total spending is still obscured. Furthermore, while neither state has failed to keep spending within the the budgeted block grant so far, it’s hardly inconceivable that program costs will outpace grants at some point, leading states to seek bailouts after implementing reforms.

The demonstrated reasons to be pessimistic about the viability of programs whose costs are shared across state and federal governments leave reason to question whether or not block grants are successful tools for curbing costs in the long run. However, Rhode Island and Washington have chosen a path that is at least more sustainable than other states, which face incentives to increase Medicaid spending with no limit in sight.

How a US downgrade affects the states

Last night’s news of a downgrade of long-term US debt from AAA to AA+ by S&P will have a ripple effect. But whether or not interest rates rise depends on how the market incorporates this information and whether it has anticipated this.

As far as states go, in July, Moody’s put five states on a downgrade watch list: Tennessee, South Carolina, Virginia, Maryland and New Mexico. And they gave six reasons: 1) employment volatility; 2) high federal employment relative to total state employment, 3)  federal procurement contracts as a percent of state GDP, 4) Size of Medicaid expenditures relative to state spending, 5) variable interest rate debt as a percent of state resources and 6) the size of the operating fund balance as a percent of operating revenues.

On August 4th these states were removed from the list and retain their AAa rating.

Places with a lot of exposure to risk, or a “high dependence on federal economic activity,”  include Virginia and Massachusetts. This doesn’t mean that these states and their local governments will see their interest rates rise, or be downgraded, or that they are in any danger of default.  It simply means their books will be scrutinized with this risk exposure in mind.

 

 

 

A “Can-kicking” budget deal in Minnesota.

A deal has been struck between Governor Mark Dayton (D) and Republican legislative leaders in Minnesota to end the government shutdown . Instead of “raising taxes on the rich” (the preferred strategy of the Governor) Republicans prefer deferrals. The GOP proposal includes $700 million borrowed against the state’s portion of the  Tobacco Settlement and $700 million in deferred school payments.  Both must be repaid in the next two years.  Fitch downgraded Minnesota from its AAA rating due to the state’s ongoing structural deficits, and the Tobacco Settlement bonds proposal. While Republicans say the compromise enables them to stop tax increases and a $500 million bond proposal, structural reforms are still lacking.

Spending has grown in Minnesota over the past several decades in particular in education and Medicaid as with most states. Pensions are undervalued and will require higher contributions.  Depending on your view Minnesota either has a revenue problem (in that it can’t support the growing costs associated with these programs), or it has a spending problem (in that these costs continue to grow and demand more revenues.) It is not unlike the fundamental philosophical divide at the center of the debt-ceiling debate: do we support growing costs with more debt or do we cut costs by rethinking and restructuring what government is providing?

Effectively, Minnesota’s budget has been balanced by not engaging this debate but by attempting to reconcile two different views on the size of government.  Spending growth can be supported by evasive techniques at least for awhile  and people may be lulled into thinking you can have it all – lots of services and low taxes.  But one-shots and short-term revenue sources eventually dry up leaving politicians with the uneviable choice of cutting programs or finding more revenues. Minnesota’s government has only purchased a little more time.

New Study of Medicaid, Focusing on Kentucky

University of Kentucky Professor of Economics and Mercatus-affiliated scholar John Garen has a new paper on the growth of Medicaid in Kentucky.  It is an enlightening read.  For one thing, I learned that the latest estimates suggest that Medicaid crowds-out private insurance at the rate of 50 to 60 percent (i.e., 5 to 6 out of every 10 new entrants to the program would have obtained private insurance).  The latest estimate, which looks at crowd-out in long-term care insurance, was obtained by Jeffrey Brown and Amy Finkelstein (incidentally, the latter just coauthored a piece that found Medicaid patients tend to be healthier than those without insurance, other things being equal).

I also learned about a number of reforms that have been shown to reduce costs and/or improve patient satisfaction. For example, Arkansas, New Jersey, and Florida have all received waivers to institute “Cash and Counseling” programs for disabled Medicaid recipients.  Under this type of program, enrollees are given a budget for various personal and household Medicaid services.  Then:

[W]ith guidance from a counselor, [they] can select the type, amount, and vendor of the services they purchase.  In other words, they receive a voucher.  Studies of this program indicate it has resulted in high recipient satisfaction, less fraud, and has saved on the use of expensive institutional care.

Here is one such study of the program.

Here is John’s website.

Medicaid Rules are Weird

In case yesterday’s post on economic freedom was a bit long for your taste, I was on the Fox Business Channel yesterday talking about, among other things, economic freedom.

At the end, I discuss Arizona and their Medicaid program. In my view, a reasonable cost-containment approach to Medicaid would put benefits on a sliding scale: the most-needy would be eligible for larger benefits, while those with higher incomes and/or greater wealth would be eligible for fewer benefits.

Unfortunately, the federal government won’t let states do that. Another thing they won’t let states do? Scale back non-emergency taxi service to Medicaid recipients. After an 8 month review, the Feds recently denied Arizona’s petition to eliminate this service. They will, apparently, permit the state to no longer finance certain transplant procedures. Does this strike anyone else as bizarre?