Understanding the U.S. Health Care System

TWO MAIN POINTS
 Medicaid does not serve enrollees or
taxpayers well and needs fundamental
reform.
The financing structure leads states to
bring loads of federal tax dollars into their
state through Medicaid with little incentive
for how well that money is spent.

MEDICAID BASIC #1: UNCAPPED
FEDERAL REIMBURSEMENT
 For Traditional Populations: Reimbursement is
Function of State Per Capita Income.
* Historic National Average: 57%
 For ACA Expansion Population: Enhanced
Reimbursement Rate

MEDICAID BASIC #2:
MANDATORY VS.
OPTIONAL BENEFITS
Mandatory: Inpatient; Outpatient; Physician;
Nursing Homes; Laboratory Services; Home Health
Services; Others
Optional: Drugs; Physical/Occupational Therapy;
Dental Services; Primary Care Case Management;
Others

MEDICAID BASIC #3:
SPENDING BY ENROLLMENT GROUP

MEDICAID BASIC #4:
PROGRAM GROWING RAPIDLY

MEDICAID BASIC #5: ENROLLMENT
IS GROWING RAPIDLY

MEDICAID BASIC #6:
SPENDING VARIES A LOT ACROSS U.S.
Avg. Spend Per Aged Enrollee Avg. Spend Per Disabled Enrollee
Wyoming $32,199 New York $33,808
North Dakota $31,155 Connecticut $31,004
… …
Illinois $11,431 Georgia $10,639
North Carolina $10,518 Alabama $10,142
Avg. Spend per Adult Enrollee Avg. Spend per Child Enrollee
New Mexico $6,928 Vermont $5,214
Montana $6,539 Alaska $4,682
… …
Maine $2,194 Florida $1,707
Iowa $2,056 Wisconsin $1,656

Medicaid Financing
 Consider a state with a 60% federal match rate.
If the state spends $1.00 of its own funds, it gets $1.50 from the
federal government. (60% of $2.50 is $1.50.)
In order to cut $1.00 of state expenditures paid by state tax base, a
state needs to cut Medicaid by $2.50.
Conclusion: Open-ended federal reimbursement makes it easy to
grown Medicaid and difficult to cut.

State Expenditure Growth
2015 Total Elem&Seco Higher Ed Medicaid Transport Other
State
Spending $1,872,368 $362,044 $193,447 $512,315 $143,466 $661,096
% of
Spending 19.3% 10.3% 27.4% 7.7% 35.3%
1990
State
Spending $899,629 $205,304 $109,367 $112,225 $88,779 $383,955
% of
Spending 22.8% 12.2% 12.5% 9.9% 42.7%
‘90 to ‘15
Increase 108% 76% 77% 357% 62% 72%

Federal Funding For States
2015 Total Elem&Seco Higher Ed Medicaid Transport Other
Federal
Funds $585,674 $54,083 $21,253 $317,302 $41,923 $151,113
% of Federal Funds 9.2% 3.6% 54.2% 7.2% 25.8%
1990
Federal
Funds $201,078 $23,208 $6,536 $63,855 $25,751 $81,728
% of Federal Funds 11.5% 3.3% 31.8% 12.8% 40.6%
‘90 to ‘15
Increase 191% 133% 225% 397% 63% 85%

Source: Amy Finkelstein, Nathaniel Hendren, Erzo F.P. Luttmer,
“The Value of Medicaid: Interpreting Results from the Oregon
Health Insurance Experiment,” NBER Working Paper No. 21308
Issued in June 2015
THE VALUE OF MEDICAID

OREGON MEDICAID
EXPERIMENT
 Lot of people who won the lottery did not take steps
to enroll.
 Medicaid enrollees much more likely to use health
care services, including preventive services and ERs.
 No statistically significant effect on blood pressure,
cholesterol, or blood sugar. Did not reduce risk of a
heart problem.
 Reduced depression and better financial well-being.

MEDICAID’S QUALITY OF CARE
People with Medicaid generally have worse outcomes from health
care treatments than people with private insurance.
In many states, Medicaid enrollees have more limited access to
providers.
In 2011, The New York Times reported on the widespread access
problem in Louisiana that was frustrating both physicians and
enrollees. One woman said that “My Medicaid card is useless for
me right now. It’s a useless piece of plastic. I can’t find an
orthopedic surgeon or a pain management doctor who will accept
Medicaid.”
Medicaid enrollees are increasingly served by a subset of
providers; numerous studies suggest they receive inferior care.

WHAT HAPPENED AFTER TENNCARE?
 TennCare represented a large public insurance expansion,
similar to ACA.
 Increased regular blood pressure and cholesterol checks.
Fewer people with regular doctor check-up.
Little, if any, change in people who did not see a doctor
because of cost.
Self-reported health got worse.
Mortality rate declined more slowly than in control states.

LESSON #1 FROM MEDICAID
OVERSIGHT WORK:
“Medicaid” as a Verb
In New York, they use the phrase
“Medicaid It.”
All states employ strategies/gimmicks to
minimize the state share of expenditures
and increase the federal money flowing into
the state.

OVERSIGHT WORK:
Medicaid LTC is available for just
about everyone.
Medicaid estate planning is prevalent.
There are a large number of exempt resources.
Janice Eulau, assistant administrator of Medicaid Services in
Long Island:
“As a long-time employee of the local Medicaid office, I have had the
opportunity to witness the diversion of applicants’ significant
resources in order to obtain Medicaid coverage. It is not at all unusual
to encounter individuals and couples with resources [beyond exempt
resources] exceeding $500,000, some with over $1 million. There is
no attempt to hide that this money exists; there is no need. There
are various legal means to prevent those funds from being used to
pay for the applicant’s nursing home care. Wealthy applicants for
Medicaid’s nursing home coverage consider that benefit to be their
right, regardless of their ability to pay themselves.”

Lesson #3 from Medicaid
Oversight Work:
Rules are Really Complicated and CMS
Doesn’t Know What States Are Doing
Four Examples
New York Developmental Centers
Minnesota Managed Care
Braces in Texas
Health Insurance Tax in California,
Pennsylvania, Other States

OVERSIGHT WORK:
It Is At Least Partially False That
Medicaid Underpays Providers
 Lobbying for Medicaid Expansion
 DSH and Supplemental Payments
 Coler Memorial and Coler Goldwater in NYC
 N.Y. / REGION | ABUSED AND USED
Reaping Millions in Nonprofit Care for Disabled
By RUSS BUETTNERAUG. 2, 2011

BIG QUESTION FOR
THINKING ABOUT REFORM:
How can we realign incentives so that
we get more value and less spending?

GENERAL PROBLEM OF
MEDICAID’S SIZE AND SCOPE
Huge population that is very diverse.

GENERAL PROBLEM WITH HOW
MEDICAID IS STRUCTURED
Government-dictated plan with very little patient
cost-sharing incentivizes overconsumption of
care without regard to value.

GENERAL PROBLEM OF FEDERAL
OPEN-ENDED REIMBURSEMENT OF
STATE MEDICAID EXPENDITURES
 Biases state decisions by making Medicaid
spending cheaper for states than other main areas
of state spending like education, transportation, and
infrastructure.
 Looks good for a state when viewed in isolation but
all states face the same incentives.
We need to improve the federal-state financing
partnership.

ABSENT LARGE SCALE STRUCTURAL REFORM,
WHAT’S THE SECOND BEST SOLUTION?
 Eliminate/Reduce State Gimmicks and Scams
Provider Taxes
 Bush and Obama administration proposed limiting
them.
 Bowles-Simpson proposed scrapping them.
 Vice President Biden expressed support for scrapping
them during 2011 deficit negotiations.

OTHER IDEAS
 Limit states’ use of intergovernmental transfers.
 Require CMS Office of the Actuary or GAO to
certify budget neutrality of Medicaid waivers.
 Require that states pay public providers no more
than the actual/reasonable cost of services
rendered.
 Require that states submit institution-level
Medicaid data as a condition of receiving federal
funds.

Understanding the U.S. Health Care System

Understanding the U.S. Health Care System

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