1. Medicaid Professor Vivian Ho Health Economics Fall 2009

2. Topics l Coverage and Financing l Current Challenges uRestraining costs uImproving health

3. Medicaid Trends 1972 17,606 1975 22,007 1985 21,814 1988 22,907 1989 23,511 1990 25,255 1995 36,282 1998 40,096 2001 45,766 2005 57,300 $ 6,300 12,242 37,508 48,710 54,500 64,859 120,141 142,318 186,905 298,200 Year # of Recipients (m) Total Cost ($m)

4. Medicaid Recipients, 2005 http://www.cms.hhs.gov/MedicareMedicaidStatSupp/http://www.cms.hhs.gov/MedicareMedicaidStatSupp/ (2008 Edition) % of recipients % of payments Average payment Kids(<21) 47.2% 17.1% $1,729 Adults 21.7% 11.8% $2,585 Age 65+ 7.6% 23.0% $14,402 Perm Disability 14.2% 43.4% $14,536

5. Medicaid Financing l Joint financing by federal and state governments l States w/ lowest per capita income receive larger federal subsidies uCA, NY receive about 50% federal funding uMS, WV receive 76% and 72.99% federal funding respectively

6. l Minimum requirements for federal matching funds: uMust cover Temporary Assistance for Needy Families (TANF) and Supplemental Security Income (SSI) beneficiaries uMust provide inpatient and outpatient hospital services, and physician services

7. l States have wide latitude in setting eligibility and medical benefits uAccess and costs vary by state l Mean Medicaid fee for an office visit, new patient, 30 minutes in 2003: $54.87 (Zuckerman et al 2004) u$31.46 for established patient, 15 minutes uBut wide variation across states (see Exhibit 2) uFees well below Medicare fees in many states State Variations

8. l Do differences in the Medicaid program across states make a difference? uSee Zuckerman et al, Table 4 State Variations

9. SCHIP l State Children’s Health Insurance Program uPart of 1997 BBA uGave federal funding to states to reduce # of uninsured children uStates have considerable latitude in programs l Expand Medicaid l Develop separate children’s health insurance program l Both uSCHIP enrollment >7m in 2007. l Income eligibility levels vary from 300% of federal poverty level in Connecticut, to 133% in Wyoming

10. Medicaid & the Nursing Home Market l Individuals who meet certain low- income and disability requirements qualify for nursing home care covered by Medicaid l Medicaid reimburses nursing homes on a fixed price basis (e.g. price per day)

11. Medicaid & the Nursing Home Market l How can the Medicaid program set prices in order to insure adequate access, but also restrain costs? l Keep in mind that nursing homes can choose to serve private pay or Medicaid patients

12. Medicaid & the Nursing Home Market l We assume that most nursing homes have a local monopoly ui.e. Most nursing homes face a downward sloping demand curve l A nursing home with monopoly power which serves only private-pay patients will set price where MR=MC

13. Medicaid & Nursing Homes $ NH patient days ATC MC Demand MR Q0Q0 P0P0

14. Medicaid & the Nursing Home Market l Now, assume instead that there are no private patients, and the gov’t must set a reimbursement level for care provided to Medicaid patients l If the gov’t wants care provided at the lowest possible cost per day, it will choose a price equal to the minimum of the average total cost curve

15. Medicaid & Nursing Homes $ NH patient days ATC MC Demand MR Q3Q3 PMPM MR M

16. Medicaid & the Nursing Home Market l Now, consider the graph when a nursing home can serve private pay patients and/or Medicaid patients l The demand curve for private pay patients indicates that some are willing to pay more than P M for nursing home care

17. Medicaid & Nursing Homes $ NH patient days ATC MC Demand MR Q3Q3 PMPM MR M The nursing home will now view its MR curve as the line ABMR M A B

18. Medicaid & the Nursing Home Market l For all private pay patients “up to” point B on the MR curve, the nursing home knows that its MR will be greater than the Medicaid reimbursement rate l Thus, for private pay patients, the nursing home no longer prices at MR=MC. Instead, it serves the number of private pay patients “at” point B

19. Medicaid & Nursing Homes $ NH patient days ATC MC Demand MR Q3Q3 PMPM MR M The nursing home will care for Q 1 private pay patients and Q 3 - Q 1 Medicaid patients. A B Q1Q1 P0P0

20. Medicaid & the Nursing Home Market l Policy challenge: Medicaid can increase access to nursing homes by raising P M uHowever, raising the reimbursement rate will lead to higher expenditures l Some patients who might have been willing to pay out-of-pocket without Medicaid now may get Medicaid coverage uGov’t attempts to subsidize care for low- income individuals can lead to “crowd-out” of private care

23. Does Medicaid “work?” l In late 1980’s, income ceilings for Medicaid coverage were raised uPregnancy care for women with incomes <133% of poverty uChildren <6 covered if family income <133% of poverty uChildren <9 covered if family income <100% of poverty

24. l Did health insurance coverage for the poor increase, or did it “crowd out” private insurance? uSome low income people may have dropped private insurance to go on Medicaid l Did health status among the poor improve?

25. l 1987-1992: Medicaid coverage of children rose (15%  21%), but private insurance coverage fell (77%  69%) uBut private insurance may have fallen for other reasons (e.g. 1990-91 recession) l States could increase eligibility beyond federal minimums è Compare increases in Medicaid coverage and falls in private insurance across states

26. Results l The Medicaid expansion increased coverage for 1.5 million children uBut decreased private insurance by.6 million uSimilar results for women of childbearing age l The expansions lowered infant mortality by 8.5%; child mortality by 5.1% uCost per life saved: $1-1.6m

27. Was the expansion worth it? l Should Medicaid be “better targeted?” uIn 2002, Medicaid surpassed Medicare as nation’s largest health insurance program l Could we have gotten the same result cheaper?

28. Current challenges to Medicaid l Rising Medicaid costs have strained state budgets during recessions uProblematic, because most state governments required by law to balance their budgets èMany states have made Medicaid program changes

29. 1) Modest reductions in funding uLower physician, nursing home reimbursement rates uLimits on prescription drug use uNoncoverage of optical, dental care 2) Expansion of Medicaid managed care 3) Cost shifting to the federal government uStates shifting all state-run health programs into Medicaid, in order to receive matching funds

30. Medicaid and Managed Care l States vary widely in financing and delivery arrangements for managed care plans uLow-intensity: primary care case management (PCCM) l Gatekeeper bears no risk for cost overruns uHigh-intensity: mandatory enrollment in fully capitated plans

31. Impact of Medicaid managed care l Medicaid managed care grew rapidly in mid 1990s due to attractive business opportunities u“Foot in the door” for providing state employee health care coverage uInsurers didn’t have to pay commercial rates to providers, could also transfer risk uHMO industry was making high profits at this time

32. Impact of Medicaid managed care l In early 2000’s, HMO profits disappeared uMirrors problems w/ health care costs in private sector and Medicare l Still have 2-fold variation in capitation rates across states l Difficult to monitor quality uTennCare had significant differences in LBW babies and death in 1st 60 days across its Medicaid managed care programs

33. Future challenges to Medicaid l HMOs have enrolled AFDC beneficiaries, but not the higher cost elderly, or chronically disabled uHigh-cost populations may require carve- out programs

34. l Eligibility, Marketing, and Enrollment uIntermittent eligibility as enrollees cycle in and out of welfare uHigh turnover forces HMOs to market aggressively, to maintain revenues (costs up to 1 month’s capitation per member)

35. l Traditional providers may not be able to compete with commercial HMOs uCommunity health centers, urban hospital outpatient programs, indigenous community-based physicians have provided much care to Medicaid beneficiaries uSubsidized in past due to high level of uncompensated care uIf forced to close, creates access problems for persons w/o coverage

36. Wrap-up l Funding the Medicaid program provides health benefits, but sometimes at significant costs l Future decisions on Medicaid should be made within the context of wider welfare reform