Medicaid: Busting the Budget-Buster With Real Innovation or Rearranging the Deck Chairs on the Titanic?

Medicaid has been front and center this week as President Obama addressed the National Governors Association, and several governors testified before the House Energy and Commerce Committee.  Obama told the governors that he supports the Wyden-Brown bill, which would accelerate the availability of waivers under the Affordable Care Act (from 2017 to 2014), so that states would not have to first create health insurance exchanges under the law, and then only later have the right to dismantle them and replace them with other mechanisms to achieve coverage goals of the law without additional cost to the federales.  (See Wyden-Brown fact sheet)  The law as it stands hurts the early adopters.  Without the change, the sponsors' home states, Oregon and Massachusetts would have to dismantle parts of their own health reform efforts in order to align with the federal mandates, only to potentially change things up agian three years down the road.  (Wyden has been a longer-term proponent of experimentation and innovation in health reform than Brown, and the opportunity to innovate three years down the road is in the ACA because of him.) 

To illuminate the issue with an illustration from a related domain: The mini-med waivers granted to states (in addition to those granted to corporations and unions) are just one example of interim steps needed to harmonize federal and state health reform.  When in 2014 mini-med plans will no longer be permitted at all under the federal health reform law, there will either need to be a significant dislocation of the underinsured — the "Young Invincibles" in Massachusetts and underinsured employees in capped health plans elsewhere in the country — or a change in the law.  Similar difficulties await state Medicaid programs, which will be faced with expanded eligibility, and other state agencies, which will need to set up exchanges per the ACA. 

The cost associated with eligibility expansion will be overwhelming … or maybe it won't.  There are, of course, expert opinions across the board on the financial impact of health reform on state budgets.  As the saying goes, Where you stand depends on where you sit.  Some reports inflate state expenses by not accounting for the fact that the federal share of Medicaid expansion covers 92% of the total.

Obama probably thought he was proffering an olive branch to the governors by throwing his support behind the Wyden-Brown bill as a nod to states' rights and all that. (26 states, as we all know, are challenging the individual mandate portion of the federal health reform law, and the litigation continues on numerous fronts.  Today, Judge Vinson stayed the effect of his decision invalidating the law, so long as the Administration files its appeal within seven days.)  However, as Ezra Klein observes, in the current political environment, Obama's support for the measure may ensure its defeat in the GOP-controlled Congress.  While the acceleration of state-specific innovation makes sense from the state perspective, it will likely be more expensive from the federal perspective, since the three-year experience under the federal model was intended in part to establish a cost baseline, which would have to be replaced by generous estimates in the Wyden-Brown bill passes.  GOP governors (including, for example Haley Barbour of Mississippi) have asked for block grants to replace federal financial participation in state Mediciaid programs; that's been tried in the past, and did not work well, so it will not be tried again. 

Before having to deal with the 2014 issue, governors are facing a current concern with affordability of Medicaid expenses and are seeking greater flexibility from the federales in the near term.  (For example, getting federal permission to send certain notices via email instead of snail mail will save one state millions of dollars.)  Part of the reason we're hearing about this now is the impending drop-off in supplemental federal funding for Medicaid, due to end June 30.  Some states, like New York, are taking a proactive approach to the problem; New York convened a Medicaid Redesign Team that has taken a hard look at New York's Medicaid expenditures and what the state gets for those dollars.  When Governor Cuomo accepted the team report last week, his office noted: 

New York spends more than twice the national average on Medicaid on a per capita basis, and spending per enrollee is the second highest in the nation. At the same time, New York ranks 21st out of all states for overall health system quality and ranks last among all states for avoidable hospital use and costs. Unfortunately years of attempts to address the problem have been unsuccessful.

The structural changes recommended in New York — both around health care financing and health care delivery (patient-centered medical home, anyone?) should be examined by other states as they work to develop reasonable approaches to the issues we all face.  (Massachusetts, by way of example, has long had a Medicaid waiver for a PCP program, and Governor Deval Patrick recently announced his proposal to bring the ACO model into the Massachusetts commercial market across the board, after some early success seen with Blue Cross Blue Shield's Alternative Quality Contract.)  The health reform law did not create these issues, but the various mechanisms for waivers ensconced in the law, plus those that would be accelerated by the Wyden-Brown bill, could be part of the solution to the state-level problem. 

In the end, having 50 states acting as laboratories for reform will help identify successes and failures that may be replicated (or avoded, as appropriate) on a broader scale.  Even, perhaps, a single payor system, as folks have been musing about since the Wyden-Brown bill was first put forward in November.

David Harlow

The Harlow Group LLC
Health Care Law and Consulting

 Updated 3/4/2011