The Bulletin -- October 17, 2012

Medicaid consumes nearly one-third of Pennsylvania’s General Fund spending each year, but every budget season lawmakers can do little more than wave through funding for the entitlement program. Most of the year-to-year cost increases to fund the federal/state health care program for the poor are beyond their control – it’s impossible to predict how many more recipients will join the rolls each year.

To his credit, Governor Tom Corbett has enacted some cost-saving reforms to the program, a contributing factor for his recently-earned ‘A’ grade for his sound fiscal policies from the Cato Institute. Only three other governors earned an ‘A’ grade.

Any attempt to overhaul the program would leave reformers vulnerable to accusations of being heartless.

Medicaid savings, however, can be realized while still providing needed services to deserving recipients. In its June ruling on the federal health care law, the U.S. Supreme Court may have opened the door just enough to allow a meaningful debate on Medicaid reform. The ruling rejected a provision in the law requiring states to expand Medicaid, instead allowing the states to accept or reject the expansion. Some states like New York accepted immediately, while Texas rejected it. The Corbett Administration’s decision for Pennsylvania hinges on the question of eligibility.

“We don’t know right know what all this means in terms of increased eligibility,” said Carey Miller, Press Secretary for the Department of Public Welfare. “That of course will determine the additional cost.” Miller said that the Administration is in discussions with Washington and other states and that no timetable exists for a decision.

Whatever the final amount, costs to state taxpayers are sure to rise. Starting in 2014 Washington will pick up the added costs, but in 2017 the federal share will begin to drop. A joint congressional report put Pennsylvania’s cost to implement the Medicaid expansion at more than $2 billion from 2014 through 2019. A study from the Washington-based Kaiser Foundation put the figure a bit less but still considerable. Pennsylvania will spend $721 million for newly eligible enrollees over the next six years.

Medicaid pays doctors and hospitals 60% or less of costs for their health services to the poor.

Scott Gottlieb of the New York University School of Medicine wrote last year in a commentary published in the Wall Street Journal (“Medicaid Is Worse Than No Coverage at All”), “In some states, they’ve cut reimbursements to providers so low that beneficiaries can’t find doctors willing to accept Medicaid. Dozens of recent medical studies show that Medicaid patients suffer for it. In some cases, they’d do just as well without health insurance.”

Vice Presidential candidate, Paul Ryan, has a Medicaid reform plan that could help stem the year-to-year cost increases – especially helpful to those states that accept the federal law’s provision to expand Medicaid. At its core, the plan would change Medicaid into a block grant, put the program on a yearly budget instead of writing it a blank check, and give states more flexibility in how they implement the program.

It’s a grander version of the 1996 changes to Aid to Families with Dependent Children (AFDC). Those changes returned the share of federal spending on AFDC to each state in the form of a block grant to be used in a new welfare program redesigned by the state based on mandatory work for the able bodied. Funding for AFDC previously was based on a matching formula, with the federal government giving more to each state the more it spent on the program, actually encouraging the states to spend.

Block grants are capped. If a state’s new program cost more, the state had to pay the extra costs itself. If the program cost less, the state could keep the savings. The program was renamed Temporary Assistance to Needy Families (TANF).Federal and state spending on TANF in 2006 was down 31% from AFDC spending in 1995. Meanwhile, the incomes of the families formerly enrolled in the program rose by 25%.

In a recent analysis the Commonwealth Foundation for Public Policy Alternatives countered some of the myths about Medicaid and the Ryan plan.

Myth: Expanding Medicaid would create jobs and help the poor.

Truth: Redistributing wealth doesn't create jobs. The government has nothing except what it first takes out of the hands of workers and employers in taxes.  Expanding Medicaid would cost Pennsylvania taxpayers an additional $2 billion by 2019. Taxing workers and employers to expand Medicaid will not only shrink job opportunities, but also place more Pennsylvanians in second-rate insurance.

Further, Medicaid is a poor provider of care. Only 45 percent of primary care physicians are willing to accept most or all new Medicaid patients that come through their doors. Because it is difficult to find a doctor, Medicaid patients use ERs about twice as often as the uninsured and privately insured. When patients do receive treatment, they face lower survival rates. Throwing more Pennsylvanians into a low-quality, high-cost insurance program punishes the poor and taxpayers.

Myth: The Ryan plan will kick folks off of Medicaid.

Truth: Medicaid enrollment and spending have ballooned, and growth must be slowed to preserve the safety net.  Medicaid has grown into a behemoth of an entitlement. Funded by both federal and state tax dollars, it is now the single largest program in Pennsylvania's budget, and consumes almost 30 cents of every dollar state government spends.  

Today, there are 2.5 jobholders for every Medicaid recipient. A decade ago, the ratio was 3.9 to one and in 1990 it was 5.2 to one.  At this rate, there will soon be more Medicaid recipients than those earning a living.

Overall, state Medicaid spending increased more than 50 percent over the past decade.  This rate of growth is unsustainable.  Without bringing Medicaid spending and enrollment under control, we threaten the solvency of the program and of our commonwealth.  We must instead look to transition individuals off of government dependency and provide a sustainable safety net.