MedicaidMedicaid

Professor Vivian Ho

Health Economics

Fall 2007

TopicsTopics

Coverage and Financing Current Challenges

Restraining costs Improving health

Medicaid TrendsMedicaid Trends

1972 17,606 1975 22,007 1985 21,814 1988 22,907 1989 23,511 1990 25,2551995 36,2821998 40,0962001 45,7662003 51,971

$ 6,300 12,242 37,508

48,710 54,500

64,859 120,141 142,318 186,905 233,206

Year

# of

Recipients (m) Total Cost ($m)

Medicaid Recipients, 2003Medicaid Recipients, 2003

% of recipients

% of payments

Average payment

Kids(<21) 47.8% 17.1% $1,606

Adults 22.5% 11.5% $2,292

Age 65+ 7.8% 23.7% $13,677

Perm Disability

14.8% 43.7% $13,303

http://www.cms.hhs.gov/MedicareMedicaidStatSupp/ (2006 Edition)

Medicaid FinancingMedicaid Financing

Joint financing by federal and state governments

States w/ lowest per capita income receive larger federal subsidies CA, NY receive about 52% federal funding MS, WV receive 79.2% and 77.5% federal

funding respectively

Minimum requirements for federal matching funds: Must cover Temporary Assistance for

Needy Families (TANF) and Supplemental Security Income (SSI) beneficiaries

Must provide inpatient and outpatient hospital services, and physician services

States have wide latitude in setting eligibility and medical benefits Access and costs vary by state

Mean Medicaid fee for an office visit, new patient, 30 minutes in 2003: $54.87 (Zuckerman et al 2004)

$31.46 for established patient, 15 minutes But wide variation across states (see Exhibit 2)

Fees well below Medicare fees in many states

State VariationsState Variations

Do differences in the Medicaid program across states make a difference?

See Zuckerman et al, Table 4

State VariationsState Variations

SCHIPSCHIP State Children’s Health Insurance Program

Part of 1997 BBA Gave federal funding to states to reduce # of

uninsured children States have considerable latitude in programs

Expand Medicaid Develop separate children’s health insurance program Both

SCHIP enrollment 3.9m in Dec 2004 Income eligibility levels vary from 300% of federal

poverty level in Connecticut, to 133% in Wyoming

Medicaid & the Nursing Home MarketMedicaid & the Nursing Home Market Individuals who meet certain low-

income and disability requirements qualify for nursing home care covered by Medicaid

Medicaid reimburses nursing homes on a fixed price basis (e.g. price per day)

Medicaid & the Nursing Home MarketMedicaid & the Nursing Home Market How can the Medicaid program set

prices in order to insure adequate access, but also restrain costs?

Keep in mind that nursing homes can choose to serve private pay or Medicaid patients

Medicaid & the Nursing Home MarketMedicaid & the Nursing Home Market We assume that most nursing homes

have a local monopoly i.e. Most nursing homes face a downward

sloping demand curve

A nursing home with monopoly power which serves only private-pay patients will set price where MR=MC

Medicaid & Nursing HomesMedicaid & Nursing Homes

$

NH patient days

ATC

MC

DemandMR

Q0

P0

Medicaid & the Nursing Home MarketMedicaid & the Nursing Home Market Now, assume instead that there are no

private patients, and the gov’t must set a reimbursement level for care provided to Medicaid patients

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

Medicaid & Nursing HomesMedicaid & Nursing Homes

$

NH patient days

ATC

MC

DemandMR

Q3

PMMRM

Medicaid & the Nursing Home MarketMedicaid & the Nursing Home Market Now, consider the graph when a

nursing home can serve private pay patients and/or Medicaid patients

The demand curve for private pay patients indicates that some are willing to pay more than PM for nursing home care

Medicaid & Nursing HomesMedicaid & Nursing Homes

$

NH patient days

ATC

MC

DemandMR

Q3

PMMRM

The nursing home will now view its MR curve as the line ABMRM

A

B

Medicaid & the Nursing Home MarketMedicaid & the Nursing Home Market 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

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

Medicaid & Nursing HomesMedicaid & Nursing Homes

$

NH patient days

ATC

MC

DemandMR

Q3

PMMRM

The nursing home will care for Q1 private pay patients and Q3-Q1 Medicaid patients.

A

B

Q1

P0

Medicaid & the Nursing Home MarketMedicaid & the Nursing Home Market Policy challenge: Medicaid can increase

access to nursing homes by raising PM

However, raising the reimbursement rate will lead to higher expenditures

Some patients who might have been willing to pay out-of-pocket without Medicaid now may get Medicaid coverage Gov’t attempts to subsidize care for low-

income individuals can lead to “crowd-out” of private care

Does Medicaid “work?”Does Medicaid “work?”

In late 1980’s, income ceilings for Medicaid coverage were raised Pregnancy care for women with incomes

<133% of poverty Children <6 covered if family income

<133% of poverty Children <9 covered if family income

<100% of poverty

Did health insurance coverage for the poor increase, or did it “crowd out” private insurance? Some low income people may have

dropped private insurance to go on Medicaid

Did health status among the poor improve?

1987-1992: Medicaid coverage of children rose (15%21%), but private insurance coverage fell (77%69%) But private insurance may have fallen for

other reasons (e.g. 1990-91 recession)

States could increase eligibility beyond federal minimums

Compare increases in Medicaid coverage and falls in private insurance across states

ResultsResults

The Medicaid expansion increased coverage for 1.5 million children But decreased private insurance by .6 million Similar results for women of childbearing age

The expansions lowered infant mortality by 8.5%; child mortality by 5.1% Cost per life saved: $1-1.6m

Was the expansion worth it?Was the expansion worth it?

Should Medicaid be “better targeted?” In 2002, Medicaid surpassed Medicare as

nation’s largest health insurance program

Could we have gotten the same result cheaper?

Current challenges to MedicaidCurrent challenges to Medicaid

Rising Medicaid costs have strained state budgets during recessions Problematic, because most state

governments required by law to balance their budgets

Many states have made Medicaid program changes

1) Modest reductions in funding Lower physician, nursing home reimbursement

rates Limits on prescription drug use Noncoverage of optical, dental care

2) Expansion of Medicaid managed care

3) Cost shifting to the federal government States shifting all state-run health programs

into Medicaid, in order to receive matching funds

Medicaid and Managed CareMedicaid and Managed Care

States vary widely in financing and delivery arrangements for managed care plans Low-intensity: primary care case

management (PCCM) Gatekeeper bears no risk for cost overruns

High-intensity: mandatory enrollment in fully capitated plans

Impact of Medicaid managed careImpact of Medicaid managed care

Medicaid managed care grew rapidly in mid 1990s due to attractive business opportunities “Foot in the door” for providing state employee

health care coverage Insurers didn’t have to pay commercial rates to

providers, could also transfer risk HMO industry was making high profits at this

time

Impact of Medicaid managed careImpact of Medicaid managed care

In early 2000’s, HMO profits disappeared Mirrors problems w/ health care costs in private

sector and Medicare Still have 2-fold variation in capitation rates

across states Difficult to monitor quality

TennCare had significant differences in LBW babies and death in 1st 60 days across its Medicaid managed care programs

Future challenges to MedicaidFuture challenges to Medicaid

HMOs have enrolled AFDC beneficiaries, but not the higher cost elderly, or chronically disabled High-cost populations may require carve-

out programs

Eligibility, Marketing, and Enrollment

Intermittent eligibility as enrollees cycle in and out of welfare

High turnover forces HMOs to market aggressively, to maintain revenues (costs up to 1 month’s capitation per member)

Traditional providers may not be able to compete with commercial HMOs Community health centers, urban hospital

outpatient programs, indigenous community-based physicians have provided much care to Medicaid beneficiaries

Subsidized in past due to high level of uncompensated care

If forced to close, creates access problems for persons w/o coverage

Wrap-upWrap-up

Funding the Medicaid program provides health benefits, but sometimes at significant costs

Future decisions on Medicaid should be made within the context of wider welfare reform