Recently, the federal government has been recording budget deficits that are the largest as a share of the economy since 1945. The revenues that are coming in are way out of whack with spending. Federal revenues as a percent of GDP are the lowest they have been in 60 years, and spending is the highest.
Add in the demographic situation and the long term U.S. budget outlook is even more alarming. The retirement of the baby-boom generation portends a sustained increase in the share of the population drawing on Social Security, Medicare, and Medicaid. And health care costs, especially those paid through private insurance coverage, continue to rise faster than general inflation. All the while the political system has been unwilling to meet the increased demand for services and failed to provide an additional supply of revenue from even from the wealthiest Americans.
The consensus is that demographic factors present an unsustainable future unless there are significant changes in government policies. However, the recent debt limit debacle proves the difficulty of finding any route to rational political agreement. Eventually it does seem likely that demographic realities will prevail over protests and sweeping changes will occur in our government funded benefit programs – Medicare, Medicaid, Social Security, and Veterans. Even AARP has dropped its longstanding opposition to cutting Social Security benefits.
Medicaid changes are being pursued by many states
In the states the toxic combination of demographic trends and an ideological refusal to raise taxes is putting a tremendous strain on budgets. In April, the Government Accountability Office (GAO) estimated that in order to meet requirements to balance their budgets, state and local governments would have to cut expenditures (or raise taxes) by 12.5 percent a year -- every year going forward.
The benefit program that is most open to state financial retrenchment is Medicaid, because it is partly funded from state sources. Medicaid, our ultimate safety net for low income people who cannot afford health care, seems increasing likely to be a focus of state action.
The stakes are huge. Currently, there are more than 2 million Pennsylvania enrollees (50 million nationwide) most of whom are seniors, the disabled, and children. Nationally, the federal government is expected to spend $275 billion on Medicaid in 2011, with states contributing somewhat less. Pennsylvania’s Medicaid program cost in excess of $17 billion dollars in 2009.
This past week, Ezra Klein’s blog in the Washington Post had an interesting article about state initiated changes to the Medicaid Program: Think Medicaid is safe? Think again (August 5, 2011). The author, Sarah Kliff, notes that while the debt ceiling agreement protects Medicaid from across-the-board cuts in the trigger deal, a “federal exemption, however, is only half the story. States, who also foot a big chunk of the Medicaid bill, also shape the program. Looking at crunched budgets, states are weighing some big changes to their Medicaid programs that could vastly reshape the program’s financing.”
States are looking at different approaches
Klein’s blog post points out that states are considering a number of strategies to reduce Medicaid expenditures. In Utah, the state is seeking to modify its system to look like more like the Accountable Care Organizations that are being set up under the Health Reform law. “The state wants to tether its per-person Medicaid spending to growth in the general revenue fund. So if state funds grow slowly, or if they drop, so does the budget for the entitlement program. If the money doesn’t cover the bill, Utah would create a list of benefits that they’d start cutting, from the bottom up.”
In Florida the proposal is to move Medicaid patients, starting with long term care recipients, into private, managed-care plans. In California, liberal governor Jerry Brown has proposed cutting Medicaid payments to providers by 10 percent. Texas and Washington State are putting together applications for block grant Medicaid funding.
According to the Wall Street Journal, New Jersey is preparing a request for a new waiver that would close its Medicaid program to new adult participants who have an annual income of 25% to 29% of the poverty rate (a parent with two children would be ineligible if the annual household income was more than $5,375 – down from the current limit of 133% of the poverty rate, or household income of about $24,700).
In Pennsylvania, Governor Corbett and Public Welfare Secretary Alexander appear to be taking their time and considering the options. (Before coming to Pennsylvania this year, Mr. Alexander was the administrator in charge of the Rhode Island Global Waiver).
The Governor and Secretary's initial foray in Medicaid cost reduction is focused on reducing fraud and abuse. But this seems unlikely to produce the magnitude of Medicaid expenditure reduction they desire. We can expect that more drastic proposals to re-model Pennsylvania Medicaid will emerge in the near future as part of the trend that seems to be sweeping across the country.