The Medicaid Explosion

Sunday, June 19, 2005

MEDICAID, THE federal-state program that pays for health care for low-income Americans, has gotten less attention in recent years than the other giant entitlement programs, Social Security and Medicare. But with costs up more than 60 percent in the last five years and expected to exceed $320 billion this year, that is sure to change.

The single biggest health care program in the country, Medicaid now pays for health and long-term care for 53 million Americans. It finances more than one-third of all births in the United States and pays the costs of almost two-thirds of the people in nursing homes. The federal government underwrites 50 to 77 percent of the costs, depending on the income level of each state. Even so, Medicaid is the second-biggest and fastest-growing category of state spending. Rising costs already have forced states such as Tennessee and Missouri to drop tens of thousands of recipients from their rolls. And costs are expected to keep growing about 8 percent annually for the next decade.

The challenge this presents is reflected in the energy Congress is devoting to trim just $10 billion in Medicaid spending over the next five years. Cost control is a daunting task, in large part because rising costs aren't mostly due to any problem with Medicaid itself. Rather, they stem from the growing ranks of the uninsured, the aging of the U.S. population and the rising costs of health care generally -- none of which are amenable to easy fixes.

The biggest driver in rising Medicaid costs is the 40 percent increase in people enrolled in the last five years. This reflects the economic downturn and the decline in the availability and affordability of employer-sponsored health insurance. Meanwhile, Medicaid is no longer a program primarily for poor children and mothers: The elderly and disabled account for about 25 percent of beneficiaries but more than 70 percent of spending. Most significantly, because Medicare doesn't cover most long-term care and because only a sliver of Americans purchase long-term care insurance, Medicaid ends up picking up that expensive tab: The program accounts for 43 percent of all spending on long-term care.

Congress could relieve some of the pressure by updating the program's rigid rules. States that choose to extend coverage beyond those in direst poverty shouldn't be required to offer a full array of services to those significantly above the poverty level. Medicaid ought to be more flexible in letting patients who need long-term care obtain it outside expensive nursing homes. States need more power to negotiate prescription drug prices. Some better-off Medicaid recipients could fairly be asked to pay a share, though it's important to ensure that such costs don't prevent people from getting needed care, resulting in higher health care bills later.

Medicaid has evolved from a welfare program to a safety net compensating for some of the failings of the health care system. "Fixing" it can't be achieved in a vacuum or by decreeing that costs will be cut. Lawmakers are to be commended for tackling the issue, but as they do they must keep this in mind: The point isn't simply to cut Medicaid but to do it in a way that protects those in greatest need of health care and that doesn't simply shift costs elsewhere in an overburdened system.


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