Business: Medicaid

Washington Post business columnist Steven Pearlstein was online to discuss Medicaid spending. In today's column , he writes that Democrats have decided to go for a tactical victory rather than the long-range strategic advantage that might actually return them to power.

A transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

His column archive is online here .

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washingtonpost.com: With Medicaid, Democrats Shirk Chance for Real Progress (November 16, 2005)

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Washington, D.C.: I am fundamentally opposed to the means-testing philosophy. Perhaps there is a sensible and fair pragmatic application, but the means-testing philosophy is not simply a way to separate the haves from the have nots. The philosophy punishes the ants and rewards the grasshoppers. Society should encourage and reward those retirees who sacrificed/saved/invested during their youth so they can have assets/income in their golden years. "Do I buy a brand new car when I'm 30 years old (which will perversely help me in a future means-test)? Or should I sacrifice and buy a used car/take public transportation in order to save some money for my retirement (which is the often the right thing to do, but it counts against me in a future means-test)?" Thoughts?

Steven Pearlstein: I'm not sure I understand your argument. We have a Medicaid system now that is essentially free (fully subsidized) but you have to have income below the poverty line in most states to qualify (children are a bit different). I suggest you expend the program so that other people can buy into the program, with the cost to them varying according to income (means testing). The reason: the private market is unable to provide affordable insurance to lots of working people who require it, either temporarily or permanently. The market for insurance is not like the market for cars, for all sorts of reasons. There is a market failure well recognized by economists. That's why intervention may be necessary, if you could do so in a way that doesn't bankrupt the country or distort the market that now exists.

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Washington, D.C.: Speaking strictly as an economist, is Medicare worth the cost over the long-run? Is Medicare a trickle-down program (funds dispersed from centralized governments down through specific segments of the economy)?

Steven Pearlstein: I'm not an economist, but I'd say the public has reached a conclusion about Medicare: Its worth it. It works very well, actually, although if spending under Medicare continues as it has, we won't be able to pay for it from existing revenue sources, and in the larger sense, we may not be able to afford it. Need to get that cost growth under control through managed care and cost sharing for those upper income elderly who can afford it. Means testing again.

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Northern Virginia: I'm not against the purpose Medicaid was created, but what really makes me believe that the program should be overhauled is the waste, mismanagement, and corruption that happens in the program. People who don't qualify for the program are accepted, there is little agency oversight to verify the income variations of its recipients, and even people with no identification (US citizens or not) receive benefits for years. I know this because I've seen this personally.

Steven Pearlstein: I think you have really overstated things here. What evidence do you have of rampant, endemic mismanagement and corruption?

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Washington, DC: I think your article today was an excellent example of Democrats putting politics over common sense. Other than Dems who face tight elections in 06, is there anyone else in the party speaking sensibly about this issue?

washingtonpost.com: With Medicaid, Democrats Shirk Chance for Real Progress

Steven Pearlstein: People speak sensibly all the time. But when it comes to the crunches, Democratic leaders and members of Congress revert to what they know, which is demagoging an issue successfully and putting the Republicans back on their heels and blocking some change in the status quo. The basic message is: you voters made a mistake, these are mean and vicious people you put into office, just return us to power and we'll put everything back the way it was, which was really good. And you know, that's not just very good politics or very good policy. You don't win election by trying to convince the voters they were wrong. And with the world changing as it is, just returning everything to the Clinton status quo isn't going to cut it. To win, Dems can't just score political points by tellnig us what they're against. They have to offer vision of a much better future that justifies people doing things like giving up tax cuts.

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Washington, DC: Today's column grossly underestimates the effects of even small cost-sharing proposals for Medicaid beneficiaries. The experience of states that were given waivers to implement such proposals shows they led to restricted access for the poorest beneficiaries and increased use of emergency room care, the least cost-effective outcome possible. A few dollars extra for every doctor visit may not seem like much to you, but it can be a great burden to poor families.

Steven Pearlstein: I've looked at some of the studies and I'm not totally convinced of that. First, most states are smart enough not to get into cost sharing with very poor people, where these impacts have been shown to be the greatest. Second, alot of the literature assumes that the level of utilization now is the benchmark for what is good, and any less utilization is bad. I don't assume that, and there is plenty of literature to back up that belief. Third, people learn and adapt, even poor people, and over time I suspect they can learn to make the same tradeoffs that the rest of us do if they have to chose between a doctors visit or prescription that might really have a positive impact on their health and a small discretionary purchase, which even poor people make.

You know, all this reminds me of the sky is falling rhetoric we heard before welfare reform, when liberal Democrats excoriated Clinton and conjured up visions of millions of poor people left out on the street, destitute. Yes, some people are worse off after reform, but a lot more people are managing a transition to work in a way that is finally breaking the culture of dependency that Democratic liberals did so much to protect and preserve for years after the rest of the world could see that it wasn't working.

So I would say as to cost-sharing, within reason, the incentives that it sets up for rich people can be made to work for the working poor as well, in a way that isn't patronizing and begins to introduce the idea that these are services they are paying in much the same way everyone else does. It may take some tinkering and experimentation to get the structure of the cost sharing right. And it obviously has to be adjusted to the amount of disposable income available after paying for food, shelter, clothing. But I don't find it morally or economically offensive to say even the working poor can afford to contribute 4 percent of their income, in years when they have a lot of utilization, to the cost of a health insurance plan more comprehensive than most people have. That simply doesn't strike me as excessive. And if their response to such a program is to drop out of it, then that raises some questions, doesn't it, about the value of this program to them.

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No question....: Just want to say thanks for bringing this up -- you're absolutely right and it's my number one peeve about the Democrats. And they keep whining about the lack of good positive ideas that they can campaign on. AND they think that when Americans are less uptight about national security, they'll win on the 'kitchen table' issues. This kind of stance is why they won't.

Steven Pearlstein: Thanks for that.

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Denver: With the largest drain on medicaid/medicare being long-term care, why doesn't the government go after long term care providers (specifically Hospices) who defraud? More over, why won't the gov allow the terminally ill to decide when to die? Forcing someone to live with the pain and loss of dignity that they and their families would rather avoid, not to mention the financial savings, death with dignity allows for?

Steven Pearlstein: I'm not sure I have much to ad about the terminally ill. But you are right to focus on the financial drain of long term care on the Medicaid system. I didn't have room in the column this morning to point out what is obvious to everyone involved in Medicaid today: long term care for the elderly needs to be moved to Medicare and dealt with there somehow. There are no easy solutions, it will need to involve people paying more when they are younger, either in higher Medicare taxes or purchase of long term care insurance. But it doesn't belong in Medicaid.

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Upper Darby, Pa. According to a Paul Krugman article on Nov. 14, about 5% of Americans incurred almost half of U.S. medical costs. My daughter has been seriously ill for 22 of her 24 years and is on Medicaid. In a "cost containment" mode, my private insurer routinely denies claims for even the most essential items. When we approach Medicaid, they automatically say, "First apply to your primary and then come to us." Medicaid then fills the need. I presently have a situation where an appeal to the private carrier was denied and also have substantial evidence that it was never even read. Medicaid will pick up the expense. Private health insurers "cherry pick" the profitable clients and foist the rest off onto Medicaid. It is yet another subsidy for the very profitable private health insurance industry.

Steven Pearlstein: Let's be clear about one thing: severely disabled people have the highest call on the resources of society, particularly when it comes to their health needs. Whether that should be under Medicare or Medicaid is debatable. But that one should be fully subsidized.

That said, the care needs to be better managed than it has been in the past, by a single entity (insurer)not only to insure high quality of service, but to avoid unnecessary spending.

At the same time, we need to think hard about what a disability is. Part of the growth in Medicaid sspending has been the growth in the percentage of the population that is classified as disabled, which may be the result of conditions being classified as disabled that are not so disasbling as severe mental retardation, say, or Downe syndrone. I'm not sure Medicaid has figured out how to deal with the variations in the degree of disability. It looks from the outside like a fairly binary thing -- eitehr you're disabled or you aren't-- and if you are, the benefits are the same for everyone. Not sure that makes sense any longer.

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Alexandria, VA: On the program issues re: Medicaid, you are quite correct. On the political issues re: the Democrat's position, you are dead wrong. You fault the Dems for opposing entitlement reform (i.e., cutbacks) while the Republicans continue to push for tax cuts. This is nonsense: why should Democrats unilaterally disarm, so to speak, and give up their key issue regarding overall Federal spending priorities? When Republicans take tax cuts off the table, then Democrats can talk about cutting "their programs," but not a second sooner.

Steven Pearlstein: I love this unilateral disarmament argument, which we hear all the time from Democrats. Whose talking about disarming? I'm talking about wheeling and dealing, trading away opposition to things you don't like to get even bigger and more important things that you do like. Of course you don't agree to the medicaid changes without getting anything forl them. But if there is an opportunity to get the first step toward a fundamental rethinking and expansion of the program to cover the uninsured, that would be good politics as well as good policy. And yes, some tradeoffs will be involved.

And let me say your answer is disingenuous. If Republicans took the tax cut off the table, you would still not get the Democrats or their friends in the advacy groups to agree to these changes. Zero chance of that, and you know it.

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Washington, DC: Steve,

You propose a means-tested system for all Americans as an alternative to Medicaid. How would the system work? What would happen with Medicare? Would you propose to include Americans of all income brackets or just low-income and middle-income Americans?

Steven Pearlstein: The general proposition is that Medicaid would be expanded to offer basic health insurance coverage to anyone who wanted to purchase it, with the price set according to people's income. At some point (rough guess: 300 percent of poverty) the cost would involve no public subsidy at all. Below that, the level of subsidy would go from 1 percent of actuarial cost to 100 percent for those who are really poor. This would obviously be more expensive than the current Medicaid system, there would be some off-setting savings in terms of reduction in uncompensated care for those currently uninsured. And there would need to be some increases in taxes (or cancelling of evil tax cuts) to pay for it. And that's what I mean by tradeoffs. Cancelling the Bush tax cuts may appeal to class warriors, but it doesn't do much for most voters. Cancelling the Bush tax cuts to get some assurance that you will be able to purchase an affordable health plan with a fair range of benefits -- now that's something lots of people can get excited about.

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Albany, New York: You've got the right answer, but an incomplete set of culprits--Medicaid has lots of bipartisan defenders, especially among the governors, and the reason is the same-- States, including those governed by Republicans, have done all kinds of fancy financial maneuvering to turn Medicaid into revenue sharing, and the program makes payments to providers beloved of all politicians--hospitals, nursing homes, and the like---Medicaid's a health care program, but it's also an economic development program that supports a lot of jobs in both Republican and Democratic districts--Get out of Washington and check out a few state capitals--this one (Albany) would be a good place to start

Steven Pearlstein: Fair point. And that should be part of the deal: governors stop playing accounting games with the program, in exchange for getting help in expanding coverage to more of their citizens, which is very good politics.

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Washington, DC: The House version of Medicaid Reform seems to miss so many opportunities...for example, are you aware that the co-pay requirements - which as you point out can be effective in making patients more aware of what they are spending on medication - are not enforced? Meaning states simply tell patients they don't have to pay them. Wouldn't making these enforceable by law make sense?

Steven Pearlstein: Among policy wonks who know this issue (and I'm not one of them), this issue of enforceability if very contentious. If you don't enforce, people will figure that out quickly and not pay, knowing there will be no penalty. If you do, there are instances when you could really wind up hurting people's health. Frankly, I don't know what to think on this other than states have to experiment with lots of different approaches until a best practice emerges that makes the best tradeoff. In the end, however, no system will be perfect, and if you strive for a system that reduces to zero the number of people who suffer serious health consequences because of enforcement, you will have gone too far.

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Midwest: I'm sure that there is a good deal of fraud in the Medicaid program, but I just want to say you have to be very poor to qualify. My children are on Medicaid after we lost our company, went through our entire savings, and are starting all over again. But because we have a (paid-for) car that is worth maybe $10,000, and we have invested money in IRAs in the fat years, we don't qualify. I don't think we should, I'm not arguing that. But the adults who qualify for Medicaid are very, very poor.

Steven Pearlstein: That is right. And your case is precisely the one that needs to be addressed, not just for people who are now in the situation you are in, but for people who suspect they may be in that situation at some point in their lives and are anxious about that.

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Washington, DC: Have you examined the method in the House Medicaid Reform proposal for reimbursing pharmacies? Each time a pharmacist dispenses a generic drug, Medicaid saves money. The average Medicaid per prescription is $122 for patented brand name drugs, but only $20 for generics. However, a payment model based on RAMP could create incentives for pharmacies to dispense brands, not generics.

If the average RAMP for a brand is $100, under the proposed model, which pays pharmacies AMP plus 6%, the value of the reimbursement is $6. If the average AMP for a generic is $7, and the generic reimbursement is AMP plus 20%, the reimbursement for generics will be $1.40. The system creates incentives to dispense brands, not generics.

Steven Pearlstein: That's seems to be right. As a general rule, the system has squeezed pharmacists too much, and the drug companies too little. The Senate approach to this is superior, I am told.

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Bowie, Md: I'm not sure you answered the first question fully. I think the person was saying that poor seniors shouldn't be rewarded with free health care because many probably wasted their money in their early years on buying cars and such. The basis of the question (from how I read it) is the same with financial aid and other government programs that those people who save get screwed by not getting benefits later.

Steven Pearlstein: There is moral hazard risks with any government safety net program. That's inevitable. Its best to structure programs to minimize that moral hazard, but you'll never eliminate it completely. On the other hand, most Americans would find having no safety net morally unacceptable. We don't let people die in the streets, even if they spent all their money on drugs and booze and sex.

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Washington, DC: Your means-testing Medicaid idea is interesting. It is a similar concept that Gov. Blagojevich of IL proposed for expanding coverage to children. He signed the legislation yesterday. Any thoughts on what IL is doing?

Steven Pearlstein: Not that familiar with it. Lots of states are moving in this direction, which is why they want the flexibility to make the tradeoffs that the Democrats and liberal interest groups find so morally offensive. There are probably exceptions, but by and large the governors are not seeking this flexibility to they can cut their overall efforts to provide health care. They want the flexibility to redistribute the health services a bit and get more bang for their bucks. I don't find that unreasonable. In fact, its admireable, and Democrats should find a way to make common cause with the governors against the radical right, not drive the governors into the other camp. Governors are a good proxy for the pragmatic center of American politics. Just ask my colleague David Broder here at the Post, who spends lots of time with them.

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Woodbury, MN: You suggested that Northern Virginia overstated the case re fraud and abuse. In fact, it is out of control in the MA recipient area.

I recently retired from MN DHS, having managed their program integrity efforts. ALL other programs had 10% (actual)fraud rates and effective overpayment collection programs.

Health Care has established error rates (Multiple audits, including a state legislative audit) of about 24%. 40,000 income hits a year are essentially ignored. There is no recipient fraud program, nor overpayment or collection program. This is all factual and on the public record. It has been a key factor in running base costs off the charts.

No Effort! No Concern? WHY NOT?

Steven Pearlstein: If what you say is true (I have no reason to believe it is or it isn't), then that sounds like something the feds ought to jump on right away.

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Steven Pearlstein: Thanks, folks. See you next week.

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