Medicaid is in
trouble. Budget shortfalls and the growing number of beneficiaries
are forcing many states to reassess their Medicaid programs.
states should begin to look at ways to reform the Medicaid program
in order to better service those in need -- whether a low-income
family or individuals who are physically or mentally disabled.
Largest Health Care Program
Today, Medicaid is
the largest government health care program costing close to $259
billion, in combined federal and state spending. Medicaid spending has
increased dramatically over the past 10 years. In 1993, for
instance, the program was estimated to have spent $132 billion. As
medical technology introduces better treatments and cures, these
costs are going to continue to rise. By the year 2004, the program
is projected to reach $304 billion.
It seems clear
that a government controlled program, such as Medicaid, will be
forced to further ration the care available to these beneficiaries,
unless policymakers pursue some innovative reforms that can deliver
quality care more efficiently.
states have faced significant Medicaid funding shortfalls over past
few years, forcing most to impose cost containment measures, such
eligibility and benefits, and
Congress acted to
provide states with a one-time infusion of $10 billion to Federal
Medicaid matching funds (FMAP) to help them through their fiscal
However, this fiscal patch does little to improve the long-term
health of the program.
The cost of the
Medicaid program is partly due to the complex nature of the
program. Medicaid serves a very diverse population with diverse
needs. By far the largest populations Medicaid covers are adults
and children. They also tend to be less expensive - costing the
program an average between $1,500 and $2,000 per beneficiary. The smaller, but much
more costly populations, tend to be the elderly, blind and
disabled. This population consumes over 70 percent of the program's
In its FY 2004
budget, the Administration outlined a Medicaid "modernization"
proposal. The plan would offer states the option of combining their
Medicaid and SCHIP funds and allocating the funds into two separate
categories: acute care and long-term care. One of the key
objectives of this approach is to give states greater flexibility
in designing and implementing these programs.
Immediate Steps for States
While it appears
unlikely that fundamental reform of the Medicaid program will be
addressed this congressional session, states can take steps now to
improve the function of their Medicaid programs and better serve
the beneficiaries. By utilizing the waivers offered through the
Centers for Medicare and Medicaid, states should adopt the
support option. States should offer Medicaid beneficiaries the
option of receiving a financial contribution from Medicaid to
assist them in obtaining private health insurance. Some states are
already providing this option for certain eligible beneficiaries to
assist them in participation with their employer-sponsored plans.
Furthermore, states should consider expanding this premium support
option for individuals choosing to purchase their own coverage
outside the place of work for themselves and their families.
For those truly indigent and unable
to work, states should consider adopting the highly successful
"cash and counseling" model.
Under this model, certain disabled beneficiaries who receive home
services are able to choose and manage the services they receive.
States should consider further expanding this "consumer-directed"
approach to other Medicaid populations, including those with
Steps for Congress
Still, Members of
Congress must address the structural and functional issues facing
the Medicaid program. Similar to the fiscal problems facing
Medicare and Social Security, Medicaid is in need of fundamental
reform. A recent CBO analysis states, "As a result, spending on
Medicare, Medicaid, and Social Security will rise sharply. In the
absence of changes to federal programs, that rise could lead to
unsustainable levels of debt." Congress should
consider changes to both the financing of the program as well as
eligibility criteria and benefit structure. Transforming the
Medicaid program from a strictly defined benefit program to a more
consumer-oriented, defined contribution model will set the program
on a glide path to real reform.
A Better System
These changes, both
short-term and long-term, must complement a larger health care
vision. One that is focused on improving the quality of care by
establishing greater continuity in an individual's health care and
by empowering individual involvement in the care that's received.
Other policy initiatives, such as tax credits, personal health
accounts, and insurance reform, are also well suited to move us in
this direction. Policymakers must resist attempts to simply remain
with the status quo, but strive to transform the health care system
piece by piece.
Owcharenko is Senior Policy Analyst in the Center for
Health Policy Studies at The Heritage Foundation.