No Longer Welfare? Minnesota Governor Opens Door to Expansion of Government-Financed Health Care.
Tim Pawlenty can know which way the wind is blowing as well as any politician. But are his policy solutions any better for the trouble?

Minnesota's governor once called the state's generous public healthcare programs (which go above and beyond Medicaid) "welfare." And that wasn't meant as a compliment.

Now he's all for it, apparently, calling for "universal coverage" through using the state's (sure to be temporary) budget surplus.

Powerlineblog says "Among the cynical adages that explain a lot about democratic politics is this one: 'Vote for your enemy -- he has no one to sell out to but you.' It's an adage that seems to apply more reliably to Republicans than to Democrats. In any event, however, our own Governor Tim Pawlenty is in the process of providing a case study in the merits of the adage."

This continues his history of tacking towards government manipulation of the economy, including his "Boston Tea Party" talk about prescription drug companies (2003); encouragement of violating U.S. law on importing prescription drugs and bringing price controls to the world's last important base of pharmaceutical discovery;(2004); get state government into the business of gambling (2004); and a ridiculous-on-its-face attempt to call a tax something other than a tax (2005); favoring the taxation of working stiffs for the bread and circuses of high-priced baseball (2005); and flip-flop on light rail, an ain't-that-cool feature that does little to ease traffic congestion.

Maybe the governor meant it the first time when he said "the era of small government is over," the protestation of his campaign manager.

Now only does Pawlenty call for "universal coverage"--which invariably leads to the visible foot of government stomping on commerce, if not outright government run programs--but he continues the assault on pharmaceutical advertising. I don't like commercials more than anyone else, but advertising is part and parcel of any market. Instead, the governor says that advertising will "create consumer-driven appetites for prescription medicines that do not yield wise decisions." Further, he calls for Congress to "negotiate" drug prices--a populist theme that is another step towards price control and stagnation.

Wise in whose eyes, governor?

Pawlenty is correct in his assessment that the world of American health care policy is sick. But his solution, which includes further restricting the role that consumers play in their own health care, is by nature going to blow up. Here's the final paragraph from a Star-Tribune article on Gov. Pawlenty's rush to embrace another chapter of active government:

"He also warned that the greatest challenge of establishing universal health coverage will be managing 'a modest and affordable benefit set' in a political environment."

"Modest and affordable" government programs? In Minnesota?

You may wipe off your keyboard now.

Note: Pawlenty isn't entirely wrong--there needs to be price transparency, and medical records are archaic--but the origins of these complaints lies with problems that will be exacerbated, not fixed, with increasing the state's role in health care.

Labels: Medicaid

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Forcing Granny Out of Her Nursing Home?
The WSJ (link for subscribers) reports that the Centers for Medicare and Medicaid Services, is encouraging states to get nursing home patients to go ... back home.

One reason for the move is the thought is that most people would prefer to be treated at home than in an institution. No doubt that's true. The other reason is that it's usually cheaper to treat someone at home. This is true as well, but from the numbers I saw (about a year ago) while part of a long-term care committee, the costs are still substantial. In other words, home care does give financial savings, but the costs are still substantial. If the state takes the per-person savings and adds more beneficiaries to Medicaid, the result is no lessening in overall demand.

Federal aid will come in two parts. The first is $1.75 billion in one-time grants to help states move people out of institutions. The second part will be ongoing, in the form of a higher matching rate for state funds spent on home care.

Labels: Medicaid

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Get Your Medicaid Information Here.
You think Social Security is a problem? Wait until you look at Medicare and Medicaid!

The National Center for Policy Analysis has opened the Medicaid Reform Service Center. it should be useful for lawmaker and citizen alike.

Labels: Medicaid

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LTC Insurance: A Modest Beginning.
Taxes, and tax credits, provide incentives. But how much incentive is enough?

If you read far into the literature on state finances, or health care, you'll find that the need for long-term care threatens to crowd out every other priority for government spending. Simply put, long-term care is expensive (running well over $50,000 a year for some services). The aging of the population means that more demand for long-term care (including but not limited to nursing homes) is going to rise, and the bulk of LTC spending is paid for by governments.

One way to avoid the budget disaster is for policy makers to do what they can to encourage the purchase of long-term care insurance. Various laws and policies (including a nursing home entitlement) mitigate against that. With premiums for such insurance amounting to thousands of dollars per year (perhaps per month--it's been a while since I have looked at the numbers) and a small industry of lawyers (who can help middle-class people eligible for Medicaid), it's little wonder that the LTC insurance market is stunted.

Offering a tax credit for long-term insurance could, in this light, be a useful means to shift some of the demand for LTC care payments out of the public sector.

Minnesota offers such a tax credit. But it's limited to $100 a year per individual.

That's not much of an incentive, is it?

Labels: Health care, Medicaid

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Social Programs Slashed? Not Quite.
USA Today has done a review of federal social spending, and finds that the time period of 2000 through 2005 has seen "the largest five-year expansion of the federal safety net since the Great Society created programs such as Medicare and Medicaid in the 1960s."

Why, how, and whether this is good are all questions for another time. But it certainly shows that social spending has not suffered under a nominally conservative government in Washington.

Meanwhile, states will need to find ways to impose some fiscal discipline on Medicaid. (Medicare is a national government program; Medicaid is actually 54 different programs run by the states. Washington DC kicks in some money and sets a floor upon which states can and do add more benefits and enrollees.)

Labels: Medicaid

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Something is Very Wrong Here ...
Children abandoned to the state they get institutional care?

From the Wichita Eagle:

Cutoff puts paying for high-needs kids on state
BY STEVE PAINTER
Eagle Topeka bureau

TOPEKA - Four years ago, Terry and Boyd Perry made one of the toughest decisions parents can make.

Unable to afford the care their autistic son, Eric, needed, they gave up custody to the state so that Medicaid -- a federal and state program that provides health care for low-income residents -- would cover his treatment.

The article then describes a federal-versus-state debate over which set of taxpayers will pay. Right now, the federal Centers for Medicare and Medicaid Services pays a residential facility $121.50 per patient per day. The boy's parents "pay [the state] $600 a month in child support to help cover his expenses."

Labels: Medicaid

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Dull But Serious
Medicaid versus Medicare: do you know the difference?

Both are facing dismal fiscal futures. And while the federal government is involved in both, states have little to do with Medicare, and much to do with Medicaid. An article in today's Wall Street Journal (link for subscribers) lays out the scene:

With Medicaid costs now consuming about 17% of state general-fund budgets, and rising at more than twice the rate of inflation, state governments are scouring the health program for savings to protect their bottom lines.


To date, efforts to bring about cost control have consisted of cutting enrollment, and cutting payments to health care providers. The first route has some merit, as increasing enrollment through liberal entitlement guidelines can squeeze out the demand for private sector insurance, leading to an increased demand for government payments. The second route, cutting payments to providers, makes those on the dole rather unattractive customers--not exactly a way to promote public health.

The WSJ article mentions the goings-on in Missouri, which has made it more difficult for people to qualify for Medicaid. It used to be that a 3 person family had to have a household income of no more than $12,067 to qualify. Now the number is $3,504. Such moves have been, and will be, politically unsustainable. Even most ardent advocates of small government would be appalled at such a move. The problem with Medicaid goes far beyond households with $13,000 incomes getting benefits. The whole logic of third-party control, evidenced not only in Medicaid but in corporate America, needs to change.

Even if you've never taken a dime of Medicaid money in your life, the fiscal challenges of the program (or rather, programs: each state does it differently) will affect you. Your level of taxes and what other programs are funded are affected by Medicaid. In addition, changes in the operation of Medicaid can ripple throughout the economy. The ideas being floated in a few states to use vouchers could further accelerate a move towards consumer-directed health care. The net result will be good: why should you lose or change your insurance when you move to a new job?

The largest problem with Medicaid is the fact that is has become an accepted case of middle-class welfare for people who need long-term care.

"Changes aimed at low-income individuals may not deal with the biggest driver of Medicaid costs: long-term care for a relatively small number of elderly and disabled beneficiaries. About 4% of Medicaid recipients account for half the program's expenditures, according to the Kaiser Family Foundation."


With the enormous cohort known as the baby boom entering the years of retirement and increased needs for care, the problem is going to get worse before it gets better.

Labels: Health care, Medicaid

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Retirement and Health Care Plans: At a Tipping Point Towards Individual Control?
The era of Big Employer and Big Daddy is coming to an end--or perhaps just ramping up.

Unless you are living in a cardboard box, you probably have some combination of the following: homeowners insurance, renters insurance, and auto insurance. And you most likely bought them in the private market, on your own, and not through a government program or an employer. Having such insurance is either can, in addition to being good financial sense, be a requirement of a third party in the private sector (the company, if any, that holds the loan on your house or car.) Government gets involved when you wish to drive that car on public roads, when it requires auto insurance. But it does not tell you where to buy that insurance, or (beyond what is usually a minimal amount) how much to buy.

If you have children, minor children, you may be stashing away some money for their college education--again, probably not through your employer, though perhaps through a voluntarily entered-into government program known as a 529 plan.

What do auto insurance, homeowners insurance, and saving for college have in common? Planning for possible expenses incurred in the future, which is for the most part undertaken by the individual.

Now think about the two fiscal timebombs that threaten the economy: retirement savings and health care.

Here we have the heavy involvement of government and private sector third parties. Call the first the Big Daddy approach, and the other the Big Employer approach.

In retirement planning, each worker must surrender one dollar out of 7 to a government-designed, managed, and run program that will run out of money within a decade or so. In health care, Medicare (old people) and Medicaid (poor and perhaps not so old people) threaten federal and state budgets.

One theme common to these programs, and problems: individual citizens have no say in what goes on. Your social security "account" is not your property, and its "tax Peter to cut a check to Paul's grandmother" model robs citizens of thousands of dollars that would come from true investment accounts. In health care, why should anyone in a government program be a smart consumer of health care? It isn't there money, after all. And without having control over the power of the purse, they often get poor quality. (Ask your doctor: would he prefer to be a Medicaid patient?)

But it isn't only government that separates people from responsibility, power, and potential rewards of individual planning for the future. World War II-era compensation policy works the same way. If government is

Because government can't "go broke" in the same way that corporations can and do, the unsustainable nature of the Bigs will cause changes in Big Employer long before it brings changes in Big Daddy.

Companies have already started dumping traditional pension plans ("defined benefit") in which the risk and rewards of planning for retirement rest with the employer. In "defined contribution" plans, such as 401(k)s, people choose how much of their compensation goes into retirement funding, and how that money will be invested--far different from defined benefit.

More recently, but still in its early stage, is a move towards consumer-directed health care. In the purest form of consumer-directed care (not in place in many places if at all), companies give the cash value of insurance to employees and say "Good luck, boys. Go find your own insurance." There are several obstacles in that path, including the federal tax code and government regulations of insurance plans.

All this comes to mind as I watch the changes afflicting this country's Big Employers from the World War II. "Organization Man" has long since left the psyche of the American worker, and his compensation policy--someone else plans for retirement and health care as well--is changing as well.

Thanks to the problem of moral hazard, employers are dumping pension obligations on you and me, federal taxpayers, in the form of the Pension Benefit Guarantee Corporation, through the bankruptcy code. And corporate health care plans, in which employees have little stake, are being scaled back.

Simply put, government and corporate policy have for a long time fostered a corporate cost structure (and government cost structure) that cannot be sustained any longer.

Steel companies got out of this structure through the bankruptcy court. Airlines are going through it now. Many people speculate that the "Big 3" (now Big 2) auto makers will go next. (Contracts between the UAW and GM, Ford, and Chrysler have long been the exemplar of Big Employer benefits.)

The Wall Street Journal has a fine article on the subject today (link for subscribers).

Excerpts:
A larger number of companies are closing pension plans to new hires or to younger workers, including Motorola Inc., Lockheed Martin Corp., Hewlett-Packard Co., Aon Corp. and NCR Corp. Many have, at the same time, expanded defined-contribution retirement plans, such as 401(k) plans. In such plans, employees themselves contribute to retirement investment pools -- often supplemented by employer contributions -- and elect how to invest these savings. Employees, not employers, bear the risk of inflation, sour markets or outliving their savings. Total assets in private-sector defined-contribution plans first exceeded those of defined-benefit plans in 1997.

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When they were very profitable, companies with stable, often unionized, work forces promised pensions. When markets turned, it became clear that some hadn't set aside enough money to fulfill those promises.


Detroit got away with this practice for years because of the near-lock that an oligopolistic industry had on the U.S. market. But the manufacture of automobiles is no something that the U.S. has an overwhelming advantage in, and consumers enjoy having the choices and quality available elsewhere.

The adjustments will be brutal.

Meanwhile, GM Chairman Rick Wagoner hints at an endorsement of socialized medicine, suggesting that Toyota and such have an advantage because they don't have to pay for health insurance. But this is self-serving verbiage. It's not just the Big 2 that compete against companies based in countries where the taxpayers as a whole assume the burden of health care for their employees. But the Big 2 were part of a small portion of U.S. companies that pursued an unsustainable labor policy for decades on end. (The Journal article makes no mention of this point, and gives great credence to Wagoner's remarks.)

Meanwhile, the U.S. Congress is set to make things worse when it comes to retirement, by increasing the moral hazard:

"Congress currently is contemplating contentious legislation to force some companies, particularly financially weak ones, to put more money aside for defined-benefit pensions and to pay more to support the PBGC."

Labels: Health care, Medicaid, Pensions

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A Dent in Middle-Class Entitlements.
For a look at how government programs can be a moral hazard and crowd out private initiative, look no further than nursing home financing.

Medicaid is perhaps best known as the program for "welfare families," single or divorced mothers of small children. But the single largest category nationally (and in most if not all states) in dollar terms is the adult population that needs long-term care, or colloquially, nursing homes.

Not everyone will need such care in their lifetime. This suggests that it's an unpredictable event (much like the possibility of a man dying at, say, 52), so you'd think there might be a good market for insurance policies.

Not quite. There is a long-term care insurance industry, but it market penetration is rather small--under 10 percent, I believe. (There are lots of numbers I could dig out from the hard drive for this essay, but hey, Christmas is less than a week away and there's a lot of work to do before the end of the year.)

Why is long-term care insurance to infrequently used? One reason is the stumbling of the insurance industry; companies have made some mistakes along the way, leading to some bankruptcies and rather unpopular premium increases.

But a more fundamental reason for the paucity of long term care insurance coverage is the moral hazard: why pay for insurance for an event that government will pay for? That's what takes us back to Medicaid, which funds the majority (again, if you want statistics, look 'em up--perhaps in the archives of this blog) of LTC.

Government funds the majority of long-term care? Isn't Medicaid just a program for the poor? Well, yes and no. There are ways to become poor, such as shifting assets to one's children, and thus qualifying for Medicaid. It's easy to rationalize this move by saying "Hey, I've worked hard all my life, paid my taxes, and I deserve this." And of course, when everyone else is doing it, the rare individual who pays for his own care has little impact on the public fisc.

State government politicians, meanwhile, like to get the feds (that is, people who vote in other states) to pick up as much of the tab as possible. So the last couple of decades have seen a cat and mouse game between federal and state officials, as one rule change in DC is met with new accounting gimmicks in the states.

Today, the Wall Street Journal (link for subscribers) says that the Washington branch of the political family is thinking of changing the rules again.

Now Congress wants to make it harder for some people who do have assets to get Medicaid to pay their nursing-home bills. The changes, already approved by the House and now before the Senate, would:

- Force people who transfer assets to wait awhile before Medicaid will cover their nursing-home care.

- Bar a person with equity in a home of more than $500,000 from Medicaid coverage. States can raise the limit to $750,000. Currently, in most cases, a person can own a home of any value and still have their nursing-home bills covered.

- Require states to look for inappropriate asset transfers during the five years before a Medicaid application, instead of the current three years.

- Classify certain annuities as assets that trigger the waiting period; annuities sometimes are used to turn large assets into small, Medicaid-friendly payouts.


All good measures, with this goal: "The changes could force the elderly and their caretakers to manage their funds more cautiously, perhaps by encouraging people with means to buy long-term-care insurance or to use the equity in their homes to pay nursing-home bills."

There's no easy way out of the LTC mess. Though technology can help (in-home monitors and the like), good long-term care is by nature labor intensive, which means expensive. Thanks to advances in science and medicine, as well as rising incomes, people are living longer. That's all good.

Demographic and lifestyle patterns have been changing for decades, changes that signal an increasing reliance on paid help. Women, historically the providers of LTC to family members, are overwhelmingly in the paid workforce, often unable to do much to help. Children from a family scatter across the country, making it hard for family members to pitch in together to help mom and pop. So the use of paid help, whether inside a nursing home or out, funded by insurance or by taxpayers, has increased, and will continue to increase, especially given that the "old old" (over 80 years) group is the fastest growing part of the U.S. population.

The ideal solution might be the development of a strong, vigorous, widely-bought-into market for long-term care insurance. But getting there requires dealing with a knot of problems across several policy issues, including regular health insurance and the federal tax code.

By contrast, reforming k-12 education to promote achievement, cost containment, and consumer choice looks easy.

Labels: Health care, Medicaid

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Sunbelt Revolution in Medicaid.
First the people went to the sunbelt. Then the political power. Now, the political innovations.

Florida and South Carolina are leaders in reforming Medicaid, the program that threatens to eat the budgets of every state. Nina Owcharenko writes that "Florida and South Carolina are pursuing federal waivers so that they can bring the principles of choice, individual control, and competition into Medicaid."

Why these states? Among other reasons, they attract a large number of retirees, who often end up in nursing homes, in Medicaid, and that program's most costly recipients of taxpayer money. Most of the money-saving efforts work best outside the nursing home environment, but even those can free up money for other purposes.

Labels: Medicaid

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Vote for Me! I Expanded Welfare!
Does a pro-welfare stance win re-election campaigns? Some governors seem to think so. At least that's the argument that Merrill Matthews makes in an USA Today op-ed.

Matthews gives examples of a Democratic, Independent, and Republican governor who tout their expansion of Medicaid, the government-financed health care system.

"Ironically, for the past decade," he notes, "most governors have been trying to get people off the welfare rolls and into productive private-sector jobs. So why isn't the goal to get people off the Medicaid rolls and into private-sector insurance?"

Both welfare and Medicaid involve taxing some people go give to others. Yet Medicaid has avoided the stigma that propelled welfare into reform. (Welfare reform's effects have been oversold, but that's a story for another day).

As Matthews points out, welfare reform imposed a work requirement, as well as proceeded with a philosophy that people would make a transition to the private sector (in this case, work). But with Medicaid, there is not (yet) an expectation that people will transfer back to the private sector.

Of course, some people--the frail elderly who make up the bulk of Medicaid's expenses--cannot resume work. But there is still room within what we might some day call Medicaid reform, for private sector features. One way would be to convert money spent on Medicaid enrollees into cash payments that would then be used to purchase insurance in the private market, perhaps combined with a health savings account.

The welfare component would still be there--we are still talking about taxing some and giving to others, after all. But there are advantages--Matthews simply lacked the space to talk about them--of making the program more voucher-like.

Labels: Health care, Medicaid

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Will Medicaid Embrace Consumer Savings Accounts?
Market-oriented policy geeks call for Medicaid to use health savings accounts. The program would move in that direction under legislation introduced in Congress.

Writing in a newsletter of the Consumer Power Report of the group Consumers for Health Care Choices, David Hogberg explains the Medicaid Health Opportunity Account Act of 2005.

The bill lets states set up "health opportunity accounts," much like Health Savings Accounts. The federal government would match state contributions to the accounts, up to $2,500 per adult and $1,000 per child. States could use these accounts for targeted populations, so it's unlikely that they would be applied to everyone in Medicaid.

Money in the accounts would be used only for health care expenses. But as an incentive to move beyond poverty, if the person who holds the HOA earns too much money to qualify for Medicaid, the funds can be used to purchase a health insurance, college classes, or job training.

Unfortunately, the bill also contains several measures that, as Hogberg puts it, "insulate health insurance providers from competition."

Labels: Health care, Medicaid

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SPN: Intellectual Property Rights and Real Property Rights
The Supreme Court's Kelo v. New London case may have ignited a coalition of two kinds of property rights advocates.

The State Policy Network's annual meeting included a panel called "The Bridge between Physical and Intellectual Property Rights." The panel was an interesting cast of characters. Depending on your perspective, it had all the right villains, including a representative from the pharmaceutical industry as the motion picture industry, the recording industry, as well as land owners.

The large number of panelists meant that each person gave a talk of only 5 minutes or so, not nearly enough to discuss interesting issues. Still, a few themes stood out.

Technology makes it easy to violate intellectual property rights cheaply and quickly.

The case for real estate property rights is more easily understood at the popular level than that for intellectual property. That's probably because most people own real estate, or aspire to it, while intellectual property is often the product of faceless corporations.

The Supreme Court recently issued two decisions that are in a juxtaposition. On the one hand, Kelo said that real estate property rights must give way to the whims of government planners. In the Grokster case, however, the Court upheld the value of intellectual property rights by declaring that companies that distribute technologies used to violate intellectual property rights may be liable to prosecution.

The difference between the two decisions, besides the kind of property at stake, is that the tradition of government-as-economic planner in real estate does not exist in intellectual property. Government has been more respectful of intellectual property than real property, though the recent Big Squeeze of Big Pharma by Big Medicaid may signal a new phase of government action on property rights.

The Institute for Justice has launched a vigorous campaign to persuade state and local governments to enact their own measures to limit the use of eminent domain for economic development purposes. (In fact, the Supreme Court invited states to do just that.)

By issuing its decision in Kelo, the Supremes may have done a favor for advocates of property rights. The ruling has prompted a coalition of two groupings that have had little to do with each other in the past to come together. If the new coalition is able to exert enough influence and pressure to strengthen all property rights, then creativity, health and medicine, and individual landowners will be better off.

Labels: Medicaid

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Quote of the Day.
"This doesn't lower costs; it just shifts the cost from government onto people. That doesn't solve anything." -- Sen. Chris Steineger, D-Kansas City.

Steineger was referring to promoting the private purchase of long-term care insurance and clamping down on Medicaid scheming, whereby wealthy individuals artificially impoverish themselves in order to get taxpayers to pick up the tab for their nursing home stays.

It "doesn't solve anything," ignores at least two simple questions: Is socialized medicine the best path as long as it applies to nursing home care, especially if it means that people of modest incomes subsidize those better off? And if you're an advocate of taxpayer-funded health care for the poor, why would you endorse rules and an ethic that winks and nods at efforts to game the system out of money that could be going to the truly poor?

Labels: Health care, Medicaid

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Medicaid Calls for "Tough Choices"
Here's one way of understanding the need for Medicaid reform: in the state of Kansas, Medicaid costs have gone up 12 percent per year, every year since 1991.

Some argue that states have budget problems because the things they buy, such as education and health care, are increasing at rates higher than inflation.

Overlooked, though, is the fact that when government buy its "big ticket" items, it is the single largest (health care) or dominant (education) purchaser. Therein lies the problem.

Labels: Medicaid

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Pound the Treadmill, Get a Discount.
The discounts-for-healthy-living model is finally moving to the public sector.

Life and health insurance companies typically give discounted premiums for non-smokers. Some health insurance companies provide discounts or subsidies for people who regularly hit the gym.

The public sector is picking up on this model. There's a proposal floating for Michigan's Medicaid program. Follow state requirements to quite smoking, keep doctor's appointments or lose weight, and enjoy reduced copay requirements (which are minimal to begin with) or expanded benefits.

Predictably, some folks play the class card. A spokesman for the "Michigan League for Human Services," writes the Detroit News, "said the plan is unfair because unhealthy behavior is a societal problem and this approach singles out the poor."

But people in the optional population of Medicaid--where the proposal would be applied--are already "singled out" by virtue of their relying on government funds. As the legislative author of the proposal points out, people on Medicaid smoke more and are in general more overweight than the general population. The plan, then, is a way to control cost increases, conceivably allowing for more people to enroll. At the least, the plan offers the idea of incentives to a population that has so far received services with nothing at stake.

Labels: Health care, Medicaid

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Medicaid: The Program that Ate All Others.
Budgeting is the classic economic problem: unlimited wants, limited resources. The growth of Medicaid will make this problem obvious to all in a few years.

Matthew Hisrich, of the Flint Hills Center for Public Policy, writes that Medicaid Could Swamp State Budget. Though the emphasis in the article is Kansas, the lessons apply elsewhere. An aging population, soaring health care costs, and a third-party payer system are elements of a perfect storm that will leave little room for anything else in state budgets.

One useful resource for ideas on fixing Medicaid's budget and service is the Center for Long-Term Care Financing.

Labels: Medicaid

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Another Social Security Reform Plan
Blogger Dan Morgan of NoSpeedBumps.com sent the PolicyGuy a plan he advocates, which might be called RSA+HSA+EFT.

As the alphabet soup nature of the plan indicates, it's a comprehensive, but ambitious proposal.

#1 ? Begin mandatory Retirement Savings Accounts (RSAs) and phase out Social Security

#2 ? Begin mandatory Health Savings Accounts (HSAs) and achieve universal health care coverage, phase out Medicare and Medicaid

#3 ? Implement a loophole-free Effective Flat Tax (EFT) that has a completely flat perceived rate

Give Morgan credit for seeing that our retirement system, health care financing system, and tax system have related problems.

On the other hand, trying to achieve something this comprehensive may doom the plan to deals and amendments that will make it unworkable.

Labels: Medicaid

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Where's Newt? Transforming Health Care.
Never one to tinker at the edges, Newt Gingrich hopes to change health care policy. The grandly-named Center for Health Transformation calls for "system-wide change" that includes "information-rich health savings accounts," "secure electronic health records" and "e-prescriptions," and increasing transparency in pricing for pharmaceuticals and medical services.

In an op-ed written for the Washington Post, Gingrich advocates splitting up the Medicaid and Medicare agency within the federal government into three different agencies, based on the different needs of the healthy poor, the disabled, and the elderly.

Here's his take on eldercare:

the legislation would create a program to serve the elderly that reintegrates the family back into their care. The current system, for example, prevents a daughter whose mother is in an assisted-living facility from contributing financially to her mother's care without losing all Medicaid coverage. This either-or mentality is anti-family and leaves the recipient with a lower quality of life.

The program should also integrate modern information technology systems, home diagnostic equipment, real-time monitoring and rapid health assistance when necessary. For example, a growing company called Living Independently has created the QuietCare home monitoring system, with motion detectors that actually learn an individual's daily habits and routines. The system regularly updates a caregiver on the person being cared for and immediately highlights any atypical patterns. Caregivers use this technology to provide unobtrusive monitoring of seniors in their homes while preserving individual privacy and freedom.

Don't count Newt out. With members such as Health South on board as well as a golden rolodex, the center will be worth watching.

Labels: Medicaid

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Health Care: The Latest in Medicaid Reform, Federal-Level.
Nina Owcharenko of The Heritage Foundation offers a quick review of where Medicaid's coming from, and what changes are needed.

For starters, Medicaid is part of the triad of entitlement programs (Social Security and Medicare being the others) that account for 44 percent of all federal spending today. Medicaid enrolls approximately 46 million persons, and is now a larger program than Medicare. From 2000 through 2003, it grew at 10 percent a year, an unsustainable rate.

The rest of the policy note describes Bush Administration proposals to change Medicaid. They include the latest in the cat-and-mouse between federal officials who distribute money from Washington and state administrators who game the system, and increased enforcement on asset transfers that allow the wealthy and middle class to make grandma, who would otherwise not qualify for taxpayer funding, appear to be a pauper.

Labels: Medicaid

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Health Care: More Choice for Medicaid Patients
Medicaid ill serves the taxpaying public, its enrollees, and the medical profession. So what should policy makers do? Make it more consumer friendly.

Says Devon M. Herrick,
A few years ago, for example, Arkansas, Florida and New Jersey began experimenting with what is referred to as cash and counseling. In this program, certain Medicaid recipients were offered the chance to control a portion of the dollars spent on their non-health care needs.

These experiments worked well because patients had greater choice over their providers, and the providers looked to the patients as customers, rather than to the state. Now, about half of the states have received waivers from the U.S. Department of Health and Human Services for similar demonstration projects.

Herrick is an adjunct scholar of the Flint Hills Center for Public Policy.

Labels: Medicaid

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Health Care: Promote Health By Depending on Cigarette Taxes?
Kathleen Sebelius, governor of Kansas, has suggested insuring more people by depending on cigarette taxes.

Though the state's Medicaid budget has increased 65 percent in the last five years, and Sebelius wants to add more, by increasing the cigarette tax by over 100 percent, to $1.29 a pack.

State Rep. Brenda Landwehr, who chairs the House Budget Subcommittee on Social Services, says "I think it would be unwise at this time to expand our Medicaid program.

I've already argued that a similar proposal for Oklahoma was an inferior way of expanding health insurance coverage. In a companion piece, Steve Anderson argued that the numbers in Governor Henry's plan didn't add up.

Labels: Health care, Medicaid

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Health: Who Pays for Long-Term Care?
Welfare isn't just for the stereotypical single mother with a poor education and minimal job prospects. It's also for middle-class individuals who turn to Medicaid to pay for long-term care in their old age. And it's slowly eating the budgets of states around the country.

So what should be done about it? Stephen Moses (Center for Long-Term Care Financing) and Josh Wiener (RTI International) debated the question last year in a forum available here. It's a "Crossfire" kind of format, with people talking on top of each other, and "inaudible" comments. Still, it's not a bad introduction to the question. And it has the benefit of offering two very different prescriptions.

Moses gives a brief "how we got here" introduction, and it seems that Wiener agrees with the diagnosis.

But the two men differ in their suggested outcomes: Moses thinks the market for long-term care insurance can be improved through various policy choices, including doing away with the current policy that lets people qualify for Medicaid (and its financing of long-term care) regardless of how much home equity a person has.

Weiner, by contrast, thinks that this is only a minor part of the solution. Further, he values the notion of "social insurance" implied in the welfare state, and thinks we ought to expand taxpayer funding of long-term care, even if it means adding another 4 percentage points to the payroll tax.

Here are two quotes that show some of the themes of the debate:

Moses: "The reality in this country is you can ignore the risk of long-term care, avoid the premiums for private insurance, wait until you get sick, and the government pays. It's been that way for forty years, and as a consequence, we have this nursing-home-based welfare-financed system that institutionalized our whole World War II generation unnecessarily. We need to change those incentives."

"For reasons that, frankly, escape me," he says, "if you are unlucky enough to get Alzheimer's disease, then you know, we are—our societal response is basically, you know, “Come back to us after you have impoverished yourself and then, you know, we'll provide you with some financing and some services.”

But, you know, the fundamental issue here, and I think you put your finger on it, is, is this really an issue where it's sort of up to the individual and their family? Or is this a societal concern that we as a society as a whole are going to sort of step forward and say that people who need these kinds of services are going to get them regardless."

Moderator Morton Kondrake tries to put an ideologically summary to the debate as thus: "we have here Sweden and Margaret Thatcher."

Labels: Health care, Medicaid

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Health Care: Medicaid is the "Monster in the Road."
Medicaid is the "Monster in the road," says Ohio's governor, Bob Taft.

He's right. And the reason it's a monster is that it's a government-funded program with no element of personal involvement or responsibility. Already nearly half of all medical spending is paid for by governments of one form or another.

The politics of changing Medicaid don't look encouraging. Most governors want more money out of Washington than they want flexibility, while the Bush Administration wants less money and more flexibility on the state level. Given where we're going, more money would not be a bad price to pay if states actually start making substantial, market-oriented reforms.

Labels: Medicaid

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Health Care: Medicaid Funding is Like Handing Out Credit Cards.
A fundamental problem with Medicaid is that it imposes little or no sense of fiscal cost on people enrolled in the program. You may spend your own money wisely, but the temptation to squander someone else's is great.

It's against that backdrop that the Illinois Policy Institute issues this warning:

Would you give your credit card to a perfect stranger?Absurd isn?t it? However, that is exactly how Illinois manages its Medicaid Program.

Unless we figure out how to fix it, Illinois will find itself exactly where you would expect to find yourself if you gave your Visa to a stranger.

When you or I purchase health insurance, or choose our employee benefits, we make decisions based on what services we need and how much we will pay. Medicaid enrollees use services as they wish with no ?costs? to consider. Even when seeking treatment for something as routine as a cold, a Medicaid enrollee can enter the ER and seek treatment on demand rather than be bothered with making a doctor?s appointment like everyone else. The result is that taxpayers are stuck paying for an expensive ER treatment, instead of a reasonable doctor?s visit ? and the difference is enormous.

Illinois? Medicaid program costs taxpayers $7 billion per year. Over $6 billion comes from the state?s general fund (nearly a quarter of the overall appropriation). That comes to about $570 per person or $2,300 for a family of four. Instances exist where a family can pay more for Medicaid than for their own insurance. For example, a state employee supporting a family of four pays about $2,000 per year for HMO coverage.

Illinois currently has 1.8 million Medicaid enrollees. One in seven Illinoisans are covered by the program. Two out of every three nursing home residents and one out of three children are covered. Elected officials seeking votes continue to expand the program ever further beyond the federal poverty line. For example, an Illinois family of six with an annual income of $50,000 is Medicaid eligible. Despite what Governor Blagojevich calls the worst financial crisis in the state?s history, Medicaid eligibility has been expanded in five of the last seven fiscal years, and this year the Governor vowed to expand the program to 200% above the poverty line.

As currently configured Medicaid is unsustainable. Since 1999 the program has grown at 8% per annum and, if present trends continue, the program will double in costs every nine years. It does not take an expert to determine that the current trend ends with bankruptcy. At some point Illinois will be forced to reform; it?s not a question of if but of when.

Illinois is not unique, of course. Most states operate in a similar fashion. But it's time for all to inject some principles of personal control and personal incentives (much like a health savings account) in its taxpayer-funded health care programs. Of course, it would also help if public officials could stop expanding government rolls, crowding out the market for private insurers.

Labels: Health care, Medicaid

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Health: Utah the Model for Medicaid Reform?
Since the former governor of Utah is now the cabinet official who oversees Medicaid, it may be worth looking at Utah's Medicaid system.

This New York Times article gives a brief overview:
Utah spreads out a lower, more basic level of care to more people, and reduces coverage for some traditional beneficiaries by imposing co-payments for services. And second, it relies on the generosity of doctors and hospitals to provide specialty services free of charge.

In the broad, Michael O. Leavitt, new HHS secretary, has it right:
"Wouldn't it be better to provide health insurance to more people, rather than comprehensive care to a smaller group Wouldn't it be better to give Chevies to everyone rather than Cadillacs to a few?"

A key part of any Medicaid reform is introducing people to the fact that health care is not free:
The plan is deliberately constructed with modest premiums and co-payment schedules, they say, to offer a lesson on how health insurance works to people who might never in their lives have carried a private policy.

But there is still a problem with the plan: it relies on generosity for catastrophic care. The ideal would be for people in the program to somehow obtain low-cost, high-deductible insurance policies (with accompanying health savings accounts) that would meet the gap. Together with the state's basic care package, people might actually have health insurance, rather than a package of prepaid health care services.

Labels: Health care, Medicaid

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Medicaid for Millionaires.
It happens all the time: a government program starts out with a well-sounding premise, only to see its perverse incentives bring unintended consequences.

Such is the case with Medicaid. What was menat to help the poor has turned into, as the Wall Street Journal says in an editorial, Medicaid for Millionaires.

Medicaid, a program allegedly for the poor, has taken over paying for much more. From 1968 until 2001, for example, it has gone from paying (roughly) one-quarter of all nursing home bills to one half.



And the numbers will most likely creep up unless some reforms come along. A cottage industry helps people pick up five achievements: avoid buying long-term care insurance (a cost savings); rely on the taxpayers to pick up the tab for long-term care (a cost savings); avoid drawing down one's personal assets (a wealth-preservation tool); transfer assets to family members (an estate-planning tool) and pretend to be poor (a miracle), all at the same time.

Policy makers should consider a number of reforms, including:

Encourage the purchase of long-term care insurance
Eliminate the home equity exclusion currently in place for Medicaid eligibility
Otherwise push people towards using reverse mortages to pay for their own care

Labels: Medicaid

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States to Feds: Catch Us If You Can.
The cynical view of federalism is that it's convenient for politicians at all level: there's always someone to shift the blame to.

That seems to be the case of Medicaid over the last few decades, with federal and state officials sparring over who should pay what, when, and how. Federal and state offices routinely play a game of cat and mouse, for example. States find ways to scam the federal government. The feds crack down. The states find new ways.

Says a Wall Street Journal news story, "When the nation's governors go to the White House on Monday, they are likely to deliver a blunt message to President Bush: Keep your hands off our Medicaid loopholes."

Carol Herrmann, with the State of Alabama, defends the practice, saying that states do "exactly what all of us do when we do our income taxes every year: We looked at the law and used the law to our advantage."

Here's how one scheme operates:

In one tactic, called intergovernmental transfers, government entities like county or city governments send money to the state that the state then uses to qualify for additional federal Medicaid payments. .... A county nursing home may submit a claim to a state, which the state sends on to the federal government to receive a matching payment. Then the state keeps some of the federal payment, rather than sending it back to the nursing home. In some cases, federal officials say, that federal payment may be recycled for another federal matching payment. The result: The federal government kicks in extra matching payments without comparable spending by the state or local government.

Does the term "Enron accounting" sound familiar?

Granted, Medicaid needs serious attention. But games like this merely delay inevitable reform, which requires not only political courage, but institutional creativity.

Labels: Medicaid

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Use Smart Spending Cuts; Don't Gut Tax Limitation Measures.
The bipartisan effort to weaken Colorado's Taxpayer Bill of Rights is wrong-headed. There are some ways to make smart cuts to the state's spending.

The Independence Institute and the Reason Public Policy Institute have together identified ways to alleviate the pressure on the state budget. Here's their (PDF) report, called "Priority Colorado."

Among the techniques (numbers are approximate or maximum estimate returns)

• sell assets ($150 million)
  
• return to core functions ($32 million)
  
• consolidate agencies ($219 million)
  
• sentencing reform ($41 million)
  
• Medicaid reform ($90 million)
  
• change education funding ($4 million)
  
• reform procurement practices ($30 million)
  
• competitive sourcing ($48 million)

Total savings: $347 million to $615 million.

Labels: Medicaid

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Health: States, Feds Spar Over Medicaid. Again.
HHS Secretary Mike Leavitt chides governors and legislatures in a speech on the "seven harmful habits of highly desperate states."

This put-down comes as the Bush Administration wants to encourage experimentation among states as a way to bring Medicaid costs (currently 22 percent of the average state's budget) under control. But most governor want simply to keep the cash flowing in, though the National Governors Association has said it wants reform.

This article in the Christian Science Monitor presents a few interesting stats about Medicaid:

• The "$120 billion states spend annually on Medicaid is already more than they spend for K-12 education."
• "While the elderly and nursing home residents make up only 6.5 million of the 50 million people Medicaid serves, they account for 42 percent of the program's $300 billion annual price tag."
• 70 percent of the elderly in nursing homes are in Medicaid.

You might get the impression that it's a fairly well program from this article. "While private health-insurance premiums went up more than 12 percent, Medicaid's annual spending per capita was up only 4.5 percent." Yet the first number reflects a (somewhat) free market in spending, while the latter number is comparatively low because states have employed various ways (cutting benefits or the rolls, mostly) to keep costs from going up even more. That doesn't mean that the program is doing well. Far from it. Significant reform is needed, not only for reasons of cost control, but to improve quality of patient care.

Labels: Health care, Medicaid

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Health Care: Washington Auditor Disclaims State's Medicaid Program.
Just how poorly managed is Medicaid, one of the country's biggest government-run health care programs? In Washington, the state's auditor has said in effect "We can't tell you the fiscal condition of the Medicaid system, but we know it's very bad."

Said the auditor's report: "we cannot conclude, based on documentation and other evidence we were provided, whether all of these costs were allowable or whether all clients were eligible for services given to them and all providers were eligible for payments made to them."

Labels: Medicaid

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More Medicaid Reform: Proposals in North Carolina, Kansas.
Medicaid is finally getting the attention it deserves as a policy challenge. The latest evidence: The John Locke Foundation offers several proposals for getting Medicaid costs under control.

One option: get a handle on enrollment. "If North Carolina’s percentage of residents enrolled in Medicaid (15 percent) fell over time to Virginia’s percentage (10 percent), that would represent a savings of $800 million in the state budget when fully implemented."

Another: limit services. "If, instead, North Carolina focused on matching Georgia’s more limited benefits package and reduced its cost per enrollee to Georgia’s average, that would represent a state-budget savings of $630 million."

The view from Kansas is just as bleak: "Right now, the program is the fastest growing portion of the Kansas budget, with the cost of state health care coverage for the poor rising 121 percent in the last five years," say my colleagues at the Flint Hills Center for Public Policy.

One way to make health coverage more affordable: follow the lead of Colorado, Florida, Montana, North Dakota and Utah and pull back on state mandates on private-sector insurance plans.

Labels: Health care, Medicaid

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Medicaid Reform: Good for the Public, Good for the Poor.
Today's lead editorial in the Wall Street Journal (subscription required) praises a Medicaid reform plan in Florida.

The plan, which requires a waiver from the federal Department of Health and Human Services, is a large step towards consumer-centered care. Participants get a risk-adjusted amount of money (meaning the sicker you are, the more money you get) which they can use for various forms of care or insurance (HMOs, for example). In other words, it actively involves the patient in selecting the treatment.

It also gives each person in the plan a financial incentive for smart shopping and healthy living. Patients who follow the recommendations of their doctors receive bonus money that can be used (through Flexible Spending Accounts) on eyeglasses or other expenses not normally covered in Medicaid.

And even better for those who are or can become healthy enough to rise to economic self-sufficiency, the money in the FSA belongs to the person who leaves Medicaid.

As the Journal notes, "This emphasis on personal responsibility will encourage healthy outcomes by providing incentives for patients to comply with their doctor's orders. And since a huge share of Medicaid budgets go to managing chronic conditions that often can be ameliorated by personal behavior, the potential to save money is enormous."

The plan may not be the model that every state follows, but clearly something must be done to both bring fiscal soundness to the system and improve the quality of care that people receive. Roughly one-quarter of Florida's budget goes to Medicaid, and similarly high figures can be found elsewhere. Nationally, states spend more money on Medicaid than they spend on K-12 education.

Labels: Health care, Medicaid

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10 Easy Reforms for Health Care.
John Goodman, president of the National Center for Policy Analysis, and long-time health care policy analyst, offers 10 easy reforms for health care.

Four of the ten involve health savings accounts (HSAs) or their ugly sister, flexible spending accounts (FSAs).
1. Encourage innovation in HSAs
2. Permit funds in FSAs to rollover from year to year.
3. Channel Medicaid funds into HSAs.
4. Change the rules for Roth IRAs to encourage their use for health care expense.

Three involve changes to employer based plans:
1. Use current Medicaid dollars to subsidize the purchase of employer-based plans.
2. Allow employers to include the cost of insurance plans in wage calculations for minimum wage purposes (this is an easy reform?)
3. Allow employers to purchase individual insurance plans for employees (currently, all employer-purchased plans must have group coverage).
4 and 5 Allow employers to substitute cash for insurance coverage, a choice that currently jeopardizes the tax status of an employer plan.

Labels: Health care, Medicaid

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Illinois Institute Calls for State-Based Health Care Reform.
The Illinois Policy Institute (to which I am an advisor) has a new report calling for health care reform, which they call "Promoting the Patient Power Paradigm."

The sheer numbers show that reform is necessary. Per-person spending tops $5,600 per person. That is not in itself a good or bad thing, but a number that large deserves some examination, in light of the old economic problem of limited resources and unlimited wants.

More serious for anyone concerned with state policy--which should include every taxpayer--is the soaring cost of taxpayer-provided health care. In Illinois, for example, Medicaid spending grew at an 8 percent annual clip during the last decade, far outpacing income growth. Whatever government program you are interested in, or whether you prefer tax cuts to spending growth, you're going to have to confront health care spending by state governments sooner or later.

Making the task of reform more difficult: while states can and should take action, much remains to be done at the level of the federal government.

Labels: Medicaid

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Medicaid Crisis Due in Part to Moral Hazard: Reverse Mortgages a Way Out.
One problem of public programs is that they run the risk of moral hazard, by which efforts to help somebody end up bringing negative consequences all around.

One such example of a moral hazard is long-term care. The desire that the elderly ill receive adequate care is a good one. But it has lead to a situation in which Medicaid, a state-federal program, pays a substantial portion of all nursing home care in the country.

The negative results are many: nursing home costs are soaring (arguably, because there is one party--the public purse--paying most of the tab), straining state finances. Seniors have difficulties getting into adequate homes, or even inadequate ones in some states. And countless dollars are spent in a cottage industry that enables middle class families to move and hide their assets around, shifting the cost of long-term care to "somebody else."

The National Council on Aging has just released a study on the use of reverse mortgages. In brief, it's a loan made against the build-up equity in a house. By the time many people need long-term care, their equity is substantial.

Here's a brief description of the report's findings, from the NCOA website:
Of the nearly 28 million American households age 62 and older, NCOA has found that almost half (48 percent), or about 13.2 million, are good candidates for a reverse mortgage. The amount that these older households could receive from a reverse mortgage is substantial ? on average $72,128. These funds can go a long way to pay for help at home and for retrofitting the home to make it safer and more comfortable. For some, they could be used to purchase long-term care insurance if they qualify. In total, an estimated $953 billion could be available from reverse mortgages for immediate long-term care needs and to promote aging in place.

Some policy changes within Medicaid are called for. So is a way out of the disincentive that even the civic-minded individual faces: each person who foregoes using the public fisc. and going self-pay will have no significant effect on the public treasury, but a significant effect on his own.

Labels: Medicaid

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How Much Does that Health Care Cost You?
Citing the January/February 2005 edition of Health Affairs, the Wall Street Journal notes the following data bites about health care spending:

- Out of pocket expense went up 7.6 percent in 2003.
- One quarter of out-of-pocket expense are for prescription drugs. (That is one reason, perhaps the leading one, for the demand for cheap drugs.)
- Total health care spending in 2003 was $1.7 trillion, or $5,670 per person. (Consider that figure next time you think you are underpaid. Are you counting the value of any employer-paid insurance premiums?)
- Spending growth in Medicaid was 12.1 percent in 2002, and 7.1 percent in 2003. The similar numbers for Medicare were 7.6 percent and 5.7 percent.
- Insurance premiums rose 10.7 percent in 2002, and 9.3 percent in 2003.

Rising spending is not in itself a problem. As the country gets wealthier, it's natural to want to spend more on personal well-being.

On the other hand, some of it is the result of the price illusion, in which it's easy to say "Somebody else is paying for it." But as the example of employer-paid insurance premiums demonstrate, you pay for it one way or another.

Labels: Health care, Medicaid

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Medicaid: Go Back to Cash.
My colleague at the Flint Hills Center, Matt Hisrich, writes to the Hutchinson (Kansas) news about the plight of Medicaid.

Though the numbers he uses are specific to Kansas, the problem exists in various forms at all states. Likewise, part of the solution--increased consumer participation in the management of health care dollars--applies to all states as well. "Medicaid," he writes, "is actuarially bankrupt, producing low-quality care and falling victim of fraud and abuse." It's also unsustainable in its current form. One alternative: Give people cash and help them buy appropriate services or insurance policies.

Labels: Health care, Medicaid

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Medicaid Expenses Rising; Reform Required.
When it comes to domestic political affairs, Social Security, Medicare, and education get a lot of ink. Less visible, but more important, is Medicaid, a federal-state health program that covers some of the poor, as well as pays for most nursing home stays of the elderly.

Medicaid hasn't got a lot of press, but the National Center for Policy Analysis (NCPA) points out today that it's going to get a lot more in the future. It better. Whether you care about welfare programs, K-12 education, higher-education, job training programs, or cutting back on the size and scope of government, you're going to have to pay attention to Medicaid.

Why? As the NCPA says, "Medicaid costs exceeded elementary and secondary education costs in states’ 2004 budgets." That's the first year that this program--which goes by different names and faces in the states--took more out of the public purse than K-12 education, traditionally the single largest budget item.

Unfortunately, much of the policy attention paid to Medicaid has sought to address its problems in one of three ways: squeezing more money out of health care providers, limiting the number of people enrolled in the program, or cutting back on the services covered.

But Medicaid suffers the traditional problem of all government health care programs: it's not a rational system. As the American Legislative Exchange Council has put it, Medicaid is a system of perverse incentives. Even if you wanted to, it would be hard to come up with a system that more poorly services taxpayers, patients, and physicians.

Labels: Medicaid

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Veterans’ Woes Illustrate Problem With Government Health Care
If you think nationalized health care is a good thing, look at the sorry state of Medicaid. Or the VA health care system, which I discuss in my latest essay for the Mackinac Center.

Labels: Medicaid

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If You Want Health Insurance for the Poor, Don't Expand Medicaid as We Know It
One fourth of the Texas population is without health insurance. The status-quo solution is to pour more money into Medicaid, and shuffle the uninsured (some poor, some not poor) into that program.

But that's an unsustainable and inferior path, says Chris Patterson. As structured, Medicaid threatens the budget of Texas, and every other state. Currently it is the #1 or #2 spending category for each state, consuming 26 percent of the state budget in the case of Texas.

A better path than putting more people into an unreformed Medicaid program would involve seeking federal permission to expand the use of vouchers within Medicaid, so that people can set up Health Savings Accounts and purchase insurance in the private market.

Labels: Health care, Medicaid

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Medicaid Nursing Home Payments, the Middle Class Welfare Program
Few situations in health care illustrate the perverse incentives and consequences of our health care financing system than nursing home care.

For a variety of reasons (some legitimate, others not), insurance to cover long-term care is expensive. Given the fact that government (Medicaid) will pick up the tab, most people don't buy the insurance. (Come to think of it, this activity, which suppresses demand, may be one reason why rates are so high.)

Few people are willing to cough up their life savings to make out-of-pocket payments for nursing home expenses, and few boomer parents are willing to see their inheritance spent on mom's stay at Shady Rest Skilled Nursing Facility--especially when they see other families getting their stays covered at the taxpayers' expense.

Now, there's Medicaid, but that's a program for the poor and even destitute, and most people who enter nursing homes are not destitute. So what to do? Engage the services of a small industry of lawyers whose practice is engaged in hiding or shifting assets in order to qualify an elderly person for nursing home coverage. It's good business for them, and of a certain financial advantage to the families. After all, if your own sacrifice for the good of the public fisc. is going to be overwhelmed by everyone else dipping into the public pool, why sacrifice yourself?

Yet this scenario presents plenty of problems not only for the public purse, but for those who engage in this asset-shifting.

Few people are more tireless in their efforts to find a way out of this morass than the principals and staff behind the Center for Long-Term Care Financing. Here's an excerpt from one of their weekly newsletters.

"Is it a legitimate function of Medicaid to pay for long-term care so that people can buy more expensive homes, cars and funerals? At whose expense? Taxpayers? Yes. But private-pay residents in nursing homes have to pony up half again as much as Medicaid for their care. That's called cost shifting. People who also pay LTC insurance premiums are thus triply taxed while the clients of Medicaid planners skate. ... As we've said before, as long as people can ignore the risk of long-term care, avoid the premiums for private insurance, and pass the cost of care to Medicaid, most won't buy insurance and Medicaid will continue its precipitous decline."

Labels: Health care, Medicaid

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Health Care Financing Makes the Tax System Look Rational.
If you think the federal income tax system, with its nightmarish audits, special favors, and impossible-to-understand rules is bad, you should consider our health care system.

Over 90 percent of people with employer-sponsored insurance are in some sort of managed care system that restricts their ability to choose a doctor.

People who work for small companies face the worst of it. They already get paid less, and because of behind-the-scenes regulatory requirements, they tend to pay more for insurance--if they can get it.

Perversely, the federal tax treatment of insurance gives greater benefits to the higher-income workers.

Meanwhile, Medicaid and Medicare are such poorly run programs that they would be shut down by regulators, if they were private companies. Medicare is governed by 110,000 pages of regulations--six times as many as those governing the tax system. It attempts to bureaucratize every medical procedure known to man, using over 7,000 billing codes that include treatment for falling from a spacecraft.

Of course, one of the biggest problems is that 40 million people don't have health insurance--sometimes from their own choice, sometimes out of financial desperation.

Some people might, when confronted with this situation, call for even more government-based reform efforts. But we got into this mess by heavy-handed, top-down, government involvement. Bureaucratically-driven health care financing and administration has become a full-time employment act for lawyers, accountants, and consultants. Much like the tax system, in other words.

It's time to move away from that. Allowing fraternal and religious groups to form insurance pools, letting people buy insurance across state lines, giving people who buy insurance on their own the same tax treatment as large corporations, and promoting the value of health savings accounts, not to mention reforming a sometimes out-of-control legal system would all go a long ways to promoting more sensible health care purchasing.

Labels: Health care, Medicaid

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More on the Medicaid Mess.
Nationally, the 800-pound gorilla of endangered government programs is Social Security, which faces a bleak fiscal future, given economic and demographic realities. (Medicare is even more of a problem, but it doesn't get much attention--except when Congress and the president are making things worse by adding even more entitlements.) At the state level, the 800-pound gorilla is Medicaid, the program for the real, and (sometimes) artificially poor (think of people who shield assets so that they can get taxpayers to fund nursing home stays of relatives.)

Not only is Medicaid usually the leading, or second leading budget item for most states, its costs have soared in recent years. States have tried to have it both ways, gaining political points for expanding the number of people and services offered, while financing the program either through lobbying Congress for more money, or stiffing medical professionals with reimbursement levels so low they would make you laugh--if under-paying was a laughing matter, that is. Oh yeah, do you think that a bureaucratic-driven, on-the-cheap program gives great care to those enrolled? All around, then, it's a program in need of a lot of reform, for all concerned: beneficiaries, medical professionals, and taxpayers.

The free-market policy community is coming up with a number of innovative recommendations. The latest comes from the Texas Public Policy Foundation. Here's their report, in a PDF format.

Labels: Medicaid

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Who Controls Your Health Care: You, the Boss, or Uncle Sam?
We spend a lot of money on health care in this country. Unfortunately, it's often spent the wrong way. The people who pay for health care (taxpayers, employers) are not the ones who use it (people in public programs, employees). There's a fundamental conflict of interest, in other words. Remember the political version of the golden rule: he who has the gold makes the rules.

One exciting policy innovation that's slowly growing is the shift to consumer-controlled health care spending. Instead of your boss saying "here's you're health plan, it costs $X a month," for example, he says "Hey, here's $X, find a plan that works for you; here's a list."

This idea--"ownership"--is one of the themes that could get a lot of play in a second Bush term. Grace-Marie Turner of the Galen Institute provides a review of these ideas.

President Bush expanded his health reform agenda last week with a series of new proposals, and Health Savings Accounts take center stage.

The president touts HSAs in virtually every speech as a way to give millions of Americans a chance to participate in his vision of an "ownership society." His new proposals focus on offering new subsidies and purchasing options for small businesses and the uninsured.

HIGHLIGHTS:

Small businesses: Mr. Bush would give small businesses a boost in setting up HSAs for their employees by providing companies a rebate for deposits they make to their workers' HSAs - up to $200 for individuals and $500 for families.

Creating an HSA also would allow employers to purchase health insurance with higher deductibles that would likely be less expensive so they could stretch their health insurance budgets further.

The credit to small employers is a brilliant mix of good politics and good public policy and gets around our usual opposition to giving health subsidies to employers. This one is visible to the employee, and it is portable since the money is put into the employee's HSA. It has the added advantage of giving companies an incentive to set up HSAs for their workers.

The uninsured: The president would build on his idea of providing refundable tax credits to the uninsured by giving them the option of splitting the subsidy, using part of it to purchase a high-deductible health insurance policy and depositing part into an HSA. Uninsured families could get a $1,000 contribution to their HSA, with a $2,000 refundable credit to help purchase a high-deductible health plan. [Editor's note: a "refundable tax credit" means you get a "tax cut" even though you paid no taxes. At least it's better than making people suffer through a public program such as Medicaid.]

Cross-state purchasing: People must buy a high-deductible health insurance policy to accompany their HSA, and that is a problem in many states that have driven up costs by over-regulating and over-mandating their health insurance markets. President Bush would set up competition by allowing people to buy health insurance across state lines. If you live in New York and can't afford to buy insurance there, you could shop in Connecticut to try to get a better deal. [Editor's note: great idea!]

There also are plans that involve more government, including signing up "millions more SCHIP and Medicaid-eligible children," creating more community health centers, and giving grants to the states for state-run insurance pools "to help low-income Americans get the most out of their credits." But the vision of consumer choice, market competition, and individual ownership of health insurance clearly are bedrock principles.

Labels: Health care, Medicaid

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What Insurance Crisis?
That's the question asked by David Gratzer; his answer: not much. If you take away those on Medicaid (or eligible but not signed up), as well as those who could afford insurance (earning $50,000 or more annually) but choose not to buy it, the number of "uninsured" is deflated by over 80 percent, from 45 million to 8.2 million.

What to do about those people? There are many steps that could be taken, but Gratzer offers this:

"Washington should offer states block funding (using welfare reform as a model) and allow them to experiment with coverage options. Some states would spend the money on the people who need it most: the chronically uninsured. By not focusing on the higher-income uninsured, or those eligible for government insurance, a state-created voucher program could potentially offer thousands of dollars per person for coverage — enough to buy insurance in any state in the nation."

Labels: Health care, Medicaid

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Towards a Better Oklahoma
The Oklahoma Council of Public Affairs has recently published Oklahoma Policy Blueprint '04, a collection of ideas to improve life in the Sooner State by enabling enhanced consumer responsibility and choice and sharpening government's tasks on its core missions.

Among the topics: K-12 education (teacher pay, home schooling, education spending and performance, plus more), health care (Medicaid for the poor, insurance regulation for the rest of us), economic development, and various tax policies. Read the fine print, and you'll find that I was one of several contributors, a fine list indeed.

Labels: Health care, Medicaid

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Welfare Dollars = Independence?
The State of Maryland is launching an oddly-named welfare benefit card.

Maryland has moved to an Electronics Benefits Transfer (EBT) system for the distribution of food stamps. It uses technology similar to ATM and debit cards: swipe a card at the supermarket, and money is withdrawn from the buyer's account and sent to the retailer.

There is, though, a significant difference. The money in the "account" is not earned by the grocery store customer; instead, it is given to him as part of a welfare program.

Now as far as welfare programs go, there's something to be said for EBT cards. If we are going do things such as give people money for food, having an EBT card can bring some efficiencies and perhaps accountability.

I also think it would be great to use this model for health care. Instead of putting everyone involved through the mess that is Medicaid, spend the money on health savings accounts (HSAs) for the poor, and purchase high-deductible insurance policies as well. An EBT can serve as the way for people purchase medical services from the HSA (one of the most promising alternatives in health care financing in a long time.) So, in the abstract, EBT cards have some advantages.

But Maryland gives its EBT card for food stamps an odd twist. As a matter of policy it has decided that some people we will depend on others for their food budget. Nothing new there.

Just what do they call this new EBT card? The Independence Card.

Thanks to the guys at powerlineblog, who call this "beyond euphamism."

Labels: Health care, Medicaid

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Medicaid Mess.
Medicaid's financial troubles cannot be fixed by raising taxes. This is not a statement of preference for small government, it is a recognition of reality.

At least that's the conclusion of Beau Egert, writing in Veritas, the quarterly publication of the Texas Public Policy Foundation. (Here's the link, in PDF)

Among the facts:

• Health programs take up 30 percent of state budgets, nationally.
• Over half of all states (28) expect shortfalls in their Medicaid programs this year.
• Medicaid, on its existing path, will crowd out every government program in existance.

Raising taxes only delays judgment day, and doing nothing is not a serious option.

Labels: Medicaid

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Why It Pays To Be a Smart Shopper: Tax Savings
A dispute over a wireless phone bill brought home again both the power of bargaining and the cost of taxes.

I thought that my wireless overcharged me on the last bill--by about $40. After some time on the phone with them, it turns out that they overcharged me not just $40, but more like $70.

That's when I started to think again of how taxes inflate the amount of wage labor required to purchase stuff.

Say you want to buy a widget with a retail price of $100. You're going to earn $100 to pay for it. Is that enough? No way. Not even close.

Start with your $100 in income. Then start taking out taxes. Let's start with taxes on that income.

After FICA (6.2 percent), Medicaid (1.45 percent) , a state income tax (5 percent) and a federal income tax rate of 15 percent, and you're down to a net of $72. (Of course, if you are one of "the rich," your federal income tax rate will be even higher.)

But wait. There's more. You probably need to figure in sales tax. If that's 6 percent on a $100 purchase, your $100 in wages can actually buy only $66 worth of widget--$34 of the money you earned has gone to taxes of various sorts. (Buy wireless phone service, beer, or any other produce or service with extra taxes, and your $100 in income buys even less.)

I also did a back-of-the-envelope calculation the other way: to purchase $100 worth of widget, how much income must you actually earn? More than $100. It's more like $138.

Either way you figure it, taxes add at least one-third to the cost of acquiring any widget. If you're counting on wages to get the stuff of life, you need to work one-third more hours than your hourly rate would suggest.

On the flip side, all those taxes also mean that if you save $1 off the price of a widget, you're saving more--at least another 33 cents that you would otherwise have to add in for taxes.

Labels: Medicaid

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Feds Fighting Back Against Medicaid Scams
Medicaid is a state-federal program for health care. The feds kick in money for each dollar a state spends. (The amount varies according to the income of the state). Naturally, this has lead states to use "creative financing" to make it look like they are spending more than they actually are. One trick: "pass some dollars through a public institution like the KU [University of Kansas] Medical Center and recapture them for use elsewhere in the budget, picking up extra federal funds along the way."

But the feds are making new efforts to catch on to these schemes, says Matthew Hisrich, of the Flint Hills Center, in Kansas.

Oh yeah, why should you care about Medicaid? You've heard, perhaps, about how Social Security will eat the federal budget when the baby boomers retire. Or if not that, then Medicare. Well, Medicaid threatens to do the same thing at the state level.

For more on the problem of state scheming, see this Congressional testimony.

Labels: Medicaid

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Another case of broken windows thinking
Government spending is often justified in terms of how many widgets government offices make. It's often just another case of the broken windows theory.

I'm reminded of Bastiat's broken window theory (funny that there's another "broken windows theory" out there, but it deals with crime) as I am reviewing some state budget numbers. (Bastiat's story answers this question: if throwing a rock in a window creates more work for the glazier--in itself a good thing--why not throw rocks in all the windows one can find?)

To take just one example out of millions. The executive budget proposal for Oklahoma says that the state's $2.45 billion in Medicaid spending "is estimated to have supported 93,000 direct and indirect jobs within the health care industry and $2 billion in income." (I would link to it, but do you really want to plow through a budget proposal? I didn't think so.)

Well, yes, I suppose that could be true. Left unsaid is how many jobs that money could have supported if it was left in the hands of taxpayers. Or if the people on whose behalf the money was spent had more control over how it was spent (say, through subsidies for health insurance rather than handing money over to HMOs that serve as contractors for the state.) Or perhaps with a different financing arrangement, the same number of people could have been served by only $1.9 billion, and the balance could have been used to support X more jobs.

In short, saying that "X dollars in government spending created YZ number of jobs" is a weak rationale for a government program. It's often not the only rationale offered, but it's powerful enough to see daylight quite frequently.

Labels: Health care, Medicaid

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Moral Hazard, or Why Be a Sucker?
Many public policies are riddled with the problem of moral hazard, in which people do what they ought not to do simply because someone else is picking up the tab. Perhaps the most costly case of this is Medicaid, which pays the bulk of nursing home for the aged in this country.

While the program was initially meant to help the impoverished, it's become a middle-class entitlement, a way for people who could pay for nursing home care to foist the burden off on to taxpayers. As the Center for Long Term Care Financing points out in one of its newsletters, there's a whole industry of lawyers willing and able to help middle class (and wealthy) families get their elderly parents on the dole. In effect, these lawyers help families save their inheritance by making sure that mom or dad's care is paid for not by their own savings, but by the taxpayers.

There's also a problem of collective goods at work here. Say that the John Jones family pays for nursing home care for Jones out of his savings? At around $75,000 a year, a stay in a home will put a dent in any family's hoped-for inheritance. Will it, on the other hand, do much good for taxpayers for this and that family to forego attempts to use the system? No. And one family's actions won't affect everyone else that much. But add them up, and you've got a health care system that approaches the Pentagon in terms of spending heft.

There is insurance that one may buy to cover long-term care. It's expensive--perhaps too much so for most people. That's one reason why Medicaid scams are so popular. But the easy availability of Medicaid financing for nursing home care undercuts the market for LTC insurance, leaving us trapped in a vicious circle.

Labels: Health care, Medicaid

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The Literary Class and Socialized Medicine
There are many reasons why we haven't made more progress towards bringing economic rationality and market power to health care. Over the last week, I've been reminded of what may be one of those reasons: it's the literary class.

What prompts me to say this? An e-mail exchange I have been having with members of a professional association of freelance writers and editors. After one person ranted about the cost of her health insurance premiums, the discussion has turned into one after another cry for socialized medicine.

We need the Canadian system, said one writer. Another favored France. If support for socialized medicine makes me a communist, said a third, so be it. (These are my recollections, not exact quotes.) I've made a spirited defense, but it's hard to start from square one, and I am getting (thus far) no public support.

Now, I know that it's easy for writers (and many others) to over-estimate their importance: "I'm going to change the world!" But there is something to the notion of the Italian communist, Antonio Gramsci. Here's the dimestore version of one of his key thoughts: "Historically, different intellectuals have created the ideologies that have moulded societies; each class creates one or more groups of intellectuals. Thus, if the working class wants to succeed in becoming hegemonic, it must also create its own intellectuals to develop a new ideology."

Pick up a copy of most magazines in the popular press -- Time, Business Week, Women's Day, Consumer Reports, the New York Times, the syndicated news stories carried in your local paper, what have you -- and most of the time, any treatment of health care policy will emphasize more government regulation of insurance, expansion of government programs such as Medicaid, the weakness of market-based approaches, and a criticism of any new proposals to bring competition and consumer responsibility (with its attendant benefits) to the field of health care.

Is there something about earning a living as a writer that prompts people to think this way? Perhaps. For one thing, many are self-employed freelancers. They look at employees of large corporations, and see generous benefits and low premiums (if they exist at all). By contrast, the small business owner has had a more difficult lot. They want better--and see a move towards socialized medicine as the solution.

There is no necessary reason for this situation to exist. The current tax code, among other structures in the policy environment, have brought us to this point. (For more information, see the Galen Institute for its page on the Consensus Group, which outlines a way out of our current mess.)

Change is hard, and there are certainly ideological and business interests that impede policy reform in this direction. Add to that list, the frustrations of a small but important profession trapped by current policy.

Labels: Health care, Medicaid

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KidCare, the Back Door to a National Health Service?
The Christian Science Monitor reports that S-CHIP, Medicaid for children, is largely being spared from budget-cutting rounds in state capitols.

"Last year, the number of children enrolled in SCHIP went up 7 percent, a rate far slower than in past years. Still, that brought the total number of children covered to more than 5 million, at least during some period of the year."

Some states have raised co-payments, and others have capped enrollment. There are five million children in S-CHIP programs, and the number could soar 80 percent if all who were eligible were actively signed up.

Now, criticism of S-CHIP is like criticism of healthy children, which ranks at or near the top of sacrosanct policy goals. Still, the questions remains of how to achieve that goal. At least the Monitor does bring in a quote from Nina Owcharenko, an analyst at The Heritage Foundation, who favors efforts to make greater use of the private insurance market over another government-run program. (Too bad, though, that state regulators have done so much to damage that alternative.)

In an old yet still relevant essay (PDF), John Hood says that for many children, being uninsured is a state that lasts only a short time. He also warns that the number of uninsured is overstated. Laying the problem of uninsurance on unaffordability brought on by the tax code and regulations, he calls for states to eliminate the mandates that drive up insurance costs, and for refundable tax credits (state, federal, or both) for the purchase of insurance in the private market.

Labels: Health care, Medicaid

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New York Local Pols Blast State Over Medicaid Tax
Former New York City mayor Ed Koch has joined forces with two other pols to create "Fix Albany," a group dedicated "to amend state laws that force part of rising Medicaid costs onto localities, a burden that critics say drives up property taxes. Most other states do not require local governments to share Medicaid costs."

The big-time entitlement programs--Social Security, Medicare, and Medicaid--are going to have to be injected with a healthy dose of competition and reform lest they consume budgets everywhere. Of the three, only Medicaid extensively relies on state funding, as opposed to federal funding. (The amount ranges from one quarter to one half, with the burden higher in wealthier states such as New York.)

I have always had the impression that New York is one of those states that has done the most in the "letting Medicaid get out of control" department. If the tab for the program is carried in part in local property taxes, that's one of the reasons. When one group of politicians can make the decisions about spending but shove the responsibility for raising the taxes to pay for that spending to another group, the true costs are obscured and accountability is weakened.

Labels: Medicaid

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Medicaid Scammers: We Told You So
Governments are keen to prevent the proliferation of schemes--except when one level of government is trying to scheme another.

Recently the Illinois Policy Institute warned against a proposal in the Land of Lincoln to game the Medicaid system (PDF link here). In short, the state taxes hospitals, who pass along the cost, ultimately to people with insurance. In turn, the federal government gives Illinois more Medicaid money, which is then turned over to the hospitals. It's all an attempt to keep the creaky government-run program going, rather than change it fundamentally by using market forces.

Now the federal government is questioning state schemes, in a report carried by the Birmingham (AL) News. Among the practices under question: diverting federal money intended for health care to other purposes. (Wouldn't this be called a case of fraud if a non-profit organization did this?)

Each state has some unique problems with Medicaid, but there are some interesting proposals in Ohio that could be adapted by other states.

Labels: Health care, Medicaid

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Medicaid Expansion: Up in Smoke?
Here's a rule that guides government programs: once it's started, a program will expand in scope beyond all initial promises. Such is the case with government health care programs. States have added to Medicaid by two means: increasing the number of people in the program (by lowing income thresholds and adding new categories of people who qualify) and by increasing the number of services covered over time (chiropractic, etc.)

In Oklahoma, Medicaid has been customized as SoonerCare, and it's a problem with a long history of trouble. Now, the governor, Brad Henry, has proposed raising the state's cigarette tax to bring in new money--and people--into SoonerCare. To his credit (on both policy and political grounds) he has talked of using a chunk of the money to subsidize private-sector insurance plans rather than dump new people into Medicaid.

(Cliche alert). The devil's in the details, and they don't look good. Steve Anderson says that the plan would lead the state down the path of every-increasing costs, supported by an ever-shrinking revenue base. He makes a very smart point that the rate of uninsurance--often quoted as nearly 20 percent--is grossly overstated. Of course, some people without insurance are young and reasonably healthy, and so it's not surprising they choose to forgo insurance. But a more Sooner-specific fact is that nearly 8 percent of the state population qualifies for treatment by Indian Service Units. Take out the Native American population--its percentage of the population is higher in Oklahoma than anywhere else--and the state's uninsured percentage drops below the national average.

Of course, the fact that some people can qualify for a government program isn't necessarily a good thing, a point I make in a companion piece for the Oklahoma Council of Public Affairs. I call for revisions to the tax code, the promotion of Health Savings Accounts, and greater use of vouchers for Medicaid patients.

Labels: Health care, Medicaid

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Middle Class Says: We Want Our Medicaid
There are many ways in which health care is already socialized in this country. There are, for example, two very large government programs that threaten to consumer the national budget, as well as all state budgets. They are Medicare and Medicaid.

Medicare, which gets all the press, is for people aged 65 and older. Then there's Medicaid, which is for low-income people, as well as some other individuals who fall into certain categories.

It's easy to confuse the two. If you're over 65, Medicare (that is, taxpayers) pays for a lot of your expenses, except if you go into a nursing home for an extended time. If you're going to need that, then Medicaid picks up the tab.

But there's a catch. You have to be poor to get Medicaid benefits. And after a lifetime of working hard, saving, paying off mortgages and accumulating pensions, many people can afford to pay for their nursing home care (at least for a while) by drawing down their assets.

Naturally, this is an unpleasant prospect, both for parents (who would like to have something left over to give heirs) and children (who would appreciate the boost of a tidy inheritance check).
Given current tax laws, we rely on employers to provide health insurance, but there is little incentive to purchase the kind of insurance that would pay for long-term care. Given the fact that Medicaid is out there, there's a strong temptation to think that anyone who pays for his own long-term care is a sucker. A small (and growing) industry has grown up of accountants and lawyers who will help the elderly, and their children, hide assets from the government. It's all an attempt to ensure that taxpayers pay for Mom and Pop's nursing home care rather than the family.

Many states try, with much futility, to stop this practice, with "look back" periods and other techniques. One such technique is "asset recovery," or going after the estates of people after their die, in an attempt to partially repay taxpayers with the proceeds of the estate. Sounds cruel, of course, but the alternative is a financially unsustainable system that breeds a culture of dependency.

The Detroit Free Press reports the incredible news that Michigan is one of two states that do not use "asset recovery." Governor Granholm is hoping to start that up, as a way of getting some revenues to plug an expected budget deficit.

State Sen. Toni Harp, a Democrat, puts the issue this way:

It has become an entitlement. The problem is, we have this huge bubble in the baby boom generation that's growing older . . . I don't know if we, as a country, can continue thinking about this in this way.

She's got that right.

Labels: Health care, Long-term care, Medicaid

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The Dangers of Expanding Medicaid
Oklahoma's governor, Brad Henry, has proposed raising cigarette taxes and adding up to 200,000 more people to SoonerCare, the state's Medicaid program. Some of those people (or actually, their employers) will receive subsidies to buy private insurance, though it's not clear what the ratio of employer-coverage versus SoonerCare enrollment would be.

Even if you don't live in the Sooner State, the ensuing debate is worth watching if you are interested in health care policy. The Oklahoma Council of Public Affairs has published two viewpoints on the subject. In the March 2004 of Perspective, I give support for superiority of premium supports over increased enrollment in SoonerCare. Even better, though, would be giving refundable tax credits to the uninsured, as well as loosening regulations that drive up the cost of insurance.

Steve Anderson calls the governor's plan "very bad, and details how the cost of Medicaid programs have historically far outstripped initial projections.

Labels: Health care, Medicaid

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The Non-Poor You Shall Have Always
Jesus said "the poor you shall have always." A derivative of that saying may be "the non-poor you shall have always--in your state programs for the poor.

Michael Bond writes briefly for the Buckeye Institute about Ohio's Medicaid program, which threatens to consume much of that state's budget.

"As the State struggles to deal with a serious budget problem a reasonable question is why a program for the poor covers far more than the total number of impoverished in the State?"

The answer, he writes, lies in the programs continued expansion of the program beyond its original intent. First, the income level to qualify for the program was increased, so that you didn't have to fall under the federal poverty level. Second, eligibility was not limited so single parents; you simply had to fall within the income guidelines.

Some people consider the expansion of government programs a sign of success--more people, in this case, are getting health coverage. But as Bond points out, it's a less sanguine situation: 50 to 75 percent of new Medicaid enrollees dropped their private insurance coverage. In other words, by design or accident, Medicaid expansion has contributed to the decline of personal health insurance and the rise of bureaucratic, socialized medicine.

Labels: Health care, Medicaid

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Formularies Cut State Medicaid Cost
The Boston Globe reports that after putting more bureaucratic restrictions in place, Medicaid spending on prescription drugs is down. Doctors now have to plead with MassHealth, the state Medicaid agency, for permission to dispense drugs that are not generics, or prescription drugs not on a preferred list.

This has brought some cost savings in prescription drugs, but one wonders about other costs this may impose.

"The process takes time, a precious commodity in many busy practices. Beyond that, said Modest, patients often have to wait a day to get the drugs they need. Some give up rather than wait and wind up going without their medicines." Says one doctor, ""For some patients this can be a disaster."

Money saved now may bring higher costs later.

Labels: Medicaid

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Abolishing Co-Pays is a Step in the Wrong Direction
Lawmakers in Connecticut may abolish co-pay requirements for enrollees in Medicaid. Bad move. Doing so would turn Medicaid into a "free" program, in which beneficiaries--some truly poor, others, not--are passive participants in a government bureaucracy.

In short, the problem with eliminating copays is not, in itself, the extra amount that taxpayers will have to pick up. (Co-pay amounts are minimal). It's that it gives beneficiaries no financial stake; health care is back to being "spending someone else's money." Simply giving each person in the program a bank account they can draw on (vouchers), something similar to Medical Savings Accounts or the new Health Savings Accounts, would be much better than eliminating co-pays, or even keeping them in an unchanged system.

Labels: Medicaid

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TennCare, the Program that Ate Tennessee
Tennessee's version of Medicaid, called TennCare, has generally been a fiscal and policy disaster. In 2000, the Heritage Foundation criticized the plan for dramatically raising state costs, driving managed care organizations out of the state, and filled with fraud--including being populated by 16,500 people who lived out of state.) A report by the consulting firm McKinsey & Co estimated that 90 percent of new state revenue between 2004 and 2008 would have go to into the program just to keep it going as is.

Now, Gov. Phil Bredesen is set to announce a plan to keep the program at one quarter of the state budget, instead of the 40 percent it is on target to reach in a few years.

Among the changes: restrictions on use (10 doctor visits a year for some people, strong bias towards generic drugs) and increased co-pays. TennCare beneficiaries average over 30 prescriptions a year; for everyone else in the state, that number is closer to 10.

While they're at it, policy makers ought to consider where consumer-directed care fits into the mix.

Labels: Medicaid

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States Seek to Game Medicaid System, Feds Push Back
States have engaged in various gimmicks and schemes to get more federal money for their Medicaid budgets. (One such example is a tax on hospital stays; the state collects the money, gets rewarded with federal money, and then gives the tax amount, and more, back to the hospitals.) The National Council of State Legislatures calls this an example of a "Medicaid maximization" strategy.

Another example? A nursing home borrows money, gives it to the state, which then launders it through counties, who repay the bank. The state then claims that it has spent the money on medical services, enabling it to get more federal matching funds.

Surely, but slowly, the feds are catching on, which is not good news for state managers. Last year, the General Accounting Office issued a report, Major Management Challenges and Program Risks, which identified Medicaid as one of several federal program "at high risk due to either their greater vulnerabilities to waste, fraud, abuse, and mismanagement or major challenges associated with their economy, efficiency, or
effectiveness." Further, it concludes that "Limited oversight has afforded states and health care providers the opportunity to increase federal funding inappropriately."

(Let's see. If that sort of activity happened at WorldCom, Enron, and .... Well, we know what would happen, but this is government, not the private market at work.)

Stating the obvious, perhaps as a warning shot, officials in HHS now say that states are shoring up their Medicaid budgets with "phantom dollars" in an attempt to attract federal matching funds.

While it's good to know that someone is paying attention in DC, the NYT says that the desire to approve a number of innovative, much needed (market-oriented, consumer-directed) reforms "has bogged down as federal officials try to ferret out improprieties in Medicaid financing."

It's all heading for a state-federal showdown. The Bush team wants states to document the source of state-effort funds before releasing more federal money. State officials, of course, object to the requirement--perhaps on federalism grounds, and perhaps because they fear that their schemes will be found out. But all this demonstrates the fact that federal funding comes with strings attached.

Labels: Medicaid

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I'd Like to Buy a Vowel, or Why Health Care is So Expensive
One reason why health care is so expensive is that there's so much administrative overhead. An official list of acronyms used by the web site of the Centers for Medicare and Medicaid Services (the official agency of Medicaid and Medicare) runs approximately 166 pages--in 8 point Times New Roman font. If you'd like to choke your computer, you can look at the entire list here.

Remember, that collection is just the guide to the alphabet soup of bureaucratic, the tip of the iceberg that's going to sink the ship of state and federal budgets.

Labels: Medicaid

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Shocked! I'm Shocked!
Take a look at this headline from the Chicago Sun-Times: State pork creeps back into budget.

You don't say.

"Only about $15 million of the total equates to new state spending. The rest of the package involves money budgeted in the past for legislative pork and federal funds earmarked for Medicaid.

It includes $1 million to fund grants for the Illinois Arts Council, headed by Shirley Madigan, wife of House Speaker Michael J. Madigan (D-Chicago)."

Labels: Medicaid

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Another Lesson in the Golden Rule
We're not talking about the teaching of Jesus here, but the idea that "he who has the gold makes the rules." Mitt Romney, governor of Massachusetts, wants Medicaid patients to stop seeing physicians at hospitals for routine care, and instead go to community health centers. One concern of the governor: people spending too much money at teaching hospitals. This Boston Globe article cites several physicians who object, saying that the proposal may be inappropriate for people with complicated medical histories.

As for the patients themselves, the possible denial of choice is yet another reason why states need to move to consumer-directed health care, such as using health security accounts, wherein individuals, not officials, weigh and make decisions on where to seek treatment.

Labels: Medicaid

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Sick States
Privatization Watch, a publication of the Reason Public Policy Institute, reports on the fiscal health of states. The bad news (PDF format): they're sick. How did this happen?

1. Expenditures rise to meet income. This happens in all bureaucratic organizations, but it is especially so in public organizations, which don't face the threat of actually going out of business. Governments, by contract, will be tempted to raise taxes at just the wrong time--when the economy goes south.

2. Legislatures that are in session the longest are more likely to raise taxes, as legislators who meet longer are more willing to give in to the pleas of special interests groups for more taxpayer money.

3. It's easy to focus on sensational examples of fraud, waste, and abuse, but the largest elements of spending are those things that people, even legislators, don't understand well. Medicaid is a prime example.

Labels: Medicaid

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TIME For Socialism
The February 2 issue of Time hit a relative's mailbox yesterday, where I picked it up while doing some housesitting. The cover story on the prescription drug controversy (motto: We want drugs, we want them cheap.) is an exercise in populism, economic ignorance, and socialism. To read the whole treatment online, you either have to be a subscriber, or read it through a library or other service that subscribes, but here's a link to excerpts.

I've identified roughly 20 themes in this cover story. Here they are:

1. Guess what? Corporations and government have conspired to cheat you out of the good things in life. (Sometimes this is true, but the authors call for more government, not less.)

2. People who are wealthy (never defined, by the way) got that way through luck, or political manipulation. (To be sure, this is true of some people, such as, oh, the Kennedys.)

3. Life is becoming more complicated; people have to take on more risk. That's unfair. Government ought to "take care" of people. (Waa! Me want bottle!)

4. Off-shoring is bad and should be stopped. (I guess we should be making our own underwear rather than letting Bangladeshis have a job making Fruit-of-the-Looms).

5. Congress is responsible for high drug prices and the fact that some people have no health insurance. (True enough--but not for the reasons the authors have in mind. State and federal tax codes, along with state and federal regulations on insurance, as well as an out-of-control tort system are responsible. Of course, all these contributing factors have been sold as what is good for us.)

6. Anyone who buys a high-deductible insurance policy is a sucker. (In fact, more people ought to be able to buy such policies, but state and federal laws make that nearly impossible.)

7. It's unfair that cash-paying patients pay more than people in Medicaid/Medicare, and private insurance. (This is indeed a problem--precisely because we ought to be using cash more often for medical purchases. The high list price of services is a direct response to the bureaucratic command-and-control system we are using currently--a system that Barlett and Steele (the authors) want to use even more.

8. Congress ought to ensure that all people have "the same incentives and rewards." (Since this is not possible--we all start out with different family and social endowments, for example--this is a call for socialism, a leveling of all differences.)

9. People who buy prescription drugs in Canada are not breaking the law; they are in fact heroes striking against The System. (On a human level, one can understand what these folks are doing; but they are responding to failed government policy more than anything else.)

10. Marketing of prescription drugs is expensive, artificially inflates demand, and is bad. (But how would people know of the drugs that are, by the author's worldview, their birthright?)

11. Congress, the FDA, and Big Pharma are in collusion. (It is true to this extent: the requirements for FDA approval of drugs raises the barrier to entry for new companies as well as new drugs. As such, they do raise consumer prices.) Congressional negotiations are in secret, and the FDA is doing the work of Big Pharma. (True enough--though that's hardly the problem with drug prices.)

12. Consumer prices are artificially high, due to political and other manipulation, especially when we look at the prices paid in Canada. (See number 11; also, the series pays little attention to the damage inflicted by price controls, which is why Canada pays less-and why there is no significant drug industry there.)

13. Drug companies are just plain evil. They are "raping the American people," says Dan Burton, a Congressman whose district includes research drug maker Eli Lilly. (Maybe people in Indiana ought to fire him and get a new congressman who understands why his constituents have jobs.)

14. Prescription drugs are so important to human well-being that the industry ought to be run by government. Says John Edwards, pharmaceutical efforts to hold back Canadian importation (read: price controls) is an act of "taking the democracy away from the American people." Says Gil Gutknecht, a Minnesota Republican, pharma companies are profiteers. (How much more explicit can you get about the need for socialism than by stating that the people ought to set prices? As for what kind of service that would produce, think: Postal Service, IRS, inner-city public schools, etc.)

15. Drug companies just make too much money. They can afford price controls. (Folks, how many drugs have charities developed? The Salvation Army is a fine organization, but I don't recall that they have developed treatments for diabetes, cancer, high blood pressure, etc.)

16. The federal government is wrong to stop cheap imports. (Funny how that line of reasoning doesn't apply to foreign-made steel or, well, anything sold at Wal-Mart.)

17. The recent addition of prescription drug benefits to Medicare is a political sop, a scam. (They're right, though of course, for the wrong reasons.)

18. People are right to resent having to pay for drugs. (And houses, and bread, and cable tv, and ....)

19. There are many causes of higher drug spending (they get this one right).

20. The feds ought to "negotiate ... to get better prices." The VA already does. Medicare ought to do the same. (Yes, and the VA, as important as it is, does not make up half of all spending on health care--so the goose that lays the golden, err, drugs, has not yet been killed. And have you heard that some doctors are so fed up with Medicare red tape and low payments that they have stopped selling their services to government patients? You want to extend that model?)

21. Pharma efforts to defend themselves--lobbying Congress (golly, they have more lobbyists than Congress has members), lobbying the FDA, enforcing contracts with Canadian pharmacies to get them to not sell their drugs on the sly to Americans--are evil. Remember, that's because Pharma is evil. Why, those greedy fiends even refuse to let the feds audit their books. (Sigh).

22. The argument that reimportation of drugs is dangerous is a scam. (Not exactly, but it is not the strongest argument against reimportation and price controls. See point 15.)

23. Don't be worried about socialism in drug production; with NIH and university research, we already have it, and we're doing fine. (The article grossly over-estimates the importance of taxpayer-funded research.)

******

Charlatans. Demagogues. Economic illiterates. Too bad so many people will read this TIME report uncritically. Then again, most are graduates of government schools--institutions known for poor performance in delivering any form of literacy.

Labels: Health care, Medicaid

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Drop That Cookie
An Associated Press story making the rounds says that fat is costly. "Taxpayers foot the doctor's bill for more than half of obesity-related medical costs, which reached a total of $75 billion in 2003, according to a new study."

Well, yes, taxpayers will pay about half of all obesity-related medical costs--because taxpayers already cover about half of all medical costs anyway, through Medicare (for the old), Medicaid (for the poor, and the old in nursing homes), VA hospitals (for veterans), and for insurance programs for government employees. And don't forget the tax subsidy that business (but few individuals) get for buying health insurance.

Expect this new study, though, to be used by the "food police" to call for higher prices on food, to discourage over-eating, by trial lawyers seeking to get fat wallets (as they did with the tobacco settlement), and all other sorts of, well, ills.

Oh yes, the NYT (registration required) edition spells out some costs ($7.7 billion in California alone), and a quote from a well-known public fear-mongering group.

Labels: Health care, Medicaid

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Feds Bail Out States, but For How Long?
In an editorial today, The Oklahoman (registration required) says that the Oklahoma Health Care Authority will spend $34 million of a $99 million federal bailout to increase payments to doctors and other health care providers in Medicaid. Some physicians are currently getting only 72 percent of the going rate for Medicare; they will soon get 90 percent.

(Medicaid, Medicare, yes, confusing. Medicaid is the program for the poor; Medicare, for the elderly. Medicare has tremendous power through the rates it sets.)

This is all and good--if we are going to have a government program, better that the costs be explicitly known and paid for through taxes, rather than lowballing the businesses that provide services to the government. The Oklahoman applauds the decision to increase the low reimbursement rates. But, the paper asks, what happens when this federal windfall runs out?

The headline of the article is "Medicaid Buys Time With Fee Boost." But more fundamental reform is required, as the Oklahoma Council of Public Affairs has noted in article written by your truly and Merrill Matthews. As The Oklahoman concludes its editorial, "A crisis-plagued Medicaid system has just gotten a major boost, but the next crisis could be just around the corner. " Make that WILL be around the corner.

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Rube Goldberg to Fix Health Care--Again
In a measure to game the Medicaid system (and taxpayers in other states) the Illinois General Assembly is considering a measure to tax hospital bed stays. Thanks to federal matching funds, the hospitals get the money back, and more, while insurers pay most of the initial tab. The goal is to bump up Medicaid payments, which are historically low, to hospitals, without spending any more state money. (For more details, see here).

The Assembly is also considering a similar scheme to promote insurance coverage, especially in rural areas. In brief, local governments take money already in the budget and transfer it to the state. The state records the money as "state effort" dollars, thus attracting federal money. The state takes the old, local money, and new, federal money, and gives it over to not-for-profit, local corporations. The new corporations sign up a bunch of people in such numbers that they form an insurance group. The corporations, using the new federal money, subsidize the insurance policies, so employers and employees can buy into the new insurance at a discount.

You have to give some credit to the first person who came up with this idea--credit, at least, for creativity.

But this is simply another Rube Goldberg operation, tinkering with and playing in the same old broken system of third-party payers and government programs.

There are many ways to make insurance more affordable, besides playing such games. Of course, boosting incomes through economic growth (better schools, lower taxes, etc.) would help, though these are long-term solutions. More directly, significant tort reform would lower the cost of medical care. Opening up Association Health Plans to all states would be a private sector-friendly alternative to a new government group. Liberalizing the use of Medical Savings Accounts would help out. So would legalizing basic insurance (that is, not filled with mandates). Tax parity between employer-sponsored and individually-purchased insurance would remove a hidden subsidy to third-party payers. Letting people buy insurance from a company licensed in any state--not just Illinois--would spur competition.

As the above list suggests, state policy makers have limited options. The biggest problem in health care is the discrimination against individual health insurance in the tax code--at the federal level. But there are options for the state as well--options that don't rely on (yet again) scheming the federal rules.

Labels: Health care, Medicaid

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State Regulation no Guarantee of Quality
According to the Daily Herald, Illinois has among the highest enforcement rates of all states when it comes to nursing home regulations. Yet, it says, homes that are fined for violations often slip back into non-compliance.

The paper suggests that lack of funding for more enforcement officials is the problem. But as the population ages and various other demands are made on state budgets, it's not clear that beefed-up inspections will do the trick. Great competition among nursing homes, spurred on through private payment of stays, could offer some help. But as it is, most nursing home stays are paid for through government funds, separating the patient from the payer.

By the way, the Center for Long-Term Care Financing is a good resource for long-term care policy. For example, it offers a response to a recent article in Readers' Digest, which informed readers how to shift their assets around and thus qualify for Medicaid.

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States Freezing CHIPS
A number of states have stopped enrolling new beneficiaries in CHIP, a government-run heath care program for children whose parents are not poor enough to qualify for Medicaid. The reason: tight budgets.

This story from Stateline teaches several lessons. Here is the first: the existence of a government program does not mean that the people who are supposed to benefit actually do. Would you like your children's health to be the hostage of the political process, in which one program competes against another for limited dollars?

What states (and the federal government) need to do is make the cost of health care more affordable for all. This starts with curbing lawsuit abuse, which drives up medical costs. Another goal should be to promote the use of true insurance, rather than what we have, which is an expensive form of pre-paid services. True insurance will be cheaper, and won't drive up health care costs as much as the current system does.

Another lesson from this story is the need to promote charity care. The director of the CHIP program for Alabama said "“We get daily requests from folks who have children who are having crises, who need medical care and don’t know how they are going to wait until they come off the waiting list. They’re very, very concerned."

It's too bad that these people think they have to wait for government care rather than charity care. Charity care is not the complete answer to these situations, of course. But perhaps there would be more of it if people got to keep more of their own money, and spent less of it on government programs, including CHIP.

Labels: Health care, Medicaid

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Illinois Proposal to Tax Hospital Beds is a Bad Idea
This policy brief from the Illinois Policy Institute (written by me, though unsigned) responds to a proposal to impose a bed tax on hospitals.

Who's behind the idea? The Illinois Hospital Association. Why in earth would they do that? Because they can simply pass along the tax to insurance companies and their biggest customer, the state. In return for spending more money, the state gets more federal matching funds, which the state can turn over to the hospitals, who say they are grossly underpaid by Medicaid. Such is the perverse incentive structure of federal health care financing.

The Institute's director, Greg Blankenship, comments on this scheme over on his blog, A New Can of Worms: "When doctors and patients game the system like this, they usually go to jail -- that is if they are caught."

When government officials do this, it's called finding a short-term solution to a difficult situation.

Labels: Health care, Medicaid

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Feds Rate Home Health Care
The Centers for Medicaid and Medicare Services has started compiling consumer reports on nursing homes and home health care. By making "report cards" available to the public, the agency may do some good by doing so it facilitates consumer choice.

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The Granny State
The Cato Institute has come out with a new report, War Between Generations, that predicts how large Social Security, Medicare, and Medicaid will become. (Medicaid is commonly thought of as a medical system for the poor, but over half of its budget is spent on nursing home care for the elderly.)

Rich Lowry finds the proposal to add prescription drug benefits to Medicare just the latest installment in Operation Please Granny. Pulling from the Cato report, he notes that

• Federal spending on these three programs went from 27 percent of the federal budget in 1980 to 41 percent in 2000.


• By 2040, the number of elderly (which will include yours truly) will increase 116 percent, contributing to the further expansion of these programs.


• Poverty among the elderly is down--from 35 percent in 1959 to 10 percent in 2001, a rate lower than the general population. (Some of that is due to simple prosperity, some of it is due to government programs).


• The typical 70 year old used to spend one-third less than the average 30 year old. Now he spends more.


• A man who is 25 now will, over his lifetime, surrender a net of $322,000 in taxes, compared with benefits he will receive in retirement.

It's common to bash baby boomers for being the most selfish generation ever--yet they are not yet collecting Security. (The leading edge of the boomers, born in 1946, are in 2003 57 years old). The problem could get much worse, but it is simply not sustainable. Personal savings accounts for retirement and medical savings accounts for health care will be commonplace once the full disaster of the present system has worked itself out.

Labels: Medicaid

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Want Drugs? Go to Canada
Maybe it's because Minnesota has Canada on its northern border. Maybe it's because "Minnesota Nice" mixes so well with the mythical vision of Canada as just like the U.S., but only more polite. Maybe it's simply wrong-headed thinking (which it is), but the Pawlenty administration is planning to combine two public policy blunders into one program: negotiate a contract by which state residents may purchase pharmaceutical drugs (error one: get government involved as a "purchasing club" for the public) from Canadian pharmacies (error two: encourage violations of federal law), who sell drugs at discounted prices (error three: depend on price controls, which the Canadian government uses to bring about those attractive prices.)

Today the St. Paul Pioneer Press endorses this trifecta of error.

The paper notes "A poll done this month for the Washington Post and ABC News indicates people want to get out from under the bills for prescription drugs, higher in the United States than elsewhere in the developed world."

True enough, people do "want to get out from under the bills." That doesn't require government action, though. I would like to state help to help me get out from my mortgage bill. By golly, that's just too high, you know? And how about my telephone bill? And while we're at it, my greens fees, too.

Ain't gonna happen--nor should it.

Ah, but prescription drugs, that's different. At least in the political calculus. Why? One, senior citizens use prescription drugs more than other age groups; more importantly, they vote more often, too. Two, health care policy has long been based on the perverse notion that somebody else pays the bills. Through government programs (Medicare, Medicaid) and employer-provided insurance, we've become accustomed to health care as a system by which somebody else pays--actually, pre-pays, for our medical care. So the thought of the consumer actually being involved in a retail transaction involving prescription drugs is just too much for some to take.

But back to the Pioneer-Press. They have one thing right: prescription drug prices are indeed higher in the US than elsewhere. Just so that truth is repeated for the thousandth (or more) time, there's one reason for this: other countries are freeriding off the U.S. It's only because the Americans pays full freight of development that drug companies earn the profits required to engage in the expensive research required to bring a drug to market ($800 million for one drug is a number I commonly read).

(Oh yes, another reason for discontent over drug prices: it's easy to see that the marginal cost of producing another pill is next to nothing, and focus on that. It's harder to remember the upfront costs of developing the chemical combination in that pill.)

Labels: Health care, Medicaid

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States Want Guaranteed Money, not Flexibility
No great surprises here, but Stateline.org reports that proposals from the Bush Administration to give states block grants--fixed sums in exchange for increased flexibility--aren't being warmly received by the nation's governors.

Robert Rector, policy expert with The Heritage Foundation, endorses some kind of control, saying "The worst possible situation you could have is one group of politicians spending money raised by another group of politicians. It's a recipe for non-accountability."

Perhaps the best example of how inter-government funds can lead to trouble is the Medicaid. This federal-state program medical program for the poor is a mess for everyone concerned--patients, medical professionals, and state budgets. Thanks to matching funds from Washington, states have an incentive to expand Medicaid in flush times (earning political points from activist groups). But when states need to cut back in hard times, they get hammered by the federal match: cutting $1 in state funds eliminates another $1 (in federal funds), making the total cuts $2. The result? Twice the political opposition for the same fiscal discipline.

Overall, the Bush proposal is a sound one (though the better way would be simply to eliminate many of these programs altogether). But if there's one thing state officials want more than flexibility, it's guaranteed money. And the block grant proposal all but guarantees no new money.

Labels: Medicaid

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Illinois Gov: Pharmaceutical Companies Violate Antitrust Law
Gov. Rod Blagojevich has asked for an investigation into four pharmaceutical companies on the grounds that they are violating anti-trust laws.

The reasoning? As the Sun-Times puts it, these companies " limit supplies sent to Canadian wholesalers and pharmacies, which in turn sell their goods to Americans."

As well they should. The Canadian companies receive their goods under the terms of a contract, which presumably include provisions prohibiting the sale of these drugs across the border. To protect the terms of the contract, the drug companies ought to limit the supplies they ship up north.

Perhaps the governor is under heat for the poor record of the state in paying its medicaid bills to pharmacists. This latest tack--Blagojevich has taken other measures to promote drug importation--is yet another reminder of why putting states in charge of medicine is a bad idea.

Labels: Medicaid

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More on Medicaid
Stateline.org has a short story on the latest Kaiser Foundation study on Medicaid, released last week. What stands out in this story is the attempt to squeeze money out of providers and current recipients, rather than be more careful about how gets into the program in the first place. This is exactly what you would expect from public choice theory--bring more and more people into the program (to create more voters who depend on or favor expansion of the program), and focus less on actually improving the service provided to people already there. By the way, 49 states have reduced payments to doctors and hospitals, but only 18 have changed the income standards for who qualifies--standards that sometimes let people with incomes of up to 2 or 3 times the federal poverty level to enter a public program in some way.

Labels: Medicaid

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Medicaid Growth Slows in 2002
The Kaiser Commission on Medicaid and the Uninsured has three new reports today about Medicaid spending. A survey of the 50 states reveals more of the same--cutting payments to physicians and other health care providers, and raising copayments or restricting services to beneficiaries.

It's not true that Medicaid spending is actually down; spending has increased from year-to-year for quite some time. What is different is that the rate of increase for 2002 was less than the rate of increase from the previous year--the first time something like that has happened in 7 years. In 2001, the rate of growth was 12.8 percent; in 2002 it was "only" 9.3 percent.

In the last 3 years, states have leaned heavily on providers--all 50 states have frozen or even reduced payments to doctors and other providers. But only 32 to 35 have increased copayment requirements, restricted or reduced who is eligible, or reduced benefits.

The Foundation lays the cause of increased spending on the elderly and people with disabilities (rather than the stereotypical low-income household). It notes that spending increased by $7 billion in FY 2002, while overall state revenues decreased by $62 billion (of course not all that "lost money" would have gone to Medicaid, magnifying the importance of increased spending.)

Cutting provider payments and nickel-and-diming beneficiaries cannot stem the fiscal disaster that will befall states if the current path continues. The National Center for Policy Analysis, meanwhile, offers a number of ways to reform Medicaid that will increased consumer care and decrease costs.

An old (March 2003) story in USA Today offers some more statistics.

• First, 47 million people (or 1 in 6 people--16 percent of the population) receive Medicaid benefits. By any standard, that's a large number.


• Nationally, 20 percent of state budgets are spent on Medicaid--second only to education.


• Since its inception in 1965, the number of people covered by Medicaid has "expanded dramatically."

The story ends with a call by FamiliesUSA for national health care. Until recently, there hasn't been much work on finding consumer-friendly alternatives.

Labels: Medicaid

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Penny-wise, Pound Foolish?
Illinois Governor Rod Blagojevich used his line-item veto to cut $12 million in funds for treatment of the mentally ill. The guv says this brings the mental health budget back in line with what he proposed in the spring; critics say that cuts now will lead to more spending down the road, as the mentally ill revert to using inpatient hospital care. According to the Daily Herald, "the governor cut $9.2 million for a program that provides intensive services for the mentally ill to keep them out of hospitals. He cut an additional $1.75 million for a less intensive program that provides housing assistance for the mentally ill. The remainder of the $12 million cut would have paid for drugs to control symptoms of the mentally ill."

There must be $12 million in the state budget that could otherwise be cut--grants to winemakers to promote Illinois wine, for example, or a museum for gay and lesbian history (two budget items from the days of George Ryan, admittedly). And of course, Medicaid itself needs some fundamental reform rather than simple tweaks in spending.

Labels: Medicaid

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British Dentistry Coming to Michigan
Michigan plans to save $27 milllion from its Medicaid budget by cutting services it pays for, including chiropractic, podiatry, and dentistry. A spokesman for the Department of Community Health says that the Department must make the distinction between "the very important and vital." Says the Detroit Free Press, "Adult Medicaid recipients who are in severe pain with swelling and infection still will get emergency dental coverage, covering an exam and treatment, including a tooth extraction." The cost savings, then, will be offset, at least in part, by increased demands for emergency room and other more-costly treatment.

Rather than tweak benefit levels, the state might do better to consider who gets treatment. I'm not sure about Michigan levels, but states often add "optional populations" to coverage--sometimes including people with family incomes up to 300 percent of the federal poverty level. Medicaid in nearly all states (if not all) requires fundamental reform, lest it consume state budgets.

Labels: Medicaid

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Nursing Homes: A $63 Billion Taxpayer Program
Between Medicare (a federal program for people over 65) and Medicaid (a federal/state program for low-income and specified other people), taxpayer funds paid $63 billion for nursing home care in 2002. (To put that into perspective, that's roughly 20 percent of the Defense Department budget).

The feds has launched a "Nursing Home Quality Initiative" aimed at promoting pain management for nursing home resident. A report issued by the General Accounting Office in July says "the proportion of nursing homes with serious quality problems remains unacceptably high."

Labels: Medicaid

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Governors Scuttle Medicaid Reform
Stateline.Org previews this weekend's meeting of the National Governor's Assocation. On the agenda: the fiscal wreck that is Medicaid. The Bush administration offered states flexibility in how they operate this state-federal program (currently, most changes require federal approval) in exchange for a cap on federal matching funds.

Some governors have embraced the plan, and others have not, meaning that Congress hasn't warmed up to it either. It's not necessarily a good plan. Then again, states haven't been terribly inventive or wise in how they've responded, either: cutting services, restricting eligibility, or lowering payments to physicians and others. (They are unwise responses because they typically mean that spending is simply increased in another area.)

The National Center for Policy Analysis has outlined a more creative, and useful proposal for getting a handle on Medicaid expenses, and improving patient care. It requires moving from a bureaucratic-centered to a patient-centered approach to finance and selecting services.

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More Borrowing
The State of Illinois owes medical providers $850 million for Medicare services. The pharmacist's association is complaining that some pharmacies are waiting as long as four months before getting paid. Governor Blagojevich says that borrowing money to get out of this jam--something the state did in July 2002--is not desirable, but given low interest rates, he may want to do it anyway.

Illinois would not be the only state trying to deal with its spending hangover by borrowing. Stateline.org reports that state and local debt across the nation is up over 18 percent this year.

Some of the money being borrowed is for long-term capital projects, such as school buildings or roads. Other borrowing, however, is to cover up deficit spending--something that Moody's and other investment rating services don't like. Stateline notes that Illinois' plan to juice its returns on its pension fund by using borrowed money--taking a margin loan, essentially, is "one of the year's riskier bond transactions."

Labels: Medicaid

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Auto Insurance: Who's Responsible?
The Detroit News has an extended article about a problem that afflicts Michigan, and probably other states as well: inadequate auto insurance coverage.

As many as 1.1 million Michiganders are driving without insurance; half of the drivers in some Detroit neighborhoods are thought to be without insurance. The result is cost-shifting to other other auto insurance premiums, taxpayer funds, hospitals, and even health insurance premiums. The News reports that "the state's insured drivers paid $65 million in surcharges just to cover the medical bills of passengers in uninsured cars in 2001."

Insurance coverage is a requirement to get an auto registration (which is required, of course, for a car to be legal on the road), but enforcement is spotty; police have no way to know if someone presenting a proof of insurance certificate cancelled it five months before.

Michigan is a no-fault state, so in theory, the burden is on each driver to have his own insurance. That could solve the problem--everyone takes care of himself by buying a policy. But the culture of extensive cross-subsidization going on through Medicaid, cost-shifting in hospitals, and other areas is not going to disappear. A broader, though less satisfying approach is to take steps to boost the economic power of low-income families. Making the famously-generous benefit packages of insurance policies in the state may help too.

Roughly 30 states have enforcement programs, but Michigan has none. Perhaps it should start there.

Labels: Health care, Medicaid

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Illinois Freeloads off Pharmacists
Here's another reason why Medicaid needs reforming: it's gotten to large that it is threatening the livelihood of small business owners.

According to the Springfield Journal-Register, the state of Illinois has $2 billion-plus in outstanding Medicaid bills, going back to March. The Journal-Register tells the story of a Springfield-area pharmacist, John Watt, who has been an unwilling banker to the state. The state is now in arrears to the tune of $200,000. He has had to take out loans and even a second mortage on his house to keep his business afloat--now that he's floating money to the state--and has had to stop taking new Medicaid patients.

Drug chain giant Walgreens, meanwhile, says that the state owes that company "tens and tens of millions of dollars."

(Thanks to Greg Blankenship of A New Can of Worms for the pointer.)

Labels: Medicaid

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MORE Socialized Medicine
Between Medicaid, Medicare, government employees, and other public programs, we are roughly half the way there to socialized medicine. Illinois is the latest state to bring the non-poor onto the government rolls.

For KidCare, it boosts the maximum amount allowed to be earned by eligible families from 185 percent of the federal poverty level to 200 percent. That means the cut-off for a family of three, for example, has been raised from $28,236 to $30,516, Blagojevich said.

FamilyCare is a newer program created for pregnant mothers and parents of children in KidCare. Before Tuesday's bill, parents making 49 percent of the federal poverty level were eligible. The expansion raises that to 90 percent now and to 185 percent in three years, officials said.

But if other states are an example, Illinois will be raising the ceiling more. Even as the state deals with a massive budget deficit, statism marches on. And they blame decreased tax collections rather than increased spending ....

Labels: Medicaid

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A Retreat in State Spending
Stateline.org reports that for the first time in 20 years, state fiscal spending will "shrink from one fiscal year to the next." Does this mean that government is being slashed and the tax burden is shrinking? Not exactly. As the story notes, "governors in 29 states proposing $17.5 billion in revenue increases. If enacted, this would be the largest total state tax increase since 1979."

Medicaid has in the last year or so finally gotten attention from policy analysts. It's bad health care, and it's also hideously expensive (these two facts are tied together by the fact that it's a government program.) Speaking of Medicaid, the executive director of the National Governors Association says ""It is now becoming, we would argue, the Pac-Man of state government. Which means it is eating up each additional dollar that can be generated in revenues."

Labels: Medicaid

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Medicaid Reform: Sooner or Later
As part of the recently enacted "tax cut" package agreed to by Congress and President Bush, states will receive $10 million to spend on their medicaid programs. But as stateline.org reporter Erin Madigan, that is a pittance.

Trudi Matthews, chief health policy analyst at The Council of State Governments says that this money is "a real boon to states," since it will allow them to "stave off cuts for a little while longer."

The lowest-income of people have been spared cuts, but their dependency on tax money only shows how poorly the system serves them. The least that should be done is to give those on Medicaid some power over how the money is spent. The National Center for Policy Analysis (NCPA) and Buckeye Institute have created one possible solution to the long-term problem of artificially low reimbursement rates for doctors and hospitals, soaring budgets for states, and health care inflation.

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Minnesota General Assembly Adjourns. Wheh!
The General Assembly of Minnesota has adjourned--without a tax increase. Coming from the state that gave the nation Walter Mondale and Paul Wellstone, that's nothing short of remarkable.

According to a Start-Tribune wrap-up on the session, DFL legislators call the budget a "retreat from decades of generosity." Uhm, if I take money from Smith and give it to Jones (while keeping a bit for my expenses, of course), am I truly generous? Generosity is a virtue, but generosity with other people's money is virtue on the cheap. Likewise, the end of so-called "humanitarian care for our states most vulnerable citizens" confuses policy with virtue.

The DFL leadership calls the various reductions in spending "a ruthless dismantling of the safety net." Chicken little, call your office. For starters, it's simply untrue that (at least some of) the money at stake is the one thing that separates the most financially desperate people from third-world poverty. As one Republican leader notes, he "can't understand why a family of four making as much as $60,000 could get the state to pay for half of its child-care costs." Aren't people who create children supposed to be the ones who take care of them?

This budget being the result of the political process, there's no doubt that some things in the budget got messed up. DFL leaders charge that some cuts will mean the end of outpatient care for some people on the dole, which and they will in turn end up in emergency rooms instead, costing taxpayers even more than would otherwise be the case. That's a plausible claim. The answer, though, is not to keeping adding money to the status quo, but to try out innovative ways to turn the functional control of Medicaid spending from government officials to Medicaid families themselves. The Buckeye Institute and the National Center for Policy Analysis have teamed up to offer one such proposal worth considering.

As the Pioneer-Press reports, the two year budget--for all the cries of cuts and the death of all that is good about Minnesota--does increase over its two year span.

Under the bills, total state spending will decrease by about one-tenth of 1 percent over this year, and then increase by 2 percent in 2005, according to the Finance Department.

So much for the claim by the Senate DFL leader that the budget represents "the most radical turn to the right since the 1920s." Actually, he may be correct. Congratulations to Governor Pawlenty and his colleagues in the Republican-run House for standing firm against the DFL call for yet another tax increase. (Minnesota is, after all, the 3rd highest taxed state).

When individuals and families fear job loss in an era of dramatic economic change, retraint in government spending is necessary for good government, and economic growth. Too bad that this counts as "a radical turn," but the current budget is a start.

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Message to State Governments: Reform Yourselves
An article in today's Wall Street Journal [paid subscription required] notes that what Congress and the President give back in tax cuts, the states may take away in tax increases. The Journal cites economist Mark Zandi, who argues that a half-percentage point of economic growth will be surrendered in the name of balancing state government budgets.

The article also says that state budget officials are happy that the tax on dividends was not eliminated altogether; 37 states rely on the federal definition of income, so the elimination of federal taxes on dividends would mean the elimination of state taxes on dividends, too. (Hey, not a bad idea!)

With states facing a collective shortfall of $85-90 billion dollars, watch out for more tax increases. To date, the article notes, most states have met fiscal challenges through accounting gimmicks and dipping into reserves ("rainy day funds").

Half of the $20 billion bailout to states is to go to Medicaid spending in the states, which the Journal says is a "main driver" of state deficits. Left unsaid is that the states have expanded their Medicaid programs beyond reason, often offering coverage to families at 200 percent (or more) of the federal poverty level.

While state legislatures wrestle with current budget problems, they need to look beyond those and make systematic changes. Businesses across the country are shedding divisions to focus on core competencies. GE started this trend under the now-retireed CEO Jack Welch, who wanted each of the company's businesses to be either #1 or #2 in its field.

Clearly, government in the U.S. is competent at some things--raising and deploying military forces, and (at least by world standards) administering a system of law and justice. But it is less qualified, and has less of a moral claim, to undertake so many other tasks that it has now assumed. Earlier this year, I played a small part in a report issused by the Mackinac Center that outlined ways that the State of Michigan could focus on what should be its core competencies. States across the country need to engage in this kind of analysis--and then act on it--rather than call out to Washington for more cash, or raise taxes at home.

Labels: Medicaid

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Price Controls on Pharmaceuticals: Reviewing the Court Opinion
So what did the Supreme Court say in PhRMA v. Walsh? Keeping in mind that I am not an attorney, here is my take on the decision, which is available through the Supreme Court decision. My comments are [in brackets.]

Section 1:
As a joint federal-state program, any changes that states make to their Medicaid program must be approved by the Secretary of Health and Human Services (HHS). In the 1980s, states started creating formularies--lists of drugs that they would buy for Medicaid." They also started using "prior authorization" (PA) requirements for Medicaid and other programs. Under PA, a doctor who wishes to prescribe a drug for a patient must consult the formulary. If the drug is there, fine. If not, he must petition the government for approval. [Medicine by bureaucracy!]. HHS started approving these programs because they lower Medicaid costs, by design and practice. Congress subsequently gave its approval to these programs. It went further, and required that drug companies wishing to sell to Medicaid rebate a portion of the price. It also ratified prior authorization.

Section 2:
Maine enacts a law requiring any company that sells drugs to any publicly financed program in the state to give rebates to the State Commissioner of Human Services. The products of companies that do not comply will be subject to prior authorization. A "Drug Utilization Review Committee" will be created to determine what drugs are suitable for prior authorization, and which can be purchased only after a case-by-case review by government officials.

Section 3:
PhRMA, the trade group, filed suit. In affidavits the group presented, company officials state that prior authorization requirements for any particular severely curtails sales of that drug, and shifts physician and patient loyalty to other drugs, or even other companies. [Naturally!]

Section 4:
The district court granted an injunction, keeping the program from operating. It said that federal law prevented the program from going forward, since it could end up hurting Medicaid recipients. And prior authorization requirements could hurt someone on Medicaid, the district court said.

The Court of Appeals disagreed. It said, first, that federal law explicitly permits prior authorization requirements. It also said that a prior authorization program actually furthers the goal of Medicaid--furthering the provision of medical services--by helping those with insufficient means. [Hmm. I guess anything that makes medicine cheaper is ok, then, by this reasoning.] Further, the Appeals Court said, this program [through rebated prices for non-Medicaid people] may benefit Medicaid by keeping people off of Medicaid who might otherwise be driven there by high drug prices.

Section 4
The question at hand is whether the District Court overstepped its bounds by issuing the injunction, not whether the Maine Rx program is valid.

It is possible that HHS could approve the Maine program as an amendment to its Medicaid program. In fact, the amicus brief we received from the US government makes us think that HHS may endorse this program.

Section 5
The District Court ruled that the Rx program hindered Medicaid and had no Medicaid benefit, which makes it contrary to federal law. But Maine never said outright that Rx lacked a benefit to Medicaid, it just never mentioned one.

But we believe that Rx is indeed meant to benefit Medicaid. First, it does provide medical benefits to the "medically needy." Second, "there is the possibility [!] that, by enabling some borderline aged and infirm persons better access to prescription drugs earlier, Medicaid expenses will be reduced." [Ah yes. Anything that might reduce public spending is justified.] Third, prior authorization requirements do save money--we know that from the testimony of the drug makers themselves that spending on their drugs goes down under PA.

Now, does PA curtail Medicaid recipient's access to prescription drugs? That would be enough to overturn the program. Or would it? A prior decision (Alexander v. Choate) gives states great latitude in deciding what medical care is in the best interest of recipients. In that case, Tennessee was allowed to reduce the amount of days it pays for inpatient care from 20 to 14 days, and that doing so did not reduce "meaningful access" to medical services. [Reducing hospital stays by one-third is not "meaningful"?]

The prior authorization requirement "is assumed [!] to have only a minimal impact on Medicaid recipient's access to prescription drugs." Hillsborough County. v. Automated Medical Laboratories established that federal law does not pre-empt state laws designed to foster public health. So "the mere fact that prior authorization may impose a modest impediment to access to prescription drugs provided at government expense does not provide a sufficient basis for preemption of the entire Maine Rx program."

At this point, the degree to which any Medicaid patient would suffer from a PA requirement is "a matter of conjecture," and in fact, we can't say that even one person will suffer.

Does this affect drug companies? We have affidavits that such requirements affect their sale of specific drugs, but that's irrelevant, since, hey, it saves money for Medicaid.

Does this affect physicians? Not really. They have learned to deal with PA requirements imposed by HMOs. This is just more of the same.

Should HHS approve this program as a modification of Medicaid in Maine? We offer no opinion. Should HHS refuse Medicaid money if Maine does not seek that approval? Again, it is not for us to say.

Section 6
We do not buy the claim that the Rx program violates the Commerce Clause. It makes no effort to regulate the price of a transaction that occurs outside of Maine. This does affect drug companies, to be sure, and if it affected only out of state drug companies but not in-state drug companies, it would be an unfair tax, and that would be a different matter. But it "will not impose a disparate burden on any [outside] competitors"--because there are no drug manufacturers in Maine.

Section 7
PhRMA has failed to establish its case.

Labels: Medicaid

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Price Controls on Pharmaceuticals: Supremes Turn Back Challenge
Thanks to advances in science, prescription drugs are playing an ever-larger role in health care. Even though increased use of drugs can lower overall health care spending, their rising costs pose problems for three groups: senior citizens who depend on Medicare (which does not pay for prescription drugs), the uninsured (who, obviously, don't have insurance to pay for the drugs), and state politicians (who must not only find ways to pay the drug bills incurred by Medicaid, but respond to clamoring constituents.)

In 2000, the State of Maine enacted Maine Rx, a program which officials claim would cut drug prices by 25 percent. The Associated Press and Washington Post review a recently issued Supreme Court opinion on a legal challenge to the program.

Under the plan, which attempts to use the state's bulk purchases of drugs for the Medicaid program as a bargaining chip, the state would buy even more drugs, at discounted Medicaid prices, for people who are not on government assistance. As the Post summarizes it, "Maine Rx empowers the state to require that drugmakers who want to sell to the state's Medicaid patients also finance a rebate on medicines for non-Medicaid patients. Drugs made by companies that refuse can be sold to Medicaid only if a state official gives 'prior authorization'--a significant handicap."

The Pharmaceutical Research and Manufacturers of America, a trade group, filed suit, arguing that the program (again, quoting the Post) "amounted to regulation of interstate commece by one state and that it conflicted with the federal government's authority to se the rules of Medicaid." The AP story adds this kicker: "If prices don't drop in three years, the state could impose price controls."

Labels: Health care, Medicaid

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State Budget Deficits-Whose Fault is It Anyway?
State governments across the country are dealing with huge budget deficits, both current ($30 billion for this fiscal year) and projected ($80 billion for the next fiscal year). Many governors demand more federal money, claiming that the problem stems from unfunded mandates from Washington.

Michael S. Greve, a scholar with the American Enterprise Institute, agrees that there is need for federal action, but he doesn't call for more money. Rather, he calls for a reform in the way that federal dollars flow to the states. A brief review cannot do justice to this essay, which covers not only budget policy but federalism, education, and health care policy. But here are a few points that stuck out:

Since World War II, the role of federal spending in the national economy has been stagnant, at about 17 percent of Gross Domestic Product. State spending, however, as doubled, from 5 percent to 10 percent.

How did this happen? Through what governors are asking more money for even now -- joint federal/state programs such as Medicaid. "Federal funding of state-administered programs," Greve writes, "permanently inflates the demand for government."

State politicians like to please constituents and interest groups by expanding government programs--that's the old "buy your voters" technique. In the case of federal/state programs, the feds match state spending. So if a state spends $1 on Medicaid, it gets $1 (or even more) from the federal treasury. The state politicos get to satisfy demands for increased spending, but they can shift some of the responsibility onto the federal tax system: increase overall state programs by 100 percent, for example, but increase the demands on the state budget by only 50 percent. A smart move for state politicians? Certainly. Who can resist a 2-for-1 sale?

In the states, though, the political process that reconciles the demands of taxpayers, who want lower taxes, with those on the dole--program beneficiaries, administrators, consultants, and assorted technocrats--who want higher spending--is distorted by the federal funds. By design, federal matches result in states spending more on, say, Medicaid, than they would have otherwise. With money coming from Uncle Sam, expanding a state program doesn't seem as costly after all. By spending another $100 on Medicaid, the flow of money to those on the dole increases by $200.

When hard times come, however, watch out. If the state cuts its $100 share, it loses the $100 in federal money, and a $200 cut to a program sounds a lot worse than a $100 one. It also affects more people--people who have a very strong interest in seeing the deficit by increasing taxes, preferably on somebody else. Joe Taxpayer, on the other hand, might save a few bucks from cutting taxes (rather than spending in one particular program), so he is not going to be as motivated about making his views known. So guess which policy option--increased taxes or decreased spending--wins out over time?

Greve has some specific recommendations about education and Medicaid, which are worth the time of anyone interested in those issues.

Labels: Medicaid

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