Controlling the Cost of Medicaid

Controlling the Cost of Medicaid

July 30, 2012 at 4:00 am

Governor Andrew Cuomo created the Medicaid Redesign Team in 2011 to address the increasing cost of Medicaid for New York. Flickr/Patja.

According to Harvard researchers, states can save lives by expanding their Medicaid program.

The New England Journal of Medicine published a study last week that looked at Medicaid expansion and mortality in the country. The study found that states that expanded their Medicaid program saw a decrease in mortality rates, most significantly among adults between the ages of 35 and 64 years, nonwhites, and those living in poorer counties. The research compared three states that had greatly expanded Medicaid eligibility since 2000 — New York, Maine and Arizona — with nearby states that had not, such as New Hampshire, Nevada and Pennsylvania.

This comes at a time when states are debating whether or not to expand their program in 2014 under the Affordable Care Act. New York, which in 2001 increased eligibility to 150 percent of the federal poverty level, is on track to increase eligibility again, according to Governor Andrew Cuomo.

As of last October, the number of New Yorkers on Medicaid was about five million, with about two million in New York City alone. The program costs about $54 billion a year. With the expansion, the state is predicting roughly 90,000 New Yorkers will become newly eligible for Medicaid.

Because New York does not discriminate based on age, sex or pre-existing health conditions in what is called a “pure community rating,” the state already faces one of the highest health care costs in the country. But the federal government has promised to fund 100 percent of the new Medicaid enrollment beginning in 2014 and until 2020.

Just because you build a better system, doesn’t mean the people who are going to play are going to change their habits.

As federal funding gradually decreases to 90 percent in perpetuity by 2020, the bigger question is the price for New York. The state’s part of the funding depends on the number of newly Medicaid-eligible New Yorkers that come forward to get coverage in 2014. It also depends on how many of the 800,000 people who are currently eligible for the program, but aren’t using it, come forward to do so. According to a study by the Henry J. Kaiser Family Foundation, this cost from 2020 onward could range anywhere between $800 million to $2 billion for the state.

Russell Sykes, senior fellow at the Empire Center for New York State Policy, says it is difficult for New York’s Division of Budget to book savings for the expansion when it is unclear whether the low or high rate will prevail.

“Any expansion of Medicaid within a program that is by far the most costly in the nation, by far the most generous benefit package in the nation is going to cost New York taxpayers something,” he said, “so the question becomes the unpredictability of that.” He added that for those who “come out of the woodwork,”(meaning, they are currently eligible but not participating), the federal government would continue to fund this population only at the current 50 percent, not 100 percent.

Spend more, save more

Last year, Gov. Andrew Cuomo put together the Medicaid Redesign Team (MRT) to address the effectiveness and ballooning cost of Medicaid. This May, the governor announced that the state successfully spent $14 million less than the Medicaid Global Spending Cap for the 2011-12 fiscal year.

But to help redesign the Medicaid program the state is also asking for an extra $10 billion from the federal government, or $2 billion a year over the next five years.

Under Section 1115 of the federal Medicaid law, states are allowed to test out reforms outside of the law and its regulations. According to Lara Kassel, coordinator at Medicaid Matters NY, granting the 1115 “super waiver” would eventually save the federal government somewhere between $15 to $18 billion in funding New York’s Medicaid program.

Lara Kassel represents Medicaid Matters NY as part of the Medicaid Redesign Team. Medicaid Matters NY is a state-wide consumer advocacy group that works to preserve the interests of the people in the Medicaid program, rather than the interests of hospitals or insurance providers.

“We believe that the way to reform Medicaid responsibly is to make sure that people’s needs are met,” said Kassel. “Even though you’re paying for them to seek primary care, or paying for them to seek physical therapy or prescription drug coverage, you’re keeping them well and thereby keeping them from needing higher cost services.”

New York's Medicaid program costs about $54 billion a year. Flickr/Images_of_Money.

According to a study conducted by the Department of Population Health at the NYU Langone Medical Center, only 63 percent of New Yorkers on Medicaid with chronic conditions, like diabetes and high cholesterol, are regularly taking their medication. The research focused on participants in the city’s Medicaid program.

Kassel acknowledges that the reform will not be automatic with the extra funding, and that the state will have to be proactive about making specific changes. These changes include using medical homes to care for chronically ill patients and keep them out of the hospital, as well as shifting funding to a managed care model for everyone enrolled in the program; right now, the state mostly operates on a pay-per-service model. It also means promoting community-based programs to ensure healthy behavior and improving long-term care.

But Sykes believes that these reforms and the extra money will not be effective unless more focus is given to patient responsibility.

“Just because you build a better system, doesn’t mean the people who are going to play are going to change their habits,” he said.

Under the Affordable Care Act, New York received a $2 million grant through the Medicaid Incentive Program for Prevention of Chronic Diseases program, to support Medicaid recipients in prevention programs or those working to adopt healthy behaviors. Sykes believes that these incentives need to be brought to a much larger scale.

“I think this gives New York a huge opportunity to really experiment with much more on the patient side, in insisting on correct behavior through certain responsibilities that can be expected from the people who use the medical system,” he said.

For doctors and hospitals however, expanding the program could require them to cut back service. In a 2008 study by the Urban Institute, the data showed that New York paid its doctors 29 percent of what private insurers paid for their services, compared to states like Alaska that paid 113 percent. A Forbes article last week concluded that the larger the Medicaid program, the smaller the doctor reimbursement.


New York paid its doctors 29 percent of what private insurers paid for Medicaid patient care in 2008, due in part to its extensive Medicaid program. The red and blue shades refer to the level of reimbursement in the state; red represents high reimbursement, blue represents low reimbursement. Graphic by Avik Roy/The Apothecary.


Part of the Affordable Care Act calls for decreasing Disproportionate Share Hospital (DSH) funding as well, money that goes to hospitals that treat a disproportionately high number of low-income patients.

“The law’s DSH funding cuts remain a matter of significant concern for the Health and Hospitals Corporation and safety net hospitals all across the country,” said Alan D. Aviles, president of the NYC Health and Hospitals Corporation. “Coverage likely won’t expand as rapidly as needed to compensate hospitals for the significant federal support lost through the DSH cuts.”

The New England Journal of Medicine study shows that expanding the program can save lives. But hospitals will need to find new ways to do that if they are to treat patients at lower costs, according to Chanel Caraway, deputy press secretary at the NYC Department of Health and Mental Hygiene. By being forced to do more with less, hospitals will need to increase their efforts to keep patients healthy and prevent them from needing care.

The uncertain future

Since New York already covers above the level required by the Affordable Care Act, a large portion of the new enrollment would come from single, childless adults who are currently only covered by the state’s Medicaid program up to 100 percent of the federal poverty level. The law would increase this by 33 percent, according to Kassel.

But the existing Medicaid program is not operating at its full potential, with the many Medicaid-eligible New Yorkers not on the program for various reasons. Sykes acknowledges the huge pressure for New York to pass the 1115 waiver, as it is an essential piece in making sure New York’s Medicaid program can be sustained. The state currently faces a budget deficit of $3.5 billion. However, the federal government faces a much higher debt.

“You’ve got this Catch-22. You’ve got this promise of additional federal dollars, but at the same time you know that the federal budget deficit is raging,” said Sykes. “No matter how well intended or how well designed, there’s a high risk that some or all of [the waiver] will not be granted. That could undo a lot of New York’s plans.”

Kassel hopes that the federal government will recognize that New York has made strides to create a more efficient Medicaid program, and therefore should be allowed to invest more money.

The state government is planning to submit the 1115 waiver sometime this fall, and receive a decision by the end of the year.