Medicaid Reform:
Balancing Care, Coverage, and Cost

In 2004, the total costs nationally for Medicaid were about $295 billion.¹ In addition, Medicaid is growing rapidly as a portion of state budgets. However, despite the large overall expense, the challenge with Medicaid reform efforts is to cut costs from what is "already a lean program, spending less per person than private insurance after adjusting for age and health status." ²

States administer the jointly funded federal-state Medicaid program, governed by a combination of mandatory federal coverage requirements and state options that qualify for federal matching funds.^{3 4} Because of the significant impact of Medicaid on state budgets, the National Governors Association (NGA) developed detailed recommendations for Medicaid reform that they presented in testimony before the Senate Finance Committee on June 15, 2005.⁵ The recommendations were billed as "short-term reforms" to "help modernize, streamline and strengthen this critical state program," and included: prescription drug improvements, asset policy reforms, cost sharing provisions, benefit package flexibility, comprehensive waiver reforms, judicial reforms, and Medicaid partnership payment review by territory and jurisdiction.⁶

Additionally, as part of the fiscal year 2006 budget resolution approved by Congress in April, lawmakers established a federal commission to recommend proposals to eliminate $10 billion from Medicaid over five years, as well as long-term proposals to reduce Medicaid costs.⁷

Beyond the partisan and politically charged disagreements that have underscored the nomination and selection of the federal commission members, the challenge to Medicaid reformers will be reconciling the goal of cost cutting with the need to provide quality health care. Cost efficiency in providing health care to the indigent and disabled also requires balancing short-term costs of preventive care services against higher long-term expenses generated by the lack of such services.

Because the majority of rising costs are not caused by inefficiency of the Medicaid program itself, but rather by more systemic problems - such as the increasing number of people without insurance, the aging of the U.S. population, and the rising costs of health care in general -- reining in the costs of the program will require comprehensive solutions that consider these long-term trends and their effects. For example, since many Americans do not have coverage for long-term care, they rely on Medicaid. Medicaid covers 43 percent of all long-term care, and the 25 percent of Medicaid beneficiaries who receive Medicaid long-term care coverage constitute 70 percent of Medicaid expenditures.⁸

Potential Solutions

Potential Medicaid reform solutions will likely take a multi-dimensional approach, targeting categories such as:

• Contributing individual finances and planning.
• To prevent entrance into the Medicaid system by those with financial resources to cover their own costs or a portion thereof, insuring that coverage is reserved for low-income persons and not as an asset protection program, one option considered is placing restrictions on, or imposing penalties for, asset transfers used to render people eligible for Medicaid coverage.
• Incentives to obtain long-term care insurance would extend individual ability to obtain coverage, and offset dependence on the stretched-thin Medicaid system.
• Fee scales based on Medicaid eligibility tests would help identify those Medicaid beneficiaries with sufficient financial resources to share costs.
• Premium subsidies for low-income individuals would offset disproportionate impact and avoid disenrollment/uninsurance effects that would otherwise increase the burden on costly emergency-based reactive health care.
• Altering benefits offered.
• Offering more targeted services based on individual need would avoid redundancies and unnecessary expenses unjustified by true care needs.
• Increasing focus on preventive versus reactive medicine would avoid lowering short-term costs at the expense of increasing long-term costs, and would simultaneously improve quality of care.
• Limiting mandatory federal benefits requirements would allow states greater flexibility in determining optimal coverage schedules.
• Implementing administrative changes to lower systemic costs.
• Using information technology would increase efficiency, cut costs, and improve patient care coordination among multiple providers.
• Forming cooperative purchasing pools would enhance state-level ability to negotiate better pricing for supplies and services.
• Increasing long-term care alternatives to nursing home care would minimize costs and improve quality for individuals who would benefit from such alternative residential settings, such as home- or community-based care, or assisted living facilities.
• Adapting private sector initiatives.
• Health savings accounts would expand individual spending power, encourage individual fiscal responsibility, provide an additional coverage option for smaller businesses to provide employee benefits, and provide an option for coverage for individuals who would otherwise either be uninsured or dependent on Medicaid.
• Incentives for private employer-based health insurance coverage would minimize burden on the Medicaid system.

State Reform Models

State and federal fiscal shortages have already required states to address escalating costs of the Medicaid program through reform efforts.⁹ Some of these efforts can be used as models for the broader potential solutions outlined above.

Because states currently obtain federal Medicaid funding according to guidelines establishing mandatory and optional coverage categories of people and treatments, states have experimented with various innovative models to minimize costs. With waiver programs, such as the Section 1115 waiver, states have tried to use federal funds in ways that go beyond federal standards. The new Section 1115 waiver initiative released in 2001 may provide lessons in the context of the broader debate over Medicaid restructuring since, in exchange for the increased flexibility provided through waivers, states must accept a cap on federal financing and therefore have even greater incentive to use waivers as a tool to reduce program spending rather than expand coverage.

Several states, however, have implemented innovative methods to deliver quality health care more efficiently and at lower costs. In May 2005, Maryland, Louisiana, and West Virginia became the second multi-state purchasing pool approved by the Centers for Medicare and Medicaid Services (CMS)--joining to increase bargaining power to negotiate deeper discounts for pharmaceutical drug costs. These states then apply the savings created by lower drug costs to help prevent future cuts in benefits or eligibility. Projected savings for the state of Maryland in 2006 are $19 million; officials estimate that Louisiana will save $27 million and that West Virginia will save $16 million under the new system.¹⁰

Research on such trends and models--considering both short- and long-term implications for cost, quality of care, and extent of coverage of the low-income population--can play an integral role in an informed debate and development of policy during the upcoming discussions of Medicaid reform. HCFO-funded research results and several ongoing HCFO projects can also provide an additional context for some of the policy issues under discussion, such as the impact of changes in benefits and delivery systems on access to care and outcomes for Medicaid beneficiaries.

Read About HCFO-Funded Research on Medicaid:

Title: Market-Level Effects of Medicaid HMOs on Physician Participation, Enrollee Access, and Program Costs
Institution: Emory University
Time: May 2004 - April 2006
Principal Investigator: Bradley Herring, Ph.D.

What does capitated Medicaid managed care buy? States have markedly increased their use of capitated Medicaid managed care during the 1990s in the hope of either increasing enrollee access or decreasing costs, or both. Early research found that this delivery system did shift the site of ambulatory care but did not necessarily increase preventive care or reduce hospitalizations. This project uses the Community Tracking Study (CTS) physician and household surveys to examine the effects of increased Medicaid HMO penetration on physician participation, enrollee access, and cost savings achieved by changing service mix. The objective of this study is to provide policymakers with a more up-to-date and comprehensive look at what capitated Medicaid managed care "buys," which would be especially useful in the current climate of fiscal constraint.

For more information about this grant, contact Dr. Herring: bjherri@sph.emory.edu

Title: Assessing National Security and Child Health: Reexamining the Role of Medicaid and EPSDT
Institution: George Washington University
Time: December 2004 - May 2005
Principal Investigator: Sara Rosenbaum, J.D.

What is the relationship between Medicaid and the young adults (and their families) that serve in the military? The researchers are studying this relationship. They note that this relationship is important since new recruits are likely to come from lower income families and military pay renders many families low income, increasing the likelihood that applicants and enlistees have been "touched by" Medicaid over their childhood and adolescence. In particular, the researchers are synthesizing: 1) what is known about the economic status of members of the military during their pre-enlistment lives; and 2) what is known about the health status of applicants and enlistees and their families. Through interviews, they are also identifying common experiences of communities surrounding five to seven of the largest military bases in terms of healthcare needs, Medicaid enrollment, and utilization. The objective of this study is to inform the policy debate regarding the budget and program design for Medicaid.

For more information about this grant, contact Ms. Rosenbaum: sarar@gwu.edu

Title: Meeting the Future Long-Term Care Needs of the Baby Boomers: How the Changing Structure of Families Will Affect Paid Helpers and Institutions
Institution: The Urban Institute
Time: December 2003 - November 2005
Principal Investigator: Richard W. Johnson, Ph.D.

How do families choose among types of long-term care services for older adults and what will be the demand for these services over the next 40 years? The researchers will estimate a model of informal family care, nursing home care, paid home care, and residence in assisted living settings. The model will show the impact of health status, financial resources, family networks, and relative prices, determined in part by family characteristics and in part by public policy. They will then use the model to simulate the effects of potential changes in public policy on long-term care decisions, including the impact of an expansion of Medicaid eligibility or of expansions in Medicare coverage of long-term care services. The objective of the project is to better understand how competing social, demographic, and economic trends combine to determine future demand for long-term care services.

For more information about this grant, contact Dr. Johnson: rjohnson@ui.urban.org

Title: Impact of Private Long-term Care Insurance on Demand for Care: Setting and Intensity
Institution: Brandeis University
Time: November 2003 - October 2004
Principal Investigator: Christine Bishop, Ph.D.

How does long-term care (LTC) insurance affect decisions about the setting of care and the level of service received among elders with disabilities? The researchers will answer the following research questions: 1) How does LTC insurance affect the probability of receiving care in a residential setting compared with the probability of receiving care in a community setting? 2) How does LTC insurance coverage affect the amount of formal and informal care used? Through their analyses, the researchers will estimate the future expenditures for LTC, future service capacity needs, and future burdens on families providing informal care. The objective of the project is to provide policymakers with better information as they consider decisions that would expand the use of LTC insurance and as they think about the future demand for LTC services.

For more information about this grant, contact Dr. Bishop: bishop@brandeis.edu

Title: The Effects of Managed Care Organizations on Government Spending and Health Care Quality: Evidence from California 's Medicaid Mandates
Institution: University of Maryland
Time: October 2002 - March 2004
Principal Investigator: Mark Duggan, Ph.D.

How does mandatory Medicaid managed care affect cost and outcomes? The researchers evaluated how county-level mandates that require most Medicaid recipients to enroll in a managed care plan affect spending and health outcomes in California. Specifically, they estimated the effect of switching recipients from fee-for-service (FFS) to managed care in twenty counties on government spending, medical care treatments, and health outcomes. Work done by the researchers showed that the switch from FFS Medicaid to Medicaid managed care among people eligible through welfare was associated with a significant increase in Medicaid spending and a decrease in avoidable hospitalizations. In this study, the researchers built on that work to examine differences across the three types of managed care used, estimate the effect for eligibility categories other than welfare, assess differences in the results based on age, race, gender, ethnicity, and urban/rural location. The objective of the study was to provide policymakers with more information about the effects of transitioning from FFS Medicaid to Medicaid effects of transitioning from FFS Medicaid to Medicaid managed care in terms of spending and quality.

For more information about this grant, contact Dr. Duggan: duggan@econ.bsos.umd.edu

Title: Medicaid Managed Care and Health Care Access, Use, and Quality
Institution: Stanford University School of Medicine
Time: May 2002 - August 2003
Principal Investigator: Laurence Baker, Ph.D.

What are the effects of recent expansions in Medicaid managed care on children's ability to access and use care? Using longitudinal data from the National Survey of America's Families and the Community Tracking Study, the researchers identified effects of managed care by looking at the changes in health care access and utilization over time. They examined the relationship between these changes and changes of the size of the Medicaid population covered by managed care. The objective of the project was to inform policymakers about how Medicaid managed care might affect health care access and use among children.

For more information about this grant, contact Dr. Baker: laurence.baker@stanford.edu

Title: Quality Assessment of South Carolina Medicaid Managed Care
Institution: Medical University of South Carolina
Time: March 2002 - February 2003
Principal Investigator: William B. Pittard, M.D.

What amount of preventive care is provided to urban and rural South Carolina preschool Medicaid children in two voluntary primary case management (PCCM) managed care programs? The hypothesis tested was that there are significant differences between the proportion of one year old Medicaid children who receive the American Academy of Pediatrics recommended number of Early and Periodic Screening Diagnosis and Treatment (EPSDT) evaluations enrolled in the state's two PCCM programs and that these differences vary based on rural versus urban residence. The objective of this work was to produce results that will suggest future alterations in public health-care financing to facilitate further improvement in cost, access and quality of care for children.

For more information about this grant, contact Dr. Pittard: pittardw@musc.edu

Title: Assessing the Impact of Medicaid Equalization Policies on Access to Nursing Home Care
Institution: Syracuse University
Time: January 2002 - July 2003
Principal Investigator: Madonna Harrington Meyer, Ph.D.

What is the impact of Medicaid equalization policies for nursing home admissions on older persons and their families, the nursing home industry, and state Medicaid programs? The researchers had three objectives: (1) identify which states have passed provisions that limit the discrepancy between private and Medicaid rates; (2) assess the impact of that legislation on nursing home profits, closures, waiting lists, occupancy rates and state Medicaid budgets; and (3) trace the passage of each state-specific policy to assess the feasibility of developing a model for a national Medicaid equalization law. The objective of the study was to inform policymakers about the implications of revising the Medicaid and long term care systems through a national Medicaid equalization policy.

For more information about this grant, contact Dr. Meyer: mhm@maxwell.syr.edu

Title: Insurance Coverage, Use of Prenatal Care, and the Financing of Birth Outcomes in Nine States Pre and Post Welfare Reform
Institution: Emory University
Time: January 2001 - January 2002
Principal Investigator: E. Kathleen Adams, Ph.D.

How does the Personal Responsibility and Work Opportunity Reconciliation Act 's (PRWORA) de-coupling of cash assistance from Medicaid affect insurance status and access to and utilization of prenatal care for low-income pregnant and childbearing women? Researchers at Emory University tested two hypotheses: 1) low-income women are less likely to be insured prior to and during pregnancy as a result of PRWORA; and, 2) decreased enrollment in Medicaid due to PRWORA will make it more likely that low-income women delay prenatal care, resulting in poor birth outcomes and increased need for financial resources following birth. They speculated that even if the rate of Medicaid-funded births remains steady, the costs of caring for high-risk infants rises because of the increase in uninsurance prior to delivery. The objective of this project was to inform state and federal policymakers about the effects of welfare reform on having insurance, accessing care, and costs of care for both women and infants.

Grantee Publications:

"Transitions in Insurance Coverage from Before Pregnancy through Delivery in Nine States, 1996-1999", Health Affairs-- January/February 2003. http://www.hcfo.net/grantees/GranteePub.cfm?id=%20116

HCFO Cyber Seminar, December 2003: http://www.hcfo.net/cyberseminar/1203/

For more information about this grant, contact Dr. Adams: eadam01@sph.emory.edu

Title: Evaluating Florida 's Medicaid Provider Service Network Demonstration Project
Institution: Florida Agency for Health Care Administration
Time: April 2000 - June 2004
Principal Investigator: Bob Sharpe, Ph.D.

What effect will enrollment in Provider Service Networks (PSNs) have on Medicaid providers, costs to the program, and care quality and outcomes for beneficiaries? Researchers at the University of Florida (with support from Florida 's Agency for Health Care Administration (AHCA)) evaluated a demonstration project in Florida whereby Medicaid beneficiaries had the opportunity to enroll in PSNs for their health care. Currently, these beneficiaries have the choice of two other products: a Medicaid HMO or a fee-for-service model with primary care case-management. The demonstration was mandated via a state legislative order and was designed and implemented through a Medicaid 1915 waiver. The goals of the PSN demonstration were to slow the growth in health care costs by reducing the role of the insurance middle-man; to offer incentives to providers to share risk (unlike in Medicaid managed care models where providers may share risk but would not have incentive for doing so); and to improve coordination and collaboration between Medicaid administrators and providers to improve client outcomes. The evaluation included three distinct, yet overlapping phases: 1) a qualitative study of how the demonstration affected organizations that applied for PSN status; 2) a utilization and reimbursement analysis to assess the PSNs' cost-effectiveness; and 3) a quality and outcomes analysis, examining quality of care, patient satisfaction, and patient health outcomes of beneficiaries in PSNs. The objective of this evaluation was to understand in what ways the design and implementation of this unique financing/delivery model affects patients and providers, so that policymakers in and outside of Florida may weigh its merits for adoption.

For more information about this grant, contact Dr. Sharpe: sharpeb@fdhc.state.fl.us

Title: Impact of Medicaid Managed Care on Access to Care and Service Use
Institution: The Urban Institute
Time: April 2000 - December 2002
Principal Investigator: Stephen Zuckerman, Ph.D.

What impact do the different types of Medicaid managed care (MMC) configurations have on access to care and use of health care services by Medicaid beneficiaries? Researchers at The Urban Institute have analyzed data from the nationally representative National Survey of America's Families Round 1 (data for 1997). They have also conducted a special follow-up survey of states that collected detailed information on their approaches to Medicaid managed care and the capitation rates they pay at the state and county levels. The investigators compared the characteristics of nonelderly Medicaid beneficiaries enrolled in MMC programs relative to those in fee-for-service Medicaid, and examine outcomes related to access and utilization of services, controlling for other factors. They also developed a model that attempts to correct for selection bias into managed care programs. Finally, they used National Survey of America's Families Round 2 (data for 1999) data to examine changes in access and utilization for Medicaid beneficiaries between 1997 and 1999. The study examined whether Medicaid managed care programs have improved, or impeded, access to care for a national sample of Medicaid beneficiaries.

Grantee Publications:

"Has Medicaid Managed Care Affected Beneficiary Access and Use?", Inquiry, Fall 2002. http://www.hcfo.net/grantees/GranteePub.cfm?id=%20154

"Medicaid Managed Care Payment Methods and Capitation Rates in 2001", Health Affairs, January/February 2003.
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20114

For more information about this grant, contact Dr. Zuckerman: szuckerm@ui.urban.org

Title: The Impact of Medicaid Managed Care on Prenatal Use and Birth Outcomes
Institution: The Urban Institute
Time: August 1997 - January 2003
Principal Investigator: Genevieve Kenney, Ph.D.

What are the impacts of the movement to Medicaid managed care on prenatal care and birth outcomes? The project was comprised of two distinct components. In the first component, researchers at The Urban Institute conducted case studies of two states ( Texas and Missouri ) regarding the implementation of 1115 or 1915(b) waivers that focus on pregnancy related services, to assess how managed care systems affect birth outcomes. They also characterized each Medicaid managed care plan and identified the type of managed care arrangement under which each pregnant woman was enrolled. In the second component, they built on a previous RWJF funded project and conducted a national cross-sectional time series analysis of natality data. Data came from the National Natality files, HCFA managed care reports, other Urban Institute surveys, secondary data files such as the Area Resource File, U.S. Census data, and state natality and other data files. They also conducted substantial primary data collection through case studies, and a survey of managed care plans in the two selected case study states. The objective of the study was to assess how the move to managed care under the Medicaid program affects birth outcomes.

Grantee Publications:

"The Impact of Medicaid Managed Care on Pregnant Women in Ohio : A Cohort Analysis", Health Services Research, August 2004. http://www.hcfo.net/grantees/GranteePub.cfm?id=%20264

"Changes in Prenatal Care Timing and Low Birth Weight by Race and Socioeconomic Status: Implications for the Medicaid Expansions for Pregnant Women", Health Services Research, July 2001. 
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20104

HCFO Cyber Seminar, December 2003: http://www.hcfo.net/cyberseminar/1203/

For more information about this grant, contact Dr. Kenney: jkenney@ui.urban.org

Title: Evaluation of the TennCare Health Reform Plan
Institution: National Center for Health Promotion
Time: April, 1996 - September, 2000
Principal Investigator: Frank A. Sloan, Ph.D.

How has TennCare affected both the quality of care received by Tennessee residents, and the structure of the health care delivery system in Tennessee ? Researchers at Duke University evaluated three aspects of TennCare: 1) how the delivery of care has changed in terms of efficiency, quality, and cross-subsidies imposed on the non-TennCare population; 2) the antitrust provisions of Blue Cross's requirement that participating providers under its state employee contract also participate in TennCare (the "cram-down" provision); and 3) the institutional, administrative and legal issues raised by TennCare. Secondary data from Tennessee and four contiguous states was analyzed using pre-/post-comparisons as well as cross-sectional analyses. In addition to secondary data bases such as the AHA's Annual Survey of Hospitals, Medicare Provider of Service Files, and Tennessee Joint Annual Reports, primary data was collected from patient interviews, hospital charts, and physician interviews. The objectives of the study were to investigate whether savings have been realized, and if so whether they have resulted from lower quality or diminished access to care. In addition, the researchers examined whether Blue Cross "cram down" has pro- or anti-competitive consequences.

Grantee Publications:

"Effects of Tennessee Medicaid Managed Care on Obstetrical Care and Birth Outcomes", Journal of Health Politics, Policy, and Law, December 2001.
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20212

"Impact of TennCare on Patient Satisfaction with Care", American Journal of Managed Care, June 1999.
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20201

"Physician Participation and NonParticipation in Medicaid Managed Care: The TennCare Experience", Southern Medical Journal, November 1999.
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20200

"Medicaid Managed Care and the Care of Patients Hospitalized for Acute Myocardial Infarction", American Heart Journal, April 2000. 
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20199

"Health Care Reform Through Medicaid Managed Care: Tennessee (TennCare) as a Case Study and a Paradigm", Vanderbilt Law Review, 2000.
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20198

"Market Failures and the Evolution of State Regulation of Managed Care", Law and Contemporary Problems, Autumn 2002.
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20197

"The Quality of Managed Care: The Evidence from the Medical Literature",   Law and Contemporary Problems, Autumn 2002.
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20196

"The Impact of Medicaid Managed Care on Utilization of Obstetrical Care: Evidence from TennCare's Early Years", Southern Medical Journal, August 2002.
http://www.hcfo.net/grantees/GranteePub.cfm?id=%20195

For more information about this grant, contact Dr. Sloan: fsloan@hpolicy.duke.edu

____________________________________________

¹ Connolly, C. and J. Wagner. "Md. Joining 3-State Pool for Medicaid Prescriptions," Washington Post, May 28, 2005, p. B4.
washingtonpost.com/wp-dyn/content/article/2005/05/27/AR2005052701484.html

²Artiga, S. and C. Mann. "New Directions for Medicaid Section 1115 Waivers: Policy Implications of Recent Waiver Activity," Kaiser Commission on Medicaid and the Uninsured Policy Brief, March 2005. kff.org/medicaid/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=52128

³Ibid.

⁴"House Dems Condemn Medicaid Changes on Moral Grounds," CQ HealthBeat, June 16, 2005.

⁵"Governors Offer Bipartisan Plan to Reform, Improve Medicaid," National Governors Association News Release, June 15, 2005. http://www.nga.org/nga/newsRoom/1,1169,C_PRESS_RELEASE^D_8525,00.html

⁶"Medicaid: Grassley Might Not Nominate Members of Congress to Medicaid Study Commission," Kaiser Daily Reports, June 7, 2005. http://www.kaisernetwork.org/daily_reports/rep_index.cfm?DR_ID=30573

⁷"The Medicaid Explosion," The Washington Post, June 19, 2005, p.B6.

http://www.washingtonpost.com/wp-dyn/content/article/2005/06/18/AR2005061800878.html

⁸"Medicare/Medicaid Reform Remains Top Issue for Health Law Practitioners in 2005; Fraud and Abuse Enforcement Ranks #2," The Bureau of National Affairs, Inc. January 12, 2005.
http://www.bna.com/press/2005/topten05.htm

⁹Artiga, S. and C. Mann. New Directions for Medicaid Section 1115 Waivers: Policy Implications of Recent Waiver Activity, Kaiser Commission on Medicaid and the Uninsured Policy Brief, March 2005. http://www.kff.org/medicaid/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=52128

¹⁰Connolly, C. and J. Wagner. "Md. Joining 3-State Pool for Medicaid Prescriptions," Washington Post, May 28, 2005, p. B4. http://www.washingtonpost.com/wp-dyn/content/article/2005/05/27/AR2005052701484.html