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Medicaid: An Overview and Assessment of Spending and Outcomes John Garen Gatton Endowed Professor of Economics, University of Kentucky Adjunct Scholar, Bluegrass Institute Mercatus Center Affiliate Points of Discussion 1. 2. 3. 4. Fiscal pressures have made sustaining Medicaid problematic. The Medicaid program has many perverse incentives and rules that: - discourage good healthcare decision making and budgeting - frustrate the focus of the program on the target group Projections for Kentucky for Medicaid add to the urgency. Fundamental reform that calls for: - a competitive healthcare sector - health insurance vouchers for the poor - block grants to states The Past and Future of Kentucky Medicaid Spending Figure 1: Medicaid Spending: Total, Federal, and State, 2010 Dollars 450 Expenditures (Billions of Real 2010 Dollars) 400 350 300 250 Total States 200 Federal 150 100 50 0 1960 1970 1980 1990 2000 2010 2020 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Expenditures (Percent of GDP) Figure 2: Total Medicaid Spending as a Percent of GDP 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Enrollment (Millions of Recipients) 55 50 15 45 14 40 13 35 12 30 11 10 25 9 20 8 15 7 Enrollment (Percentage of US Population) Figure 3: Enrollment in Medicaid, Total and Percent of U.S. Population 17 16 Recipients Percentage Figure 4: Total Medicaid Spending in Kentucky, Federal and State, 2010 Dollars Expenditures (Billions of 2010 Dollars) 5.5 5.0 4.5 4.0 3.5 3.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Figure 5: Kentucky Enrollment in Medicaid, Total and Percent of Population 1,000 26 Enrollment (Thousands of Recipients) 22 800 20 700 18 600 16 500 400 1998 14 2000 2002 2004 2006 2008 12 2010 Enrollment (Percentage of KY Population) 24 900 Recipients Percentage Figure 6: Kentucky General Fund Medicaid Expenditures, 2010 Dollars 1300 Expenditures (Millions of Real Dollars) 1200 1100 1000 900 800 700 600 1998 2000 2002 2004 2006 2008 2010 Figure 7: Medicaid State Expenditures, as a Percent of Total General Fund Expenditures Expenditures (Percentage of State Spending) 13 12 11 10 9 8 7 What Caused This Expansive Growth... and What Did It Accomplish? • Late 1980s and 1990s expansions of eligibility to above poverty line pregnant women and children. • Extensive “crowd out.” For every 10 additional participants in Medicaid, 5 to 6 would have had private insurance. • Minimal effects on prenatal care, hospitalizations, use of preventative care for children, incidence of low birth weight, and infant mortality. Other Problems • Low reimbursement rates which discourage physicians to accept patients. • Minimal co-payments encourages patient healthcare services use. • Federal matching grants is an incentive for states to grow Medicaid, perhaps through budget gamesmanship. • Eligibility can reach well into the middle class. It Gets Worse: Past and Projected Medicaid Spending in Kentucky, Total and State Share (2010 Dollars) 10 2.5 8 2.0 7 6 5 1.5 4 3 1.0 2 1 0 0.5 State Expenditures (Billions of Dollars) Total Expenditures (Billions of Dollars) 9 Total New Total State New State The Importance of Fundamental Reform • Fundamental reform is called for due to: - continuing budgetary crisis - lack of targeting and efficacy - perverse incentives • Fundamental reform consists of: - examine state policies and seek to remove impediments to competition in healthcare and health insurance - health insurance vouchers based on income and health status - block grants to states Fundamental Reform – cont’d. • Competitive markets can provide low cost coverage for most, reducing the need for public assistance. Impediments include: over-regulation of health insurance and healthcare providers; tax treatment of individual policies. • Health insurance vouchers to those remaining in true need. -E.g., “Cash and Counseling” for the disabled in some states - integrate the poor into the healthcare mainstream; enrollees become customers and shoppers; choice among plans and providers. Fundamental Reform – cont’d. • Block grants to states. - creates incentives for careful state budgeting - allows states to design features that best suit them Conclusion • Other, more modest reforms have been proposed (e.g., managed care, cost sharing, HSAs) that can be helpful. • Fundamental reform is preferred. - It is difficult for healthcare planners to anticipate the ways in which cost savings, improved care, and better delivery methods and product might occur. - Let patients become consumers and shoppers, thereby rewarding good service. - Allow insurers and providers to compete by better serving patients.