Prepare to hear a lot more about Medicaid, the government health-insurance program for the poor.
President Barack Obama is trying to protect the expansion of Medicaid built into his health-care law. Governors from both parties are trying to slow rising costs of Medicaid, which accounts for an average of 22% of state spending. House Republican budget point person Paul Ryan is trying to reduce future federal spending on Medicaid by converting it into block grants to the states.
The U.S. government can't put itself on a sustainable fiscal course without doing something to slow health spending. It can't slow health spending costs without treating Medicaid. And it can't treat Medicaid without confronting the fact that it has become the long-term-care insurer of last resort for an aging society.
Medicaid was signed into law by President Lyndon Johnson in 1965 alongside the bigger, and politically better defended, Medicare program for the elderly. It's big: Medicaid will cost a projected $465 billion this year, roughly equal to the annual output of Norway and Denmark combined. About 57% is currently paid by the federal government, the rest by states. More than one in five Americans will be enrolled at some point this year, and that's before the Obama health law expansions. Medicaid pays for 40% of all births in the U.S., and children comprise half its beneficiaries. But kids are cheap when it comes to health care: They account for only 22% of the costs.
Which brings us to two often overlooked facts about Medicaid.
• Medicaid pays 43% of America's long-term care bill, including bills for around 60% of nursing-home residents.
• One third of all Medicaid spending goes for long-term care, a chunk of that for people who once thought of themselves as middle class but outlived their savings.
There are two time-tested ways for Washington to save money on Medicaid. One is to pay doctors and other health-care providers less. The problem with that is they already are paid so much less for seeing Medicaid patients than others that many refuse to see Medicaid patients.
The other is to stick states with more of the tab. Block grants are a way to do that; advocates say freeing states from federal restrictions will allow them to provide better care for less money. Maybe. Peter Orszag, the former Obama White House budget director says, "The easiest thing to do is to shift health-care costs from one part of the system to another, but that is a counterproductive thing to do." That's especially so when state budgets already are strained by increased Medicaid enrollment that occurs whenever unemployment is high and the extra money Washington sent during the recession is about to evaporate.
Getting more for every health-care dollar is key to spending less on all facets of health care—Medicaid, Medicare, private insurance premiums and out of pocket spending. But what specifically could help Medicaid address its long-term care costs? Nothing that lends itself to quick fixes or catchy political talking points.
One is to untangle the mess created when the elderly and disabled are covered both by state-federal Medicaid and all-federal Medicare. About 40% of all Medicaid spending goes for these "dual eligibles," as they're known. Medicare (which pays acute-care hospital bills) has an interest in keeping them out of the hospital; Medicaid saves money when they go into the hospital. The maze of conflicting incentives and overlapping rules makes coordinating care for these often chronically ill patients nearly impossible. In demonstration projects, Washington is experimenting with allowing states to combine the two money flows to better manage care for these vulnerable people.
A second is to keep the elderly and disabled out of nursing homes by helping them pay for home or community-based care—assisted living, for instance. It's cheaper and often preferred by the individual. That push has been under way for years. It's now at risk as states scramble to save money, and eye cuts to home and community-based care.
A third, a longer-run answer, is to get more Americans to save for or buy insurance to cover their own future long-term care costs. Few do now, and it's far from clear that the rudimentary, premium-funded long-term care insurance in the Obama health law will work as intended—if it survives efforts to repeal it altogether.
The complexities of health-care spending are daunting, the challenges of refashioning a health-care delivery system overwhelming, the temptation to oversimplify solutions strong. Neglecting the long-term care piece because it's hard and uncomfortable is a mistake: It will only get bigger as Baby Boomers age.‹
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