An Unsustainable Path

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An Unsustainable Path is a report published by the Bluegrass Institute.

Read the entire report here

Executive Summary

Kentucky Medicaid is on an unsustainable path. Its expansive spending growth over the past 25 years has put increased pressure on state and federal budgets. Medicaid has failed to fulfill the goal of improved health for most of its recipients. The recently passed Patient Protection and Affordable Care Act (PPACA) did not enact any fundamental reforms in Medicaid but expanded the program dramatically. Kentucky and the nation deserve much better regarding serving the taxpayers and in crafting a program that assists the truly needy.

Growth of Medicaid Nationally

  • From 1999 to 2009, total spending on the Medicaid program rose by 55%, from $248 billion to $384 billion (in constant 2010 dollars).
  • The number enrolled in the program nationwide rose by 47%, from 32 million to 50 million, with only a small portion of increase attributable to the recent recession.

Growth of Medicaid in Kentucky

  • From 1999 to 2009, total federal and state spending on Kentucky’s Medicaid program rose by 54%, from $3.3 billion to $5.1 billion and Kentucky’s general fund spending on Medicaid increased by 37%, from $802 million to $1.1 billion.
  • The number of Kentuckians enrolled in the program grew from about 664,000 to roughly 924,000, or 39%.
  • These increases occurred during a time where real U.S. GDP grew by 19% and Kentucky’s by only 8% and followed a decade (1989 to 1999) of even more dramatic increases in the Medicaid program.

Unsustainable Path of Kentucky Medicaid

  • This is part of the entitlement spending predicament in the U.S.: large and rapidly growing budgetary commitments that outstrip GDP growth and threaten the fiscal solvency of the federal and state governments.
  • Straightforward projections into the future indicate that this problem will worsen for Medicaid as currently structured and is exacerbated by the enactment of the Patient Protection and Affordable Care Act (PPACA) that expands eligibility to a larger population.
  • Our projections indicate that by 2020, total Medicaid spending (federal and state) on Kentucky will be 63% higher than in 2009 without PPACA and 80% higher with PPACA.
  • Kentucky’s general fund spending on Medicaid projects to be 70% higher without PPACA, and 80% higher with it.

Efficacy of the Medicaid Program

  • Though Medicaid expansions have been portrayed as helpful to children, many studies indicate that past Medicaid growth came at the expense of private insurance, where over half of additional enrollees from these expansions would otherwise have had private health insurance.
  • Improvements in access to healthcare and in health status for new enrollees have been minimal, aside from the small minority of recipients who are extremely poor.

Problematic Incentives

  • Medicaid is rife with incentives that thwart budgetary control and good healthcare practices on the part of consumers and providers. These include:
    • Under-reimbursement for many healthcare services for Medicaid patients that penalize providers for taking these patients
    • Lack of co-pays and deductibles for healthcare services used by Medicaid recipients that leads to misuse and overuse of healthcare
    • “One-size-fits-all” medical coverage that does not allow shopping for insurance that best suits the individual
    • Few provisions that encourage healthy lifestyles or discourage unhealthy habits
    • Matching federal funds for state Medicaid expansions that reward states for growing their programs
    • Incentives to limit work effort to avoid crossing the income threshold where Medicaid benefits are lost
    • Poorly targeting the population of truly needy individuals and families such that many in the middle class are eligible for Medicaid benefits

Essentiality of True Reform

  • The unsustainable path of Kentucky’s Medicaid program necessitates fundamental reform to provide for the commonwealth’s most vulnerable citizens and to prevent future cuts to other budgetary categories and provider reimbursements.
  • The attainment of vibrant competitive markets rewards consumers for being smart shoppers for insurance, doctors, and medical treatment, thereby rewarding providers for effective treatment and service.
  • Substantial doses of choice and competition will benefit the healthcare sector generally and those benefits would accrue to the low-income population seeking health insurance as well as to public programs designed to assist the healthcare purchases of the poor or other needy groups.
  • While strong, competitive markets in this regard will eliminate the need for public health insurance for most, there will remain a group of individuals who are truly needy, due to low earning capacity or precarious health conditions, who will need healthcare assistance. It is this group that public health insurance should focus on.

Path to Reform

  • Effective reform of Medicaid would ideally include measures to improve competition in the healthcare and health insurance markets. We point to several solutions for reforming the system in Kentucky:
  • Medicaid can be transitioned to a health insurance voucher (premium support) program, with the voucher amount determined by income and health condition, encouraging competition and choice.
  • The program also should be converted to one where federal funding is in the form of a block grant and flexibility is allowed for each state. This removes incentives for states to “game” the system to receive more federal matching money as well as enabling states to design programs that suit them best.

See Also
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