View from Washington – Medicaid: The Healthcare Program Eating the States

Healthcare providers have not been the only sector cringing at the rising cost of medical care. State capitols are being squeezed by their ballooning Medicaid programs and the growing uninsured population.

For the past five years, Medicaid costs have increased by 63 percent, bringing the annual price tag to more than $300 billion. Covering 53 million-plus beneficiaries, the program is a federal and state joint effort, caring for families with limited means, and also the elderly, sick and disabled. Every year, it engulfs larger portions of state budgets, increasing from 8 percent in 1985 to an average of 22 percent in 2003.

Medicaid’s current situation is due to many complex factors. It’s become the largest, single healthcare program for Americans. It accounted for 46 percent of nursing home revenue in 2003 and 35 percent of all Medicaid outlays. Enrollment increased 35 percent in the past five years and another 5 percent growth is expected in 2005. More than 40 percent of Medicare patients also are eligible for Medicaid benefits.

Many factors contributing to Medicaid’s problems are uncontrollable by lawmakers. Medical inflation has increased at twice the rate of general inflation, and demographic changes have increased enrollment.

Governors and lawmakers in various states are developing or have enacted policies to address this dinosaur-size program. New York Gov. George Pataki is seeking to trim benefits as opposed to cutting beneficiaries eligibility, closing underutilized hospitals and nursing homes and shifting more Medicaid patients to home care from the nursing home setting. California Gov. Arnold Schwarzenegger is instituting new premiums for some beneficiaries based on income levels, implementing limits on dental procedures and expanding geographic areas in which managed care is available. Nebraskan lawmakers are calling for the establishment of an advisory council to address Medicaid reform and creating a Long-Term Care Partnership Program.

President Bush’s FY’06 budget resolution calls for Congress to find $10 billion in Medicaid savings over the next five years. To accomplish this, President Bush charted a Medicaid advisory commission, whose first report to Congress was required and released on Sept. 1. Highlights include:

Allowing states to establish pharmaceutical prices based on the Average Manufacturer Price (AMP) rather than the published Average Wholesale Price (AWP).
Providing Medicaid managed care health plans access to the existing pharmaceutical manufacturer rebate program currently available to other Medicaid health plans.
Allowing states the flexibility to increase co-payments or implement a tiered co-payment program. Currently, co-payments range up to $3.

According to experts, the recommendations in the report are similar to those that are expected to be proposed by Congress and almost mirror recent recommendations by the National Governors’ Association (NGA)

However, the political reality of implementing these cost-cutting recommendations is much more challenging than when President Bush created the commission. In the wake of Hurricane Katrina, lawmakers pushed back the Sept. 16 deadline of introducing legislation to cut spending, including Medicaid reform, as so many of the displaced will be relying on state and federal assistance to rebuild their lives.

It’ll likely be the end of the current session of Congress before lawmakers return to reconciliation matters affecting Medicaid. In the meantime, the governors and their advocacy group, the NGA, will put their full political weight and moral arguments against attempts to cut Medicaid. However, they’ll continue to push for additional federal support to offset the added and growing expenses of their Medicaid programs. That’s the trouble with dinosaurs! They get big and you constantly have to feed them. Or, they end up eating you.

About the Author

Robert Betz Ph.D.
Robert Betz, Ph.D., is president of Robert Betz Associates, Inc. (RBA), a well-established federal health policy consulting firm located in the Washington, D.C. area. Additionally, Dr. Betz is an adjunct professor teaching at The George Washington University where he specializes in political science and health policy. For more information about RBA, visit