Medicaid continues to be budgetary problem
HARRISBURG – Anyone who purchases a private health-care plan knows these days it can be a budget buster. Now, consider a state as large as Pennsylvania, which is shouldering the responsibility of providing health care to 1.7 million poor and disabled people, and it’s not surprising that Medicaid has become the $500 million budget problem this year.
The problem was long coming, and largely ignored by state lawmakers until a confluence of factors brought Medicaid to a tipping point: soaring enrollment, soaring medical costs and expectations that the federal government will be scaling back funding to contain its own soaring costs.
Facing similar scenarios, states across the nation in the last several years have been busy slashing people from the rolls, freezing rates to health-care providers and lopping off benefits, all in an effort to prevent Medicaid from consuming entire budgets. The program has become the single largest item in many state budgets, eclipsing education in many instances.
In Pennsylvania, where Medicaid makes up $14.2 billion or 19 percent of the state’s general fund, Gov. Ed Rendell has proposed the first drastic scaleback to the program in years. Arguing that no one who’s eligible should be entirely cut off, the governor’s tact is to cap certain benefits, such as the number of times an enrollee can visit the doctor and hospital each year, and the number of prescription drugs allowed per month.
That’s brought widespread outcry, from advocates for the poor to hospitals, pharmacies and nursing homes, which have realized how much their own budgets rely on adequately funded public health care.
“It’s a very painful, complex policy and political issue, and oftentimes in government there’s a desire to avoid a painful process until you absolutely have to do it,” said House Minority Whip Mike Veon (D-Beaver). “I think we have been too slow getting to this point and it has been a problem and a crisis building for years. And we have all known it’s coming.”
This week, state lawmakers and the governor’s staff began tackling Medicaid as part of budget negotiations. They have only two more weeks to determine the future of the program until a constitutionally-imposed budget deadline passes.
Not the welfare queen
It’s easy to assume that it’s the welfare queen eating up state Medicaid dollars. Banish her to the workplace and the problem is solved.
But actually, nearly three-quarters of Medicaid costs in Pennsylvania goes toward the elderly and the disabled – two categories of people who can’t easily be expected to return to work.
Seniors on Medicaid are the so-called “dual eligibles.” They are enrolled in Medicare, too, but don’t have enough income to supplement what that program lacks. So, Medicaid handles the extra coverage for medication, outpatient treatment and in many cases long-term nursing home care until they die. Nursing homes are the fastest growing cost in Medicaid, officials say, and seniors are the fastest growing group enrolling in the program.
In total, about 100,000 new people are expected to add to the rolls this coming year.
So, part of Pennsylvania’s problem is pure demographics. The state has the second largest senior population in the nation, and people are living longer and being treated for chronic conditions with medicine that’s better and more expensive.
“It’s a whole demographic that’s coming to a community near us. The population is aging and those costs, absent any other available insurance, will fall squarely on Medicaid,” said Elaine Ryan, a policy and public affairs director for the American Public Human Services Association, a Washington-based nonprofit public policy organization.
Nationwide, about 80 percent of Medicaid costs go toward chronic and long-term care, a situation no one expected when the program was first instituted in 1965 as part of Social Security reform, Ryan said.
That’s due, in part, to the fact that it’s easy for a senior in a nursing home to burn through their savings in a matter of years and end up on Medicaid. The average nationwide cost for a nursing home in 2004 was $70,000 per year, or approximately $73,000 in Pittsburgh and $82,500 in Philadelphia, according to Metlife Inc.
Ryan said there’s something fundamentally wrong with health care when nursing homes are so expensive that even middle- and upper-income people can’t shoulder the costs on their own.
Rendell has been trying to address the nursing home component by getting federal waivers that allow Medicaid to be used for home-based care, which is cheaper for the state and often preferred by seniors and the disabled.
And Rep. Scott Petri (R-Bucks) said he’s been working up a bill to offset Medicaid costs by giving people a tax break to invest in long-term-care insurance. The younger the worker, the more affordable the insurance would be, Petri said.
“It helps protect their assets so it’s less likely that someone would need to be on Public Assistance later,” said Petri. “Hopefully, the idea would be that employers could offer it as an additional package to attract employees and they could get a tax break.”
Other Republicans go back to the age-old argument about the economy, saying more jobs and a healthy business climate will get the state out of the Medicaid conundrum. GOP leaders never fail to point out that Pennsylvania has some of the highest business taxes in the nation.
“It’s about reducing the cost of doing business in this state,” said House Majority Leader Sam Smith (R-Jefferson), in a memo to fellow members and the press. “It’s about cutting necessary red tape. It’s about making it worthwhile for businesses to create good-paying jobs – jobs worth decent health insurance.”
But these are long-term solutions, and they don’t immediately answer this year’s $500 million Medicaid budget gap.
The $500 million question
Those close to the budget negotiations say Medicaid benefit cuts are probably coming. Whether they will look like the governor’s plan to cap services or something else still up in the air. Cutting eligibility is, for the time being, not a consideration.
“In my opinion there’s a consensus that we have to cut the Medicaid budget in some way, shape or form,” said Veon.
Some of the discussions have centered on creating savings by tinkering with prescription drugs, Veon said. The state could require that more generics be purchased, or could establish a preferred drug list, in which the state would bargain with pharmaceutical companies for reduced drug prices in exchange for being on a drug list Medicaid patients would have to use.
Democratic lawmakers have also proposed new sources of revenue to fund Medicaid. Sen. Vincent Hughes (D-Philadelphia) wants to use a $400 million chunk of an endowment fund the state set up from tobacco settlement money.
“The tobacco endowment fund should not be sacrosanct,” Hugh said.
Another Philadelphia lawmaker, Dwight Evans (D-203), has proposed taxing smokeless tobacco, which includes cigars and chewing tobacco, as most other states already do. And he’d like to see an assessment on hospitals, which the state would collect and then return in greater share to hospitals that serve more Medicaid patients.
But Republican leadership is balking at both proposals. Eric Arneson, spokesman for Senate Majority Leader David Brightbill (R-Lebanon), said new taxes are not popular with his caucus and spending down an endowment fund is a one-time solution.
They’d like to see an option that lessens the impact on providers.
Beyond those proposals, both chambers and the governor’s office have so far said little more.
“They’ve spent hours and hours in meetings working on it,” said Arneson. “This is one where we’re clearly all in this together.”
Alison Hawkes can be reached at 717-705-6330 or ahawkes@calkins-media.com