Medicaid Commission Overlooks Private Financing Options

Published August 1, 2006

The Medicaid Commission–a 30-member committee appointed by U.S. Health and Human Services Secretary Michael Leavitt–convened in Dallas in mid-May to pursue its congressionally mandated objective of fixing the federal health care program for the poor before it implodes financially.

Since being established by Leavitt in May 2005, the commission has met approximately once every two months. At this sixth meeting, roughly two-thirds of the way between its founding and its expected final report, the outlines of the commission’s likely findings and recommendations became clear. But some witnesses and commissioners worried the majority is ignoring its fiscal mandates.

Dennis Smith, director of the Center for Medicaid and State Operations, warned that the program, especially its long-term care (LTC) component, is growing beyond its means.

“Everybody can agree that Americans should prepare for their own retirement needs,” Smith said. “LTC insurance is one solution, but it hasn’t grown for many reasons. We need lots of good discussion on how to stimulate the private sector.”

Yet the commissioners rarely addressed incentivizing private financing alternatives. Their focus was nearly exclusively on how to make Medicaid-financed care more attractive and more affordable.

Racking Up Expenses

As states have struggled with growing deficits and bloated budgets over the past few years, it has become increasingly clear that Medicaid is a big part of the problem. In 2004, Medicaid costs exceeded those of Medicare, and the program became the largest item in state budgets. The National Governors Association (NGA) called for strong measures to rein in Medicaid’s cost explosion.

LTC and other services for the aged, blind, and disabled account for most Medicaid costs. While only one-fourth of Medicaid recipients are aged, blind, or disabled, they account for two-thirds of the program’s costs. Poor women and children make up three-fourths of Medicaid’s enrollment but account for only one-third of its cost. The NGA proposed measures to target Medicaid LTC eligibility to truly needy people in order to stanch the financial hemorrhage.

Comprising 15 voting members–including the chairman, former Tennessee Gov. Don Sundquist–and 15 nonvoting members representing public and private interest groups, the Medicaid Commission’s first mandate was “to provide recommendations on options to achieve $10 billion in scorable Medicaid savings over five years while at the same time make progress toward meaningful longer-term program changes to better serve beneficiaries” by September 1, 2005, according to its charter.

The commission met that deadline, and several of its recommendations–including critical measures to discourage Medicaid estate planning, the technically legal but ethically questionable practice of artificial self-impoverishment to qualify for Medicaid–became part of the Deficit Reduction Act signed by President George W. Bush in February.

Encountering Problems

Chances for further positive developments appear slim. After completing its first report last September, the commission turned to its bigger responsibility: making recommendations by December 31, 2006 intended to ensure Medicaid’s long-term sustainability.

Vice Chairman Angus King, former governor of Maine, declared the May meeting would be the session in which the commission began focusing on its recommendations and the final report.

Commission Executive Director Stacie Maass presented a “roadmap” intended to guide the commissioners toward closure by a process of submitting recommendations, seeking consensus, and culling and selecting a few key recommendations. Criteria for inclusion in the final report are that recommendations have major impact; address Medicaid’s long-term sustainability; not increase program costs; not increase the number of uninsured people nationwide; and meet Leavitt’s guidelines on long-term issues such as eligibility, benefits, and quality.

“If the commission follows criteria 2, 3, and 4, it will be a very short report, indeed,” quipped Commissioner S. Anthony McCann, secretary of the Maryland Department of Health and Mental Hygiene–meaning that sustaining Medicaid without increasing costs or reducing the number of insured would be virtually impossible.

Hearing Biased Testimony

Several advocates for the elderly and disabled testified before the commission, recommending Congress expand Medicaid and improve its services, but few focused on the commission’s charge to preserve the program as a safety net for the poor. Most advocated measures intended to make Medicaid-financed LTC more widely available and attractive to consumers.

Richard Browdie, president and CEO of the Benjamin Rose Institute, which advocates programs for the elderly, said, “I have to emphatically state … that it is not a reasonable goal to reduce the number of people who will need to be served.”

Bob Kafka, co-director of American Disabled for Attendant Programs Today (ADAPT), added to the calls for policies that would make Medicaid more attractive, arguing for “consumer direction in all community programs, including all managed-care efforts to integrate acute and long-term services and supports.”

Echoing Kafka’s statement, Ernest McKenney, a long-term care policy consultant, said it’s time to “blow [Medicaid] up and start over” and “require states to implement person-centered planning and to offer consumer direction.”

Working at Cross Purposes

Those are noble goals, but are they realistic? They certainly conflict with the commission’s mandate to make Medicaid sustainable financially for the future, as that does not seem achievable while adding recipients, integrating and supplementing services, and turning over care to recipients’ own direction. That will not be possible until the commission confronts and resolves some critical issues it has avoided so far. For example:

  • If Medicaid provides more desirable services, such as home and community-based care instead of nursing home care, that will encourage greater numbers of people to rely on the program.
  • Medicaid’s generous eligibility criteria allow LTC recipients to keep half a million dollars in home equity plus a business (including the capital and cash flow), one automobile, term life insurance, prepaid burials for the whole family, and home furnishings–all of unlimited value.
  • Making the program more attractive will invite more people to turn to artificial impoverishment to qualify.
  • The system discourages people from planning early to save, invest, or insure privately for LTC, because they can ignore the risk, avoid the premiums, wait until they need help, and get the government to pay for care while preserving most of their estates for their heirs. The nation has an LTC system based on welfare-financed nursing home care when no one wants to go to a nursing home.

Running Risks

Without addressing these matters, the commission risks attacking symptoms instead of causes with its recommendations, proving ineffective or worse. Yet no one on the commission and none of the witnesses in Dallas raised these concerns, though I tried to do so in two minutes of “public testimony.”

Voting members of the Medicaid Commission who are more favorable to private financing alternatives, such as Galen Institute President Grace-Marie Turner and Robert Helms, director of health policy studies at the American Enterprise Institute, have expressed concern that some of their requests to invite witnesses have not been honored.

The Medicaid Commission may be drifting toward conclusions and recommendations that will make Medicaid even less sustainable financially in the future than it is today–exactly the opposite of its mandate.

At press time, the commission was scheduled to meet next on July 11-12 in Washington, DC.

Stephen A. Moses ([email protected]) is a policy advisor to The Heartland Institute and president of the Center for Long-Term Care Reform in Seattle, which encourages private financing of long-term care and works for reduction of welfare dependency for most Americans.

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Medicaid Commission

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