States Grapple with Medicaid Reform

Published August 1, 2005

Tennessee’s Medicaid program, TennCare, “is the most expensive [such] program in the country,” Gov. Phil Bredesen (D) told the National Press Club in Washington this June. He said the condition of Medicaid in Tennessee should put his state “on the leading edge” of the reform issue.

The governor advocated an overhaul of Medicaid, according to the Associated Press. TennCare is about to slash 323,000 people from the rolls of the 12-year-old program.

In a June radio speech, Bredesen said, “Let’s scrap the old, inefficient version of Medicaid that’s led us to spend more and more of our finite resources on a system that never yielded the kind of public health results we’d hoped for. Uncontrolled growth in the cost of Medicaid is a crisis that’s forcing states to choose between quality health care on one hand and a quality education for our children on the other.”

Legacy of Failure Cited

Last December, testifying before the TennCare Oversight Committee, TennCare Director J. D. Hickey estimated the program will be over its $8.7 billion budget for the 2005 fiscal year. Hickey told lawmakers the program, which enrolls 1.3 million Tennesseans, will be forced to spend an additional $132 million in state funds. (See “Governor Cuts 320,000 from Ailing Tennessee Health Care Program,”Health Care News, February 2005.)

“This is not the approach to TennCare reform that I originally envisioned,” Bredesen said in a 2004 speech to the state legislature. “But under the legal and economic circumstances, it’s our best chance for maintaining care for as many Tennesseans as possible.”

Efforts by Bredesen to reform TennCare were blocked by the American Civil Liberties Union (ACLU), which sued Bredesen in December 2004 for attempting to restrict eligibility, reduce the number of free hospital visits, and lower the number of allowable free prescriptions.

“In 1993, then-Governor Ned McWherter (D) rammed through TennCare, the closest any state came to implementing ClintonCare, without even a vote in the state legislature,” Merrill Matthews, director of the Council for Affordable Health Insurance, said. “The program was a fiasco from the beginning. A 1999 state audit found the program had paid $6 million to insure 14,000 dead enrollees. And 16,500 enrollees lived outside the state.”

Costs Continuing to Grow

In an April 2005 report, “An Rx for Reform,” the Rhode Island Public Expenditure Council (RIPEC) reported, “nearly $0.50 of every new dollar spent by the state since 1996 has been to support entitlement spending. The largest component of the state’s grants and benefit program is Medicaid. In 2006, Rhode Island will spend more than $1.8 billion on Medicaid, which will represent nearly 30.0 percent of the state’s budget.”

The report stated, “Medicaid spending will grow at an average annual rate of 8.2 percent through the end of the decade, with Medicaid spending amounting to $2.6 billion by 2010. By the end of the decade, one in five Rhode Islanders will receive Medicaid benefits.”

According to the study, “prospects for slowing down Medicaid enrollments and expenditures … do not appear to be on the horizon. … [I]t is likely that Medicaid will continue to grow, and that such spending increases will be at rates exceeding state revenue growth. In other words, growth in Medicaid spending will continue to create a large structural problem in the state’s budget unless a vigorous program of entitlement reform and cost containment is pursued.”

“Only the free market can cure the Medicaid spending crisis that’s plaguing the states,” said Christie Raniszewski Herrera, director of the Health and Human Services Task Force at the American Legislative Exchange Council (ALEC) in Washington, DC.

“Medicaid’s inefficient and perverse incentives shield individuals from the costs of their health decisions, meaning that beneficiaries want the best health care that someone else’s money can buy,” she said. “This results in skyrocketing health care costs and confines the truly needy into a bankrupt Medicaid system.”

Mississippi Sets Drug Cap

In Mississippi, more than a quarter of the population is eligible for Medicaid, and costs are soaring. In July, the state instituted a cap on prescription drug purchases, the strictest in the country, limiting Medicaid recipients to five prescription drugs, including only two brand-name medicines, according to a UPI report.

Opponents have argued HIV/AIDS patients will suffer from the restrictions. An exception for those patients is being considered.

New York Reform Stalls

Gov. George Pataki (R) called New York’s Medicaid program “our biggest budget item” in his 2005 budget address. Nursing home costs are 22 percent of all Medicaid costs in the state. In Monroe County alone in 2004, $830 million was spent on Medicaid–more than the total Medicaid costs of eight states, according to a June article in the Rochester Democrat and Chronicle.

Pataki has organized a commission to “right-size” the program, but at present a reform plan is not in place.

In May, the office of the New York State Comptroller discovered that 198 registered sex offenders in the state had received erectile dysfunction drugs through their Medicaid benefits. Auditors had been reviewing expenditures of Medicaid pharmacies when they discovered Medicaid-reimbursed Viagra was provided to level 3, or high-repeat-risk, sex offenders.

Moreover, comptroller Alan G. Hevesi said in a May statement, “The audits conducted by my staff have … since 1994, identified more than $826 million in actual and potential overpayments.”

More Reforms Called For

“A few states are realizing that the way to save Medicaid is to create a true marketplace within public health insurance,” said Herrera of ALEC. “Everyone needs to take a more empowered role in fixing the system.

“Patients should be responsible for choosing their own health plans using a fixed premium amount,” Herrera continued, “and they should be given incentives to manage costs. Providers should be allowed the flexibility to offer customized benefit plans that offer innovative, quality care. And state governments should provide a bridge between public and private coverage by allowing beneficiaries to move out of the Medicaid system.”

Susan Konig ([email protected]) is managing editor of Health Care News.