Tough Medicaid Choices Ahead for Congress

Published October 1, 2005

After a quiet August in Washington as members of Congress returned to their states and districts, the Capitol roared back to life in September because of budgetary deadlines. Congress continues to explore how it will come up with budget savings.

Prominent on the chopping block is Medicaid, the largest of all federal health programs. The Hill and leagues of lobbyists are galvanized as Congress works to put a slight dent in future Medicaid growth.

Medicaid began 40 years ago to serve as a safety net for the very poor. The first year’s cost was $1.3 billion in combined state and federal government expenditures.

In 2005, the program will cost $329 billion ($197 billion federal, $132 billion state), according to data from the Centers for Medicare and Medicaid Services. Medicaid serves 53 million people, at a cost of $6,200 per enrollee per year.

Elderly, Disabled Spend Most

Not all beneficiaries are created equal: 70 percent of Medicaid spending in 2005 will be for the elderly and disabled, who make up only 26 percent of the Medicaid population.

Medicaid: Beneficiaries and Expenditures for Fiscal Year 2004
Children 48% of enrollees 18% of expenditures
Adults under 65 26% of enrollees 11% of expenditures
Blind and disabled 16% of enrollees 44% of expenditures
Elderly 10% of enrollees 26% of expenditures
Source: Health Management Associates

Over the next five years, the projected annual growth rate in Medicaid is 8.4 percent, compared with a projected general inflation rate of 2.2 percent, according to the Congressional Budget Office. Congress has pledged to trim $10 billion from the projected $76 billion increase in Medicaid from fiscal year 2006 though 2010.

Congress Calls for Reform

Up to half of the savings for Medicaid may come from changing the way the program pays for prescription drugs. “Medicaid has created a system that only a health care bureaucrat could love–one where generic drugs help keep Medicaid costs artificially high,” U.S. Rep. Nathan Deal (R-GA) told the House Energy and Commerce Subcommittee on Health, which he chairs, in June. “Generic drugs are supposed to promote competition and lower costs, but under Medicaid’s rules, this system has been turned on its head.”

Last year, the House Oversight and Investigations Subcommittee found Medicaid paid $5,336 for a single prescription that cost the pharmacist only $88.

Another likely change will be to alter the rules so senior citizens and their families can’t shield assets in order to qualify for long-term care under Medicaid, which currently pays for about half of all nursing home care in the United States.

A Presidential Advisory Commission recommended on September 1 an $11 billion cut in Medicaid over five years in response to a request from the U.S. Department of Health and Human Services to slash $10 billion over five years. (See “Advisory Group Identifies Potential Medicaid Cuts” on page 1 of this issue of Health Care News.) Much of the savings would come from a change in the amount Medicaid reimburses for prescription drugs. Recommendations for longer-term reforms are not due from the commission until December 2006.

Gingrich Suggests Big Changes

Calling the Commission’s recommendations “banal and lacking any effort to get out of the box of the old order,” former House Speaker Newt Gingrich proposed a total restructuring of Medicaid in an August speech at the National Press Club in Washington, DC. For short-term savings, Gingrich recommends financial rewards for doctors and patients who aggressively manage chronic disease and moving to electronic health records.

“In Cincinnati and Louisville, they pay the doctors $100 extra; and they’re saving an average of $350 per diabetic,” Gingrich said. “If you did that for every diabetic on Medicaid in the country, you would save vastly more than the amount they’re trying to save, and you would do it with better care, with happier doctors, with people living longer, with fewer people needing kidney dialysis [or suffering from] heart disease.”

Comprehensive reforms should include vouchers, tax credits, and Health Savings Accounts, said Gingrich.

Such reforms are already being tested in the Medicaid programs in Florida, Georgia, Kentucky, and South Carolina, through waivers from the Centers for Medicare and Medicaid Services (CMS). For example, there are pilot programs in place in selected counties in Florida, and South Carolina has set some aspects of a proposed new program in motion, such as medical home networks.

‘Sweetener’ Likely

Comprehensive reform for Medicaid is probably not going to be part of the fall congressional agenda, but the program’s escalating costs will force consideration eventually. For the sixth year in a row, the growth in Medicaid has outpaced all other state spending growth. The National Governors Association reports states now spend more on Medicaid than on K-12 education.

If recent history is any predictor, getting fundamental market-based reform of Medicaid through Congress will happen only if there is a significant “sweetener.” In 1997, for example, Congress created the State Children’s Health Insurance Program (SCHIP) in order to get a $48 billion trim over 10 years in Medicaid.

As Joe Antos of the American Enterprise Institute noted in a March essay, “SCHIP represented a $46 billion expansion of federal outlays, largely offsetting the Medicaid cuts.”

Small wonder Uncle Sam operates in the red.

Laura Clay Trueman ([email protected]) is executive director of the Coalition for Affordable Health Coverage and senior director of Jefferson Government Relations, LLC.

For more information …

The full text of the Medicaid reform proposal Newt Gingrich discussed at his August National Press Club appearance is available online at

Joe Antos’s essay, “Health Policy on a Budget,” published in the March-April 2005 issue of Health Policy Outlook, is available online at,pubID.22097/pub_detail.asp.