With every state in the union facing budget deficits and massive long term liabilities for health care and retirement programs, Governors are looking for ways to cut costs. One of the big ticket items in every state budget is Medicaid which accounts for about 20% of most state budgets. Medicaid provides health care for those under 133% of the poverty line who are not yet old enough to be eligible for Medicare.
Medicaid enrollment (and therefore costs) have increased sharply because of the bad economy. For instance, it was reported this week that Medicaid applications in Nevada are up 60% compared to two years ago. That works out to 10,000 new applicants every month.
Add to this the fact that the new health reform law, i.e. ObamaCare, expands coverage to millions who were previously uninsured by pushing them into Medicaid. The law covers the full cost of treatment for the first few years, but does not cover the added administrative cost of managing the expanded rolls. Estimates are that administration alone could cost states an additional $12 billion. That number may be low as new research suggests there will be a high churn rate with up to half of the newly eligible shifting out of the program in any given year.
But the even more serious cost is likely to be felt as states take nearly eleven million uninsured people who were already eligible for Medicaid but had not signed up for whatever reason. It is expected that the individual mandate in the new law will force many of these people onto the state Medicaid rolls, but because they were previously eligible their costs will not be fully covered by the feds.
If all of this sounds like a recipe for disaster, you’re right. Just when states need to trim budgets to remain solvent, millions of new claimants are being added. Gov. Perry of Texas has even talked about walking away from the system entirely.
In order to avoid a threatened revolt, HHS yesterday sent a letter to the Governor of each states suggesting ways to trim Medicaid costs and promising to work with them during the coming transition. The real issue, as the NY Times notes, is whether states will be allowed to tighten up eligibility standards. In response to these requests, HHS Secretary Sebelius has said that she is “studying” the issue. In other words, no.
In order to keep from being submerged in a tide of red ink, states are pushing for more “managed care” of Medicaid patients. Essentially, states pay private insurers a fixed monthly or annual rate to deal with Medicaid patients. This is the final irony. Even as President Obama casts private insurers as the enemies of reform, states are turning to these same insurers to bail them out and, ultimately, make Obamacare workable.
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