| The
Medicaid money crunch
Program’s
problems affect cost of health care for everyone
by Marjolijn Bijlefeld
Virginia Business
May 2005
Few people know more about the problems of growing
old in Virginia than Kathy Vesley-Massey. In her personal
life, she and her family help care for her 93-year-old
mother-in-law. In her job, Vesley-Massey tries to provide
that same kind of careful attention to low-income senior
citizens in 10 counties across the Northern Neck and
Middle Peninsula.
One service
of her employer, the nonprofit agency Bay Aging,
is supplying home-health
aides to elderly
people so that they can stay in their homes. But Vesley-Massey
says that Medicaid reimbursement for the service is
so low the agency can only pay its aides $7 an hour
with no benefits. The result is that aides quit — 40
of 140 left in one recent year. Without the aides,
aging clients are often forced to go into nursing homes,
at a higher cost to Medicaid. “From a business
point of view, why would you not be trying to fund
the in-home services that are much less expensive?” says
Vesley-Massey, Bay Aging’s senior vice president
and a former deputy commissioner of the state’s
Department for the Aging.
Vesley-Massey’s question points out the predicament
faced by Medicaid, a state-managed program that uses
federal and state money to provide health care to low-income
people. As longer life spans swell America’s
graying population, Medicaid caseloads in Virginia
and other states are soaring. Consequently, Medicaid
funding is eating up state budgets while crowding out
other budget priorities, such as education and transportation.
At the same time, Medicaid reimbursements aren’t
keeping pace with the actual cost of care — a
payment gap that eventually finds its way to someone
else’s bill.
That’s because these uncovered costs don’t
evaporate. They result in higher medical costs and
insurance premiums. It’s called the “hidden
health care tax,” says Mary Lynne Bailey, vice
president for legal and government affairs at the Virginia
Health Care Association, the trade group for nursing
homes and assisted-living facilities.
Many states fear the Medicaid situation will get
worse. Congress is contemplating billions in cuts to
federal Medicaid funding, a development that could
make it even tougher for hospitals, nursing homes and
doctors to provide health care for the poor and for
businesses to provide health insurance for employees.
***
In Virginia,
some relief for health-care providers is on the way.
In July, pediatricians
and primary-care
doctors will see their Medicaid reimbursement rates
rise about 5 percent, the first increase for them in
more than a decade. Obstetrician/gynecologists and
dentists will receive 36.5 percent and 30 percent rate
increases, respectively. The increase in fees should
help improve Medicaid patients’ access to care,
says Patrick W. Finnerty, director of the Department
of Medical Assistance Services (DMAS), the administrator
for the state’s Medicaid program. “Fewer
than 17 percent of the dentists in the state were participating” in
Medicaid because the reimbursements were so low and
the claims system was so complicated, he says. Now
the state is working to consolidate dental claims through
one administrator. “By restructuring the program
in a way the dentists want it to be operated, we’re
hopeful that we’ll be able to get more dentists
in the program,” says Finnerty.
Nursing homes
and home-care providers will also see increases in
their reimbursements
starting in July.
But even at these higher levels, Medicaid reimbursements
don’t cover the cost of care, health-care providers
say. Virginia’s Medicaid program ranks among
the lowest in the nation in per-capita spending. While
Virginia’s population accounts for 2.6 percent
of the nation’s population, the state accounts
for only 1.6 percent of the nation’s Medicaid
expenditures.
The current
Medicaid situation makes the possible effects of
demographic trends
troubling. If the system
is struggling, what is going to happen when baby boomers
start requiring intensive medical care? In the past
five years, Medicaid enrollment has increased nationally
by about 40 percent, Finnerty says. In Virginia about
725,000 people are eligible for Medicaid services.
Next year, the first of the baby boomers turn 60; by
2030, one in four Virginians will be over age 60. Across
the country Medicaid pays for 50 percent of all long-term
care and picks up the tab for 70 percent of the patients
in nursing homes. “The age wave is going to blow
apart Medicaid unless something is done. The solution
is not going to be an easy one,” says Hobart
Harvey, vice president of financial services for the
Virginia Health Care Association.
***
A contentious debate already is under way in Congress
over the proposed Medicaid cuts. President Bush recommended
$14 billion in cuts over the next five years in his
budget. The Senate pulled those cuts out of consideration
in its version of the budget while the House has proposed
up to $20 billion in Medicaid cuts. How Congress reconciles
these differences in the final budget will have a big
effect on Virginia because the state receives half
of its Medicaid funding, more than $2 billion, from
the federal government.
At the core
of the congressional debate is the question of whether
Medicaid is an
entitlement program run amuck
or a necessary safety net for the most medically vulnerable.
Can additional savings be wrung from the program or
can reforms, even those that cost more now, lead to
savings down the road? The nation’s governors
argued the latter point when Bush met with the National
Governors Association during its winter meeting in
February. Virginia Gov. Mark R. Warner is chairman
of the group. “We agree that maintaining the
status quo in Medicaid is not acceptable,” Warn-er
and Arkansas Gov. Mike Hucka-bee, the vice chairman
of the association said in a letter to Congress. “However,
it is equally unacceptable in any deficit reduction
strategy to simply shift federal costs to states, as
Medicaid continues to im-pose severe strains on state
budgets. Our most recent survey of states shows
Medicaid now averages 22 percent of state budgets. This
commitment has caused a strain on funding for other
crucial state responsibilities.”
The governors
association urged the creation of a National Health
Care Innovations
Fund to implement
10 to 15 large-scale programs to improve the quality
of care and reduce costs. The governors’ suggestions
include making greater use of information technology,
trying different approaches to covering the working
uninsured, using financial incentives to encourage
healthy choices by consumers and taking measures to
reduce malpractice incidents. “I imagine there’s
some caution on the part of the federal government
that, if they provide this flexibility, we could go
off in a wrong direction,” says Finnerty of the
Department of Medical Assistance Services. “What
the states are saying in response is that this costs
us money, too. In Virginia, we have to have a balanced
budget, so we’re not going to expand the program
wildly. We’re looking for ways to be as cost
efficient as possible.”
The governors
association says that Medicaid covers 53 million
Americans at
a cost of more than $300 billion
a year. In Virginia, Medicaid is a $4.2 billion program,
up from $3.6 billion last year. Medicaid funding will
take up 14.3 percent of the state’s general fund,
$2.05 billion, in fiscal year 2006. (The general fund
is the one used to finance most state operations.)
By contrast, the Medicaid funding figure was 11.3 percent,
$1.38 billion, in fiscal year 2001. The funding situation,
however, could be worse. For fiscal year 2005, the
state began using money from the Virginia Health Care
Fund for a portion of the Virginia’s share in
the Medicaid program. The Virginia Health Care Fund
was set up to support health-care programs using money
from tobacco taxes and a national settlement between
the states and major tobacco companies. Without money
from the Virginia Health Care Fund, state Medicaid
funding would reach 16 percent of the state’s
general fund in fiscal year 2006.
Other states
are in worse financial straits because of Medicaid.
The federal
government has just approved
Tennessee’s plan to drop more than 300,000 people
from its ambitious, $8.7 billion health-care program,
TennCare. The program had provided health care for
1.3 million people, 22 percent of the state’s
population. In Mississippi, the state legislature agreed
to slash nearly one-third of its $700 million Medicaid
budget for next year. Facing a shutdown of Medicaid,
the state also passed emergency legislation bailing
out a $268 million shortfall this year.
***
There’s no shortage of suggestions for ways
to improve the Medicaid system, such as a call to invest
in disease management programs. Ann Hughes, legislative
affairs director of the Medical Society of Virginia,
which represents physicians, says these programs could
be very cost effective. “For example, money invested
in obstetrical care to have a healthy pregnancy and
delivery reduces premature births. Neonatal intensive
care is very expensive. You can spend more on one day
in neonatal intensive care than you would on prenatal
care and the delivery.” Typically, babies admitted
to a neonatal intensive care unit stay for weeks, depending
on their birth weight and prematurity.
Katharine M. Webb, senior vice president of the Virginia Hospital and Healthcare
Association (VHHA), the Richmond-based association for hospitals and health
delivery systems, advocates gathering more information on the services that
Medicaid patients are receiving. Where do they get services? How many and what
kind of services do they use and under what circumstances? That data will help
drive decisions on how to better and more cost effectively serve the Medicaid
population.
Others are
lobbying the legislature for tax incentives for people
who purchase long-term
care insurance. Bailey,
the Virginia Health Care Association official, says
her group is stressing this issue. “With the
baby-boomer generation aging up, they are going to
have to face taking care of most of their own long-term
care needs. We believe that the only thing that will
help it is long-term care insurance.” Warner
agrees and has been featured in public service ads
for the “Own Your Future” campaign, an
initiative to encourage people aged 50 to 70 to plan
for their long-term care. Virginia is the first of
five states to partner with the U.S. Department of
Health and Human Services, which created the campaign
in conjunction with the National Governors Association
and the National Conference of State Legislatures.
(Virginians interested in the long-term planning tool
kit can call 1-866-PLAN-LTC.)
***
Bailey says
many people assume Medicare will cover their long-term
care expenses,
but that’s true
only for the first 100 days. At that point, patients
begin spending down their money until they qualify
for Medicaid. At an average annual cost of $58,000
for nursing home care, it may not take long for patients
to consume their assets. The MetLife Mature Market
Institute says that, by 2030, the annual cost of a
year of long-term care could reach $190,600. Currently,
a less costly assisted-living facility averages $28,500
a year and the cost for receiving home care averages
$23,000.
The cost
difference between nursing-home care and home care
is a source of frustration
for Bay Aging’s
Vesley-Massey. She believes that more people would
stay home if they could find care providers. “I’ve
always wondered if the nursing home lobby just made
a better case than we did,” she says.
But nursing
homes “are always kind of walking
a tightrope,” says Novel Martin, CFO of Medical
Facilities of America, a Roanoke-based chain that employs
more than 4,000 people at 31 nursing homes in Virginia.
MFA’s experience with Medicaid reimbursements
underscores the financial squeeze providers often face.
Medicaid patients make up 67 percent of the company’s
total “patient days” but only 48 percent
of its revenue. (Patient days measure the total length
of stay of all patients.) “The margins are very
thin,” Martin says. Most nursing homes report
that for each Medicaid patient, they have to cover
a $6 or $7 gap per day. That gap is made up by private-pay
patients.
The situation
may get even more difficult next January, when persons
who are “dual eligible” — meaning
they qualify for both Medicare and Medicaid — will
have their Medicaid prescription drug coverage stopped.
The Medicare Part D prescription drug program that
will take its place excludes some medicines, and the
states will have to decide whether to pay for those
excluded drugs out of their Medicaid budgets. Martin
worries about the extra pressure on the state’s
already stretched Medicaid funds. “We all know
there’s only a certain amount of dollars to go
around. If you start pulling money to fund some of
these Part D benefits, then that’s going to be
a problem.”
One of people
who votes on Virginia’s Medicaid
funding is state Sen. William C. Wampler Jr. (R-Bristol).
He says that, in grappling with Medicaid’s complex
issues, officials must not lose sight of the people
most affected. The most compelling testimony he has
heard on Medicaid came from a mother with an adult,
mentally retarded son. She said her prayer was that
her son would die before she did because she worried
about who would care for him. “That stuck with
me. For a parent to publicly offer a thought such as
that, I don’t think we can argue that this is
a waste of taxpayer dollars,” Wampler says. “This
is our most medically fragile population. It is the
state’s responsibility.”
Kathy Vesley-Massey and other health-care providers
hope the program can find a way to assume more of the
real cost of that responsibility.
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