Impact of Medicaid Cuts on Health and Economy

1. Making the Case Against Medicaid Cuts Michael Miller Community Catalyst/ Alliance for a Healthy New England Research Center Presented at the Alliance for a Healthy New England Summit December 2002

2. Community Catalyst is a national advocacy organization that builds consumer and community participation in the shaping of our health system to ensure quality, affordable health care for all. Community Catalyst’s work is aimed at strengthening the voice of consumers and communities wherever decisions shaping the future of our health system are being made. Community Catalyst strengthens the capacity of state and local consumer advocacy groups to participate in such discussions. The technical assistance we provide includes policy analysis, legal assistance, strategic planning, and community organizing support. Together we’re building a network of organizations dedicated to creating a more just and responsive health system. Community Catalyst, Inc. 30 Winter Street, 10th Fl. Boston, MA 02108 617-338-6035 Fax: 617-451-5838 www.communitycatalyst.org Electronic copies of this presentation are available by calling 617-275-2892. Organizations seeking to distribute or otherwise make widespread use of this publication are asked to notify Community Catalyst. Alliance for a Healthy New England is a six-state initiative bringing health access and tobacco control advocates together to campaign for tobacco tax increases to expand health care access from health advocates around the country.

3. Medicaid is at Risk • Worst State Fiscal Crisis Since the 1940s • Health Care Spending Increasing (Medicaid grew by 13.2% in SFY 02, fastest since 92) Community Catalyst (c) 2003

4. Why Do We Care? • Covers 47 million Americans (more than Medicare) • Pays for 1/3 of all births • Covers 20% of all children • Pays for over ½ of all HIV/AIDS and mental health/ substance abuse care • Pays for 42% nursing home care • Pays for treatment of about 20% of all tobacco-related illness Community Catalyst (c) 2003

5. The Case Against Medicaid Cuts(In General) • Hurt vulnerable populations • Undermine the health care system for everyone • Hurt the economy • Are a “high pain/ low gain” strategy to achieve budget balance Community Catalyst (c) 2003

6. Cuts hurt vulnerable populations If they lose coverage, children, seniors, people with disabilities and other low income adults are more likely to: • have unmet medical needs, no usual source of care, and skip medical visits or filling a prescription because of inability to pay if they • be diagnosed later, hospitalized for conditions that could be treated in less intensive settings, and die from their illnesses than are the insured • incur catastrophic costs (more than 20% of family income) than the insured (In the current budget climate this is the least effective argument in the abstract, but can still be powerful if humanized) Community Catalyst (c) 2003

7. Cuts undermine the health care system for everyone, not just the poor • Increase ER Crowding • Increase the burden of uncompensated care (particularly for hospitals) • Reduce number of caregivers Community Catalyst (c) 2003

8. Emergency Room Crowding • A growing national problem (majority of ERs in country are at or over capacity) • Rising numbers of uninsured are a major contributor • Uninsured are: • More likely to use ER as usual source of care • Spend more time in hospitals for conditions that could be treated in an ambulatory setting Community Catalyst (c) 2003

9. Cuts increase the burden of uncompensated care • Estimates vary from 25% to 75% of every dollar “saved” from cutting eligibility is shifted onto providers. • Cost shift can easily exceed “net state savings” • Part of the cost is passed on in the form of higher insurance premiums, part is absorbed in the form of weaker financial status of hospitals • Increasing co-payments also increases uncompensated care since co-payments are uncollectable in many cases Community Catalyst (c) 2003

10. Cuts reduce the number of paid caregivers • Healthcare is a significant employment sector in NE (ranging from a low of 5.9% of workforce in VT to 9.2% in RI) • Medicaid finances about 15% of the health care workforce • Depending on the sector, a Medicaid cut can undermine the economic viability of a provider, eliminating that service for all Community Catalyst (c) 2003

11. Cuts Hurt the Economy • Job loss • Income loss • Increased personal bankruptcies • Lost tax revenue • Higher health insurance premiums Community Catalyst (c) 2003

12. Medicaid cuts cost jobs and income When Medicaid is cut, federal funds are withdrawn from the state. For example, a South Carolina study found that the $2.1 billion the state received in federal matching funds in 2001 generated an additional $1.5 billion in total income and more than 61,000 jobs. A 4% cut in Medicaid would cost over 2,400 jobs and $60,000,000 in income. Community Catalyst (c) 2003

13. Increased Personal Bankruptcies Reducing Medicaid coverage increases the number of uninsured, leading to increased defaults on consumer debt and household obligations that affect retailers, landlords and other sectors of the local economy Community Catalyst (c) 2003

14. Lost Tax Revenue Federal matching funds also generate a modest amount of state tax revenue. An analysis in Kentucky found that every that for every $10 million in FFP the state gained about $600,000 in tax revenues (in addition to $21 million in net output and $9.2 million in increased earnings). A recent analysis in Massachusetts found a similar effect. Community Catalyst (c) 2003

15. A High Pain/Low Gain Strategy • At least $2 in services must be cut for every nominal dollar saved • FFP is lost but costs remain and are shifted elsewhere • Real savings are further reduced by • Lost tax revenue • Cost shifts to other state or local government programs that do not receive ffp Community Catalyst (c) 2003

16. Cuts often backfire • Elimination of coverage for some services can lead to substitution of other more expensive ones (e.g. increasing demand for inpatient and nursing home care) • Increasing co-pays, particularly on services like Rx can also lead to increased ER and hospital use Community Catalyst (c) 2003

17. Redefining the Problem I • It’s a revenue problem: Yes, Medicaid spending is up, but the real reason for the state budget crisis is declining revenue. • Solution: raise revenue don’t cut Medicaid (and other health programs). “…tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run…Reductions in government spending on goods and services, or reductions in transfer payments to lower income families, are likely to be more damaging in the short run…” according to Brookings economist Peter Orszag and Nobel Prize winner Joseph Stiglitz Community Catalyst (c) 2003

18. Redefining the Problem II • It’s a Medicare Problem: 35% total Medicaid spending is paying for services for Medicare eligibles that Medicare doesn’t cover, mainly drugs and long term care. • Solution: Congress must enact meaningful Medicare reform that covers drugs and long term care services and improves eligibility for people with disabilities Community Catalyst (c) 2003

19. Alternatives to Cuts(Savings that Don’t Hurt Beneficiaries) • Reduce drug spending • Improve care/disease management • Primary prevention • Maximize federal funds • Reasonable overpayment and fraud control efforts Community Catalyst (c) 2003

20. Reduce Rx Spending • Careful use of Preferred Drug Lists • Auditing actual prices paid for Rx • Better disclosure of true cost of drugs Community Catalyst (c) 2003

21. Primary Prevention Reducing the incidence of tobacco related illness, HIV, and other preventable diseases is key to reducing Medicaid spending over the long term but modest short term savings are also available from reductions in low birth-weight babies, reduced asthma related hospitalizations, etc. Community Catalyst (c) 2003

22. Improve Care Management(Examples) • High risk pregnancy and asthma in VA • Coodinated care for disabled/ chronically ill (PACE and CMA models) • Home visits to frail elders in Los Angeles • Increase physician (or nurse practitioner) presence in LTC facilities Community Catalyst (c) 2003

23. Maximize Federal Funds Certain services provided by other state agencies (e.g.case management, mental health, school health services) can be classified as Medicaid services and draw down federal match (Caution: successful use of this approach makes your Medicaid program look bigger) Community Catalyst (c) 2003

24. To the extent that the Medicaid payment error rate is similar to Medicare’s states may be losing as much as $20 billion. In addition, no state is maximizing available federal support for Medicaid fraud control. Stepped up payment oversight is likely to yield at least modest savings (Caution: efforts to recover improper payment should not degenerate into provider harassment) Better Payment Controls Community Catalyst (c) 2003

25. Concluding Comments • We need to make a strong substantive case against cutting Medicaid • We need to make the political case against cuts • We need to offer alternatives to cuts • There is no silver bullet but it is possible to achieve a moderate level of savings without hurting beneficiaries. However: • Revenue increases must be part of the solution • Some savings take time to show up • Over the long term, the federal role in financing care for the elderly and disabled must increase. Community Catalyst (c) 2003