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Setting the record straight on Medicaid

Posted on August 4, 2017

The Medicaid program turned 52 years old this week. That’s how long it’s been since President Lyndon B. Johnson signed into law the unique federal-state partnership that now finances the  health-care that nearly 1.6 million Louisianans depend on. Medicaid covers the majority of births in Louisiana, as well as most nursing home stays. It covers 714,000 children – and, thanks to a long-overdue policy change, more than 433,000 low-income adults now have coverage as well.

Medicaid is not without critics. Politicians in Washington and Baton Rouge have tried to cut the program by claiming it is “broken” and that costs are “out of control.” But a look at the facts show that such claims are inaccurate and misleading. So it’s time to set the record straight:

Fact #1: Louisiana operates a lean Medicaid program.

Evidence: Spending on Louisiana’s Medicaid program has increased substantially over the last decade due to myriad factors.  One reason for Medicaid cost growth is increasing health-care costs across the board, which impacts costs for both public and private insurers and providers. Medicaid actually serves comparable patients less expensively than private coverage, because of Medicaid’s lower reimbursements to providers and use of managed care. (Providers often cite low Medicaid reimbursement rate as a problem, but reducing funding for the program would only make this worse.) Another reason for increasing Medicaid costs in the state budget is the dramatic decrease in the state’s federal matching rate. Between fiscal years 2008 and 2010, the federal government paid between 72 and 82 percent of Louisiana’s total Medicaid expenses. In fiscal year 2016, the federal government paid just 62 percent of total expenses. 

In 2014, (the most recent year for which national data is available) the state’s per beneficiary spending was $4,796, which was $940 below the national average and $5,596 below North Dakota, the state with the highest per-beneficiary spending. And, according to the Louisiana House Fiscal Division, the state’s Medicaid spending growth between 1991 and 2016 was 6.7 percent compared to the national average of 7 percent.

Louisiana’s expansion of Medicaid in July 2016 has allowed an additional 433,000 low-income adults to enroll in the program, which has substantially increased the overall cost of the state’s Medicaid program. However, as discussed in a later section, due to a favorable federal matching rate for expansion enrollees and payments from Louisiana Medicaid providers, the expansion is actually saving the state money.

Fact #2:  Louisiana’s fiscal problems are due to poor budget and tax policies, not Medicaid.

Evidence:  While Medicaid costs have increased, the program cannot be blamed for the state’s fiscal problems.  The state is facing significant budget challenges because revenue collections have not kept pace with the needs of the growing population and inflation. The 2007 and 2008 repeal of the income tax portions of the “Stelly Plan” combined with a major economic downturn in 2009 caused a drop in state tax collections that has yet to be corrected. Total state general fund spending – when adjusted for inflation – has decreased by 21 percent since fiscal year 2008. So, in reality, it’s the state’s shrinking budget that is “crowding out” all major spending priorities including public universities and schools, transportation improvements and Medicaid.

Fact #3: Louisiana’s Medicaid expansion is sustainable.

Evidence: Medicaid expansion – which provides coverage for more than 433,000 Louisianans – is actually saving our state money. The state’s cost share will increase from 5 percent to 10 percent by 2020, and the projected state cost share for Louisiana under current law will be just over $474 million by 2026. When fees from insurers (which will cover $290.8 million of the state’s expansion costs in 2026), and savings from reduced uncompensated care are taken into account, Louisiana’s Medicaid expansion is not only sustainable, it will be a source of continued savings in the state budget. Without Medicaid expansion, the state projects it would spend $317 million in uncompensated care for the uninsured in 2026, compared to the net $183 million the state expects to pay for Medicaid expansion.

Fact #4: The state spends an appropriate amount on Medicaid expansion.

Evidence: Louisiana receives a more favorable federal matching rate for the Medicaid expansion population than for traditional Medicaid. The federal government is paying 95 percent of all expansion costs in 2017, compared to 62 percent for other Medicaid enrollees. The higher federal reimbursement rate, however, has not led Louisiana to spend 50 percent more on expansion enrollees than those enrolled under the regular federal matching rate as one lawmaker has claimed. Before implementing the Medicaid expansion, Louisiana Department of Health (LDH) officials report average spending of $5,575 per adult Medicaid recipient. In fiscal year 2017, the first year the state expanded Medicaid, the state spent an average of $6,712 for each adult enrolled under the expansion.

The reason for the higher cost is straightforward: The people who got covered through expansion were, on average, sicker than people who were already covered by “traditional” Medicaid. Many of the newly covered suffer from chronic medical conditions that had gone untreated for years because they didn’t have coverage. According to LDH, the $1,137 per year–or 20 percent–difference is attributable to pent-up demand for preventive care and other services among Medicaid expansion enrollees who had been uninsured for long periods of time. The department expects costs to stabilize in later years as the newly enrolled population starts receiving more preventive care.

Fact #5: Imposing Medicaid spending caps would lead to cuts.

Evidence:  The Congressional Budget Office projected the per-capita caps included in the July 20 version of the Senate’s Better Care Reconciliation Act would have cut Medicaid spending by $180 billion over ten years compared to current law. A bill sponsored by Sen. Bill Cassidy and Sen. Lindsey Graham (SC) includes these same caps. In 2026, cuts under the Senate bill would equal nearly 9 percent of total federal Medicaid spending for seniors, people with disabilities, families with children, and other adults outside of the ACA’s Medicaid expansion. What’s more, if caps are imposed, federal Medicaid funding would no longer be responsive to unpredictable events including recessions, natural disasters, public health emergencies, breakthrough treatments, prescription drug price spikes, demographic changes or other cost pressures outside of the state’s control.

  • by Jeanie Donovan

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