The Unnoticed Anniversary

Commentary by Pete du Pont

In July, President Clinton welcomed the 30th birthday of Medicare with fanfare, politics and posturing. Speaking to a group of seniors celebrating the anniversary, the president said, "I got the message of the 1994 election, and I'm not going to let the government mess with your Medicare."

But there was another 30th anniversary that recently passed by, which the Clinton administration entirely ignored - Medicaid is 30 years old, too. Medicaid covers about 36 million low income Americans. So why didn't the president bring in some low income people and explain that he was not going to let Republicans cut their benefits either? The answer is it doesn't look as good on television, and senior citizens have more political clout than the poor.

But like Medicare, Medicaid is a federal program in financial trouble. While growth in private-sector health care spending has declined recently, spending on Medicaid has continued to explode - growing at an average annual rate of 19% between 1990 and 1994. The Congressional Budget Office estimates that federal outlays for Medicaid will be $89 billion in 1995 and states will spend an additional $67 billion, for a total of $156 billion. Unless Congress reins in the growth of Medicaid, any attempt to balance the federal budget will be futile.

Both the Republican-led Congress and the Clinton administration have proposed budgets that call for reducing the rate of growth of Medicaid spending. The congressional plan calls for giving Medicaid funds to each state in the form of a block grant, which would allow the federal government to limit the financial exposure of taxpayers while giving states maximum flexibility to design health care programs that meet local needs. Further, states would not receive more federal funds by gaming the system, which would encourage states to be innovative and improve the way Medicaid operates.

Critics have charged that slowing the rate of growth of Medicaid spending by $182 billion over seven years, as Republicans are proposing to do, would force states to reduce the number of people covered, reduce benefits, reduce payments to providers, or some combination of these. However, a recent study written by James R. Cantwell of the U.S. House Committee on the Budget and published by the National Center for Policy Analysis points out that there are several constructive steps that, if aggressively pursued, could achieve Medicaid savings of $185 billion over seven years without any reduction in benefits for needy people.

For example, we can change currently perverse incentives for beneficiaries and providers in Medicaid by moving beneficiaries into Medical Savings Accounts (MSAs) and/or managed care. Nearly every state has sought Medicaid waivers to experiment with new ways of delivering health care to the poor. Many of these experiments place Medicaid recipients in managed care programs operated by health maintenance organizations (HMOs). As recently as 1991, only 2.7 million (9.5%) of Medicaid's 28.3 million enrollees were in managed care, according to the Health Care Financing Administration (HCFA). In recent years, Medicaid HMO membership has soared to about 22%, and by the end of the decade perhaps 75% of Medicaid recipients will be enrolled in managed care programs.

However, there has been a great deal of criticism about the quality of care under HMOs. As a result, many state legislatures have been considering ways to implement Medical Savings Accounts for the poor.

By adopting MSAs and/or managed care for acute and long-term care, Cantwell estimates that more than $100 billion can be saved over seven years.

Cantwell includes several other ways to achieve additional savings by tightening up the system rather than harming the poor. For example, many seniors preparing to enter nursing homes "spend down" or hide their assets so as to qualify for Medicaid nursing home assistance. Adopting provisions to limit such actions could result in an estimated savings of $35 billion.

The key reform, however, is that the Republican-proposed system of block grants would force the states to be more prudent and efficient with the money they get from the federal government.

President Clinton may want to shy away from Medicaid reform - since the poor are not as politically powerful as the elderly - but he shouldn't. Both Medicare and Medicaid are in trouble, and both need reform. There are ways to reduce spending on Medicaid in order to meet the goal of a balanced budget without harming the poor, but doing so will take serious dialogue.

So far, all we have seen from the administration is a curious silence.