Notes

1 "Medicaid's architects envisioned a program that would provide poor people with mainstream medical care in a fashion similar to that of private insurance. As the decades have passed, that vision has largely faded…poor people continue to rely on providers that make up the nation's medical safety net: public and some not-for-profit hospitals and clinics [that] by virtue of their location or social calling provide a disproportionate amount of care to the poor." John K. Iglehart, "The American Health System-Medicaid," New England Journal of Medicine, Feb. 4, 1999, pp. 403-08.

2 www.whitehouse.gov/omb/budget/fy2003/bud15.html.

3 Amy Goldstein, "State Budget Woes Fuel Medicaid Cuts," Washington Post, Oct. 11, 2002, p. A1

4 "The Fiscal Survey of States," National Governors Association and National Association of State Budget Officers, November 2002.

5 American Council of Life Insurance, April 1998.

6 www.kaisernetwork.org/daily_reports/rep_hpolicy.cfm; posted Jan.14, 2003.

7 American Health Line, November 26, 2002.

8 Vernon Smith et al., "Medicaid Spending Growth: Results from a 2002 Survey," Kaiser Commission on Medicaid and the Uninsured, Report No. 4064, September 2002.

9 For example, the federal government contemplated allowing HMOs to restrict Medicaid patients' access to hospital emergency rooms but dropped the proposal in response to a political backlash. See Amy Goldstein, "Bush Abandons Rule On Limiting ER Use," Washington Post, January 23, 2003, p. A3. Maine Rx, a state program that seeks to obtain additional pharmaceutical rebates, is being litigated before the U.S. Supreme Court. See Charles Lane, "High Court Considers Cost of Prescriptions," Washington Post, January 23,2003, p. A2.

10 "HIFA: Will it Solve the Problem of the Uninsured?" National Health Law Program, HIFA Talking Points, February 28, 2002.

11 "The Fiscal Survey of States," National Governors Association and National Association of State Budget Officers, November 2002.

12 In general, optional populations include children in families with income above federal minimums, adults with children with income above section 1931 minimums (see below), people with disabilities, elders with income above Supplemental Security Income (SSI) levels receiving home- and community-based services, certain workers with disabilities whose incomes are above SSI levels, elderly nursing home residents with income above SSI levels, pregnant women with incomes above 133 percent of poverty, and the medically needy. Two recent federal changes have expanded the options available to states for covering low-income parents under Medicaid. First, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) created a new category of Medicaid eligibility in Section 1931 of the Social Security Act by requiring states to grant such eligibility to those adults and children who would have been entitled to AFDC under the income and resource standards in effect on July 16, 1996. Additionally, Section 1931 gives states the option to use less restrictive income and resource standards in determining eligibility, allowing states to make families that meet the categorical requirement under the old AFDC program eligible for Medicaid at the higher incomes. You are income eligible to receive SSI if a) you work and have an income less than $1,085 per month per person or $1,587 per month per couple or b) you don't work and have an income less than $520 per month per person or $771 per month per couple, provided you meet other eligibility criteria. Medically needy programs serve those whose incomes are higher than eligibility levels under TANF or one of the Medical Assistance Only (MAO) program for children and pregnant women but are not high enough to cover their medical expenses. The coverage limits are the same as for Medicaid.

13 Examples of long-term care optional benefits include Intermediate Care Facilities - Mental Retardation (ICF-MR), inpatient and nursing facilities for individuals over age 65 in an institution for mental disease, home health care, case management, respiratory care for ventilator-dependent individuals, personal care, private duty nursing, hospice, Programs of All-Inclusive Care for the Elderly (PACE) and home- and community-based services. Under Early Periodic Screening Diagnosis and Treatment (EPSDT) rules, all of these optional services must be provided to children when shown to be needed based on a screening. See Kaiser Commission on Medicaid and the Uninsured, June 2001. See "Medicaid 'Mandatory' and 'Optional' Eligibility and Benefits," Kaiser Commission on Medicaid and the Uninsured, Policy Brief No. 2256, July 2001. Also see John Holahan, "Restructuring Medicaid Financing: Implications for the NGA Proposal," Kaiser Commission on Medicaid and the Uninsured, Policy Brief No. 2257, June 2001.

14 Frank Lichtenberg, "Pharmaceutical Innovation, Mortality Reduction and Economic Growth," National Bureau of Economic Research, NBER Working Paper W6569, May 1998.

15 U.S. Department of Health and Human Services, Mental Health: A Report of the Surgeon General (Rockville, Md.: U.S. Department of Health and Human Services, 1999).

16 Health Care Financing and Organization: News and Progress, March 2000, pp. 5-6.

17 American Health Line, March 31, 2000.

18 www.whitehouse.gov/omb/bud/fy2003/bud15.html.

19 www.cms.hhs.gov/chart/Medicaid/2Tchartbk.pdf.

20 "HIFA: Will it Solve the Problem of the Uninsured?"

21 Ibid.

22www.nga.org/nga/legislativeUpdate/1,1169,C_TESTIMONY^D_1949,00.html.

23 www.hhs.cms.gov/chart/medicaid2Tchartbk.pdf.

24 www.whitehouse.gov/omb/budget/fy2003.

25 Over the last 37 years, reform proposals have faltered on the twin problems of long-term care (LTC) and the federal match. The fact that the federal government now transfers Medicare-related costs to the states through dual eligibles exacerbates the problem. And as usual, the real problem is politics, not policy. True LTC reform would mean confronting middle class abuse of the Medicaid benefit as their substitute for private long-term care insurance. Any comprehensive reform has always affected the resultant federal match, creating winners and losers among the states. The result has been almost four decades of incremental, not comprehensive, reforms. Comprehensive reform is only possible if these two problems are solved.

26 "Medicaid: Matching Formula's Performance and Potential Modifications," T-HEHS-95-228, U.S. Government Accounting Office, July 27, 1995.

27 The expansion of benefits allows for a controlled experiment on the impact of Medicaid on beneficiary behavior. The major work in this area is from the National Bureau of Economic Research (NBER). NBER researchers related the expanded generosity of Medicaid plans to the household wealth of recipients. They found that in 1993 Medicaid lowered wealth holdings of eligible groups by $1,996 to $2,259. They also found that the existence of asset tests, not surprisingly, more than doubled the wealth reduction from expanded Medicaid eligibility. NBER also found that the expanded generosity and eligibility for Medicaid increased the consumption of this group by 5.2 percent. See Jonathan Gruber and Aaron Yelowitz, "Public Health Insurance and Private Savings," National Bureau of Economic Research, NBER Working Paper No. 6041, May 1997.

28 David M. Cutler and Jonathan Gruber, "Does Public Insurance Crowd Out Private Insurance?" Quarterly Journal of Economics, May 1996, pp. 391-430.

29 Janet Currie and Jonathan Gruber, "Health Insurance Eligibility, Utilization of Medical Care, and Child Health," Quarterly Journal of Economics, May 1996, pp. 431-66.

30 "Learning from S-CHIP and Learning from S-CHIP II," Agency for Health Care Policy Research, June 1998.

31 Laura-Mae Baldwin et al., "The Effect of Expanding Medicaid Prenatal Services on Birth Outcomes," American Journal of Public Health, Vol. 88, No. 11, November 1998, pp. 1623-1629.

32 See Janet Currie and Jonathan Gruber, "Saving Babies: The Efficacy and Cost of Recent Expansions of Medicaid Eligibility for Pregnant Women," Journal of Political Economy, December 1996, pp.1263-96.

33 For a discussion on giving Medicaid enrollees choice, see Irene Fraser, Elizabeth Chait and Cindy Brach, "Promoting Choice: Lessons from Managed Medicaid," Health Affairs, Vol. 17, No. 5, September/October 1998.

34 In August 2001, under authority granted by Congress, the Centers for Medicare and Medicaid Services (CMS), formerly known as the Health Care Financing Administration (HCFA), announced the Health Insurance Flexibility and Accountability (HIFA) Demonstration Initiative.

35 www.hcfa.gov/Medicaid/obs7.htm.

36 If implementing a statewide waiver is politically difficult, another approach is to do so geographically. Carve out similar economic and social geographic regions. Have half continue the present program, have the other half use the new defined contribution approach. The waiver would measure costs, provider and payer participation, quality of care and patient satisfaction. The waiver could also contemplate block-granting portions of the program to local governments (see the discussion below). This could target inner-city, rural or highly dependent "safety net provider" areas to assure that they are helped or held harmless.

37 We have seen this most recently when Health Care Financing Administration (HCFA) strangled Medicare+Choice in its bureaucratic cradle. The program was greatly hampered by the restrictive nature of the initial legislation. The regulations implementing the law were so restrictive that its marketplace incentives were smothered.

38 In a study that examined caseloads in four-month increments, caseload turnover was about 10 percent during each increment, or about 30 percent per year. See Pamela Farley Short, "Single Women and the Dynamics of Medicaid," Health Services Research, December 1998.

39 www.heritage.org/research/healthcare/BG1618.cfm.

40 Under the leadership of Gov. Jim Douglas, Vermont is submitting a waiver request that would make Medical Savings Accounts part of the Medicaid program.

41 John C. Goodman and Gerald L. Musgrave, Patient Power: Solving America's Health Care Crisis (Washington, D.C.: Cato Institute, 1992), Chapter 6.

42 Diagnosis Related Groups (DGRs) include more than 500 common treatments, ailments and protocols based on historic observations. Hospitals receive a DRG payment for treating a patient, regardless of the actual cost of care.

43 An example of the possible magnitude is shown by a study in Employee Benefit News which estimates that the cost of poor quality health care services is $1,350 per employee. If even a fraction of that figure can be saved per Medicaid recipient, hundreds of millions or billions of dollars in taxes can be saved. See, Craig Gunsauley, "Estimate: 30 percent of Health Spending is Wasted," Employee Benefit News, August 1, 2002.

44 "In health care markets, geography is destiny," concluded a 1996 report from Dartmouth Medical School's Center for the Evaluative Clinical Sciences. For example 1.4 percent of elderly women in Rapid City, South Dakota, received breast-conserving surgery for breast cancer. In Elyria, Ohio, 48 percent did. An elderly patient with back pain in Fort Meyers, Florida, was four times as likely to undergo surgery as a man or woman living in Manhattan. And a man with an enlarged prostate in Newark, New Jersey, was twice as likely to have part of his gland surgically removed as if he lived in New Haven, Connecticut. Tonsillectomies provide another example, particularly over time. In the 1950s, children of insured workers had a 50-50 chance of having their tonsils removed, despite an exhaustive review of the medical literature up to that time that found no evidence that a tonsillectomy accomplished its purposes. Today, tonsillectomy is still the surgical procedure most likely to be performed inappropriately. But now, only one in four is unneeded. An 1980 article calculated that the United States could have saved $4.2 billion in 1975 dollars if the rate at which seven common surgical procedures were performed more closely resembled low-usage rates in parts of Maine and Vermont. John E. Wennberg et al., "Dartmouth Atlas of Health Care," Center for Evaluative Clinical Sciences, Dartmouth Medical School, 1996.

45 One hospital study showed that treatment caused complications in one out of five patients, and about 7 percent of the complications were fatal. As many as eight out of 10 medical practices have never been scientifically validated. See Elihu Schimmel, "The Hazards of Hospitalization," Annals of Internal Medicine, January 1964, pp. 100-10.

46 The National Academy of Sciences recommends that all federal health programs begin paying for quality care rather than paying for services rendered. Initially, the effort would focus on the treatment of 15 health conditions, including diabetes, depression, osteoporosis, asthma, heart disease and stroke. See, Janet M. Corrigan, Jill Eden and Barbara M. Smith, eds., Leadership by Example: Coordinating Government Roles in Improving Health Care Quality (National Academies Press: Washington, D.C., 2002).

47 Moving in the direction of provider networks, as the department is already doing, also can facilitate care coordination in areas that may currently be underserved.

48 See John C. Goodman, "Minority Report," Report of the Blue Ribbon Task Force on the Uninsured to the 77th Legislature, State of Texas, February 2001.

49 Estimating those eligible for Medicaid but not enrolled is difficult at best. Exact estimates are not very reliable because of the problem of "induced demand." Every time Medicaid has estimated an eligible population, any new benefit would induce demand and create many more eligibles. In one study, just over half (51.4 percent) of eligible, nonelderly adults were enrolled Medicaid in 1997. Of the remaining adults who were Medicaid eligible, 21.6 percent had private coverage while 27 percent were uninsured. Another study found that about seven million uninsured children eligible for either S-CHIP or Medicaid are not enrolled. See Amy Davidoff, Bowen Garrett, and Alshadye Yemane, "Medicaid-Eligible Adults Who Are Not Enrolled: Who Are They and Do They Get the Care They Need?" Urban Institute, Series A, No. A-48, October 2001. Of those children eligible for Medicaid or CHIP, one-third are eligible for CHIP while two-thirds are eligible for Medicaid. Eight percent of uninsured, low-income children are illegal aliens and, as such, not eligible for either Medicaid or CHIP. See Lisa Dubay, Jennifer Haley and Genevieve Kenney, "Children's Eligibility for Medicaid and S-CHIP: A View from 2000," Urban Institute, Series B, No. B-41, March 2002.

50 For information on how to devise a safety net that does not unfairly compete with private insurance, see John C. Goodman, "Characteristics of an Ideal Health Care System," National Center for Policy Analysis, Policy Report No. 242, April 2001.

51 The Utah model limits enrollment until program evaluations can be completed to determine the effect of the waiver on a number of factors such as emergency room use.

52 Smaller firms could purchase coverage through the state-operated pool. This has been the case in Arizona. See "Arizona Medicaid: Competition Among Managed Care Plans Lowers Program Costs," General Accounting Office, October 1995.

53 The Federal Employees Health Benefits Program (FEHBP) has four main features: (1) federal employees in most places can choose among eight to 12 competing health insurance plans, including Blue Cross and a number of HMOs; (2) the government contributes a fixed amount that can be as much as 75 percent of each employee's premium; (3) the extra cost of more expensive plans must be paid by the employee with after-tax dollars, and (4) the plans are forced to community rate, charging the same premium for every enrollee. Public employee health benefit options in Minnesota are similarly organized, as is the California Public Employees' Retirement System (CalPERS).

54 This is crucial for favorable health outcomes, given some evidence that "poor" families had substandard results when given high deductible coverage. See B. Lyke, "Medical Savings Accounts: Background Issues," Congressional Research Service, May 6, 1996.

55 See Ronald E. Bachman, "Giving Patients More Control," National Center for Policy Analysis, Brief Analysis No. 399, June 17, 2002; and Greg Scandlen, "Defined Contribution Health Insurance," National Center for Policy Analysis, Policy Backgrounder No. 154, October 26, 2002.

56 Utilizing a HIFA waiver does not preclude other cost-cutting opportunities.

57 See "Medicaid Managed Care: Four States' Experiences with Mental Health Carve-Out Programs," U.S. General Accounting Office, September 1999.

58 Baldwin et al., "The Effect of Expanding Medicaid Prenatal Services on Birth Outcomes."

59 Miller Trusts, also known as Qualified Income Trusts, enable people whose income is too high to qualify for nursing home care partially paid for by Medicaid. This is accomplished by assigning income to the trust, the wording of which can limit how the income is distributed. The trust, for instance, can use the income to make certain payments including insurance, support for a spouse, and $60 per month in personal needs. The excess funds, after the aforementioned payments, are then used for nursing home care with the balance being picked up by Medicaid. This allows some people with incomes too high to qualify for Medicaid to obtain subsidies equal to the proportion of nursing home care they could not otherwise have afforded. See Ronald Lipman, "Trust Helps Person Qualify for Medicaid Nursing Care," Houston Chronicle, August 11, 2002.

60 See "Medicaid Long-Term Care: Successful State Efforts to Expand Home Services While Limiting Costs," U.S. General Accounting Office, August 1994.

61 All payment systems are subject to manipulation, but using these three factors would make manipulation of all the components more expensive than improving quality. At the same time, the administrative burden would not be too large.

62 Janet M. Corrigan, Jill Eden and Barbara M. Smith, eds., Leadership by Example: Coordinating Government Roles in Improving Health Care Realtiy (National Academies Press: Washington, D.C. 2002).

63 Leslie G. Aronovitz, "Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded Providers from Federal Health Programs," U.S. General Accounting Office,GAO/HEHS-97-63, March 1997.

64 See Sarah F. Jaggar, "Medicare and Medicaid: Opportunities to Save Program Dollars by Reducing Fraud and Abuse," U.S. General Accounting Office, GAO/T-HEHS-95-110, March 22, 1995.

65 Michael L. Millenson, Demanding Medical Excellence: Doctors and Accountability in the Information Age (University of Chicago Press: Chicago, 1997).