NCPA - National Center for Policy Analysis

State Seeks Help to Cut Cost of Chronically Ill

October 31, 2011

As states seek solutions to ever-rising Medicaid costs, some have recognized the excessive strain that is placed on the system by a small portion of the population that is both poor and elderly (and therefore eligible for both Medicare and Medicaid benefits).  This group of people, known as "dual eligibles," uses a starkly disproportionate share of funds within each program, says the Wall Street Journal.

  • There are 9.2 million dual eligibles in the United States.
  • Nationally, dual eligibles account for 16 percent of Medicare's enrollees but 27 percent of its spending, and 15 percent of Medicaid's enrollees, but 39 percent of its spending.
  • Some 60 percent have multiple chronic conditions, and 43 percent have at least one mental or cognitive impairment.

In the state of Massachusetts, lawmakers are considering new systems that could provide targeted benefits to this portion of beneficiaries.  Among the potential reforms, dual eligibles would be transitioned from the current fee-for-service financial structure into a managed care system, potentially run and administered by a for-profit third party.  The state estimates it could save roughly 2 percent of the $4 billion spent annually by Medicare and Medicaid on the state's dual-eligible patients by performing this shift for 115,000 such people.

Part of the reason that dual eligibles place such a strain on the financial structures of these two systems is that their treatment options allow for Medicare and Medicaid coverage to interact in ways that designers did not intend.  For example, when a dual-eligible patient goes from a hospital to a nursing home, Medicare pays the institution a daily rate for the first 100 days, after which Medicaid picks up the daily tab at lower rate.  In order to keep the higher rate, nursing homes are incentivized to return the patient to the hospital unnecessarily.  Such inefficiencies for this fraction of beneficiaries are not uncommon, and it is for this reason that so many states are looking for potential solutions.

Source: Jennifer Levitz, "State Seeks Help to Cut Cost of Chronically Ill," Wall Street Journal, October 27, 2011.

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