Two Not-So-Good Ideas for Medicaid Reform

Not much time this morning, so this will be a bit brief (at least for how complicated the topic is)...

Governor Doyle's hospital tax proposal doesn't appear to be a good one. The logic is that by increasing revenue for state Medicaid spending -- which goes to hospitals and other providers for Medicaid patients -- the state will be able to leverage more funds from the feds, who give the state 57 cents for every 43 cents it spends in state Medicaid dollars.

If the plan could work like this in reality and over the long haul, hospitals -- at least those that care for a decent number of Medicaid patients -- would get a benefit because the money coming from the feds could more than make up for the amount they were taxed in the first place, hence, helping to close what's been called "the hidden health care tax" driven by low Medicaid reimbursement rates.

But, unfortunately, playing with federal dollars is like playing with fire. Wisconsin should know what that's like from its funding choices for the Wisconsin Shares program in the late 1990s.

The fact is federal dollars aren't stable. Levels can change (or, in the case of Wisconsin Shares, never change), as can requirements regarding how the money can be spent. This year alone, in fact, Bush is proposing a $25 billion cut in Medicaid funding, which comes along with regulatory changes that would cost hospitals in some states tens of millions.

This is not a game Wisconsin wants to play, especially when considering the long term prospects.

But, turning the other direction, the plans on the right aren't any better. The state Senate Republicans released a legislative agenda yesterday that promises to take the burden of low reimbursement rates for Medicaid off hospitals. Sounds fair enough until you read a little further and see they want to shift this burden onto Medicaid patients.

The main mechanism for this shift are what's called Health Opportunity Accounts (HOAs). I covered HOAs more in-depth in a post last fall, so I'll avoid going into the details now.

Essentially, HOAs are HSAs for Medicaid recipients. The federal government is running a HOA pilot program that was passed by the GOP-controlled Congress in December 2005. Ten states will be allowed to participate in the pilot, and it appears Republicans in the state Senate want Wisconsin to be one of them (as Mark Green proposed in his gubernatorial candidacy).

The trouble with HOAs is two-fold. Again, you can see my previous post on the topic for the details, but, briefly, here are those two problems:

1. Deductibles are allowed to surpass the funding of the HOA by 10 percent, leaving Medicaid recipients to foot that portion of the bill on their own, and research shows that out-of-pocket costs are the difference between getting health care and going without it for lower income families. And going without it can quickly make relatively inexpensive preventative care turn into expensive emergency care.
   
2. But since HOAs are voluntary, the GOP argues that the lowest income and least healthy Medicaid recipients don't need to opt for them. This leads to the second problem, which is that, as written in federal law, once recipients become ineligible for Medicaid, rather than forfeit the entire amount left in their publicly-funded HOA, federal law allows them to keep 75 percent of it for a variety of purposes specified by the state. As a result, the nonpartisan Congressional Budget Office has estimated the HOA pilot project will add $261 million over the next decade to the total federal Medicaid bill (see here, page 36), and costs will continue to increase if more states decide to provide HOAs after the pilot period. Considering Bush wants to cut federal Medicaid funding in the upcoming budget, this is an especially troubling prospect.

In the end, the best route for providing universal health care and fixing the low Medicaid reimbursement rates is fundamental health care reform, such as the Wisconsin Health Plan and the Wisconsin Health Care Partnership Plan.

Perhaps neither of these proposals, in their current form, are exactly what the state should adopt, but they are excellent starting points. And if we're tinkering with anything, it should be those fundamental health care reform proposals, not our fundamentally flawed health care system.