Lecture Health economics - Chapter 15: Medicaid

Lecture Health economics - Chapter 15: Medicaid. This chapter presents the following content: Coverage and financing, current challenges, medicaid financing, state variations, medicaid & the nursing home market, was the expansion worth it?

Professor Vivian HoHealth Economics

Fall 2009

120,141 142,318 186,905 298,200

Year

# of Recipients (m) Total Cost ($m)

Medicaid Recipients, 2005

http://www.cms.hhs.gov/MedicareMedicaidStatSupp/ (2008 Edition)

% of recipients

% of payments

Average payment Kids(<21) 47.2% 17.1% $1,729 Adults 21.7% 11.8% $2,585 Age 65+ 7.6% 23.0% $14,402

Perm

Disability 14.2% 43.4% $14,536

Medicaid Financing

Joint financing by federal and state

governments

States w/ lowest per capita income

receive larger federal subsidies

CA, NY receive about 50% federal funding

MS, WV receive 76% and 72.99% federal funding respectively

Minimum requirements for federal

matching funds:

Must cover Temporary Assistance for

Needy Families (TANF) and Supplemental Security Income (SSI) beneficiaries

Must provide inpatient and outpatient

hospital services, and physician services

States have wide latitude in setting eligibility and medical benefits

Access and costs vary by state

Mean Medicaid fee for an office visit, new

patient, 30 minutes in 2003: $54.87 (Zuckerman

et al 2004)

$31.46 for established patient, 15 minutes

But wide variation across states (see Exhibit 2)

Fees well below Medicare fees in many states

State Variations

Do differences in the Medicaid program across states make a difference?

See Zuckerman et al, Table 4

State Variations

SCHIP enrollment >7m in 2007.

Income eligibility levels vary from 300% of federal 

poverty level in Connecticut, to 133% in Wyoming

Medicaid & the Nursing Home Market

Individuals who meet certain

low-income and disability requirements

qualify for nursing home care covered

by Medicaid

Medicaid reimburses nursing homes on

a fixed price basis (e.g price per day)

Medicaid & the Nursing Home Market

How can the Medicaid program set

prices in order to insure adequate

access, but also restrain costs?

Keep in mind that nursing homes can

choose to serve private pay or Medicaid patients

Medicaid & the Nursing Home Market

We assume that most nursing homes

have a local monopoly

i.e Most nursing homes face a downward sloping demand curve

A nursing home with monopoly power

which serves only private-pay patients

will set price where MR=MC

Medicaid & Nursing Homes

$

NH patient days

ATC MC

Demand

MR

Q 0

P 0

Medicaid & the Nursing Home Market

Now, assume instead that there are no private patients, and the gov’t must set

a reimbursement level for care provided

to Medicaid patients

If the gov’t wants care provided at the

lowest possible cost per day, it will

choose a price equal to the minimum of the average total cost curve

Medicaid & Nursing Homes

$

NH patient days

ATC MC

Demand

MR

Q 3

Medicaid & the Nursing Home Market

Now, consider the graph when a

nursing home can serve private pay

patients and/or Medicaid patients

The demand curve for private pay

patients indicates that some are willing

to pay more than PM for nursing home

care

Medicaid & Nursing Homes

$

NH patient days

ATC MC

Medicaid & the Nursing Home Market

For all private pay patients “up to” point

B on the MR curve, the nursing home

knows that its MR will be greater than

the Medicaid reimbursement rate

Thus, for private pay patients, the

nursing home no longer prices at

MR=MC Instead, it serves the number

of private pay patients “at” point B

Medicaid & Nursing Homes

$

NH patient days

ATC MC

Demand

MR

Q 3

The nursing home will

Medicaid & the Nursing Home Market

Policy challenge: Medicaid can increase access to nursing homes by raising PM

However, raising the reimbursement rate will lead to higher expenditures

Some patients who might have been

willing to pay out-of-pocket without

Medicaid now may get Medicaid

coverage

Gov’t attempts to subsidize care for income individuals can lead to “crowd-out”

low-of private care

Does Medicaid “work?”

In late 1980’s, income ceilings for

Medicaid coverage were raised

Pregnancy care for women with incomes

Did health insurance coverage for the poor increase, or did it “crowd out”

private insurance?

Some low income people may have

dropped private insurance to go on

Medicaid

Did health status among the poor

improve?

Compare increases in Medicaid

coverage and falls in private insurance across states

The Medicaid expansion increased

coverage for 1.5 million children

But decreased private insurance by 6 million Similar results for women of childbearing age

The expansions lowered infant mortality by 8.5%; child mortality by 5.1%

Cost per life saved: $1-1.6m

Was the expansion worth it?

Should Medicaid be “better targeted?”

In 2002, Medicaid surpassed Medicare as nation’s largest health insurance program

Could we have gotten the same result cheaper?

Current challenges to Medicaid

Rising Medicaid costs have strained

state budgets during recessions

Problematic, because most state

governments required by law to balance

their budgets

Many states have made Medicaid program changes

1) Modest reductions in funding

Lower physician, nursing home

reimbursement rates

Limits on prescription drug use

Noncoverage of optical, dental care

2) Expansion of Medicaid managed care

3) Cost shifting to the federal government

States shifting all state-run health

programs into Medicaid, in order to receive matching funds

Medicaid and Managed Care

States vary widely in financing and

delivery arrangements for managed

care plans

Low-intensity: primary care case

management (PCCM)

Gatekeeper bears no risk for cost overruns

High-intensity: mandatory enrollment in fully capitated plans

Impact of Medicaid managed care

Medicaid managed care grew rapidly in mid 1990s due to attractive business

Impact of Medicaid managed care

In early 2000’s, HMO profits disappeared

Mirrors problems w/ health care costs in private sector and Medicare

Still have 2-fold variation in capitation rates across states

Difficult to monitor quality

TennCare had significant differences in LBW babies and death in 1st 60 days across its

Medicaid managed care programs

Future challenges to Medicaid

HMOs have enrolled AFDC

beneficiaries, but not the higher cost elderly, or chronically disabled

High-cost populations may require out programs

carve-Eligibility, Marketing, and Enrollment

Intermittent eligibility as enrollees cycle in and out of welfare

High turnover forces HMOs to market

aggressively, to maintain revenues (costs

up to 1 month’s capitation per member)

Traditional providers may not be able to compete with commercial HMOs

Community health centers, urban hospital outpatient programs, indigenous

community-based physicians have

provided much care to Medicaid