The Burden of Medicaid Cuts

12/12/2005

BY Times Editorial
Published: December 12, 2005

House and Senate negotiators are beginning to grapple with the fateful issue of how best to restrain Medicaid spending. Their decisions will affect not only the ability of hard-pressed governors to rein in Medicaid costs that are eating up state budgets, but also the ability of some of the nation’s poorest individuals to get medical care. The guiding principle should be to extract savings not from beneficiaries too poor to absorb the cost, but from industries and institutions better able to bear the burden.

By those yardsticks the Senate’s approach, which gets most of its savings from drug manufacturers, pharmacies and managed care plans, is far preferable to that of the House, which puts the burden on needy Medicaid beneficiaries.

COST-SHARING The harshest measure in the House budget reconciliation bill would allow states to charge many beneficiaries premiums for the first time and would allow large increases in co-payments above the current nominal levels. The intent of this provision is to make people more aware of the costs of their health care and to create financial incentives for them to use the most cost-effective treatments - for example, health clinics instead of expensive emergency rooms.

That sounds great in theory, but many studies have shown that even small increases in co-payments cause people who are barely scraping by to forgo medical care until they become so sick they end up in an emergency room anyway. The House bill compounds the problem by allowing health care providers to turn away people who say they can’t make the payment.

The savings that will be achieved through increased cost-sharing in Medicaid are not really savings in any meaningful sense. The Congressional Budget Office estimates that fully 80 percent would come from a decrease in the use of Medicaid services. It seems unlikely that these services aren’t needed, so either patients will go without care or someone other than Medicaid - in many places, publicly supported hospitals - will pick up the bill.

PRESCRIPTION DRUGS This is the most fruitful area for savings, and the Senate has pursued it far more vigorously than the House. Auditors have repeatedly found that Medicaid pays pharmacies a lot more for drugs than the pharmacies pay to acquire them, so both houses would change the system to reflect costs more realistically. The Senate would also go after the manufacturers by significantly increasing the rebates that Medicaid collects from them, while the House bill makes only minor changes. No doubt many House members feel beholden to the pharmaceutical industry, which makes lavish campaign contributions, but it seems better to get savings from drug manufacturers and retailers than from needy beneficiaries.

MEDICARE Before cutting Medicaid too deeply, Congress should seek some relatively painless cuts in the Medicare program that serves all elderly Americans. The House has refused to look in that direction, but the Senate quite sensibly chose to eliminate a $10 billion fund that was set up to provide extra payments to managed care plans as an incentive to participate in Medicare. The reason: so many private plans are rushing into the Medicare market in response to the new prescription drug coverage that the added subsidies now seem superfluous.

The insurance industry is crying foul, and President Bush has threatened to veto any bill that eliminates the fund. But before imposing higher costs on Medicaid beneficiaries any compassionate Congress would take away payments to managed care plans that are no longer needed and unfair to boot.