Dually (and Duly?) Dubious: the Medicaid Problem in Ryan’s Medicare Cap

by Adrianna McIntyre

I confess: I’ve been pining for another reason to use the “wonkerfuffle” tag. The policy deity-of-your-choosing has given me that reason, in the shape of Paul Ryan’s 2013 budget. I feel obligated at this point to disclaim that these are strictly the musings of a to-be graduate student. I think they merit discussion–and am frankly surprised that I haven’t seen this highlighted in my usual wonk haunts–but I can’t speak with authority to the actual likelihood of these outcomes. I welcome corrections to erroneous interpretations of this policy.

So! Paul Ryan is officially Romney’s VP-nominee. Paul Ryan has a budget plan (for reference, I’m working off of this summary from the Bipartisan Policy Center and this report from the nonpartisan Congressional Budget Office). That budget plan has profound implications for Medicare and Medicaid. A lot of fuss has been kicked up about each of those programs. But there’s one caveat I’ve yet to see addressed: the issue of dual-eligibility.

If you read this blog, you probably know that, in the least-nuanced sense possible, Medicaid is for the poor and Medicare is for the elderly/disabled. But it’s not quite that simple: many of the elderly and disabled are also low-income, and thus qualify for Medicaid. These beneficiaries are called “dual-eligibles.” Presently, dual-eligibles may have their Medicare premiums and cost-sharing (like co-payments) paid for by Medicaid. With me so far? Cool. If not, here’s a nifty Venn diagram:

Click for larger version

Right now Medicare is set up as a “defined benefit,” meaning that everyone on Medicare is guaranteed a certain package of coverage. Cost control functions–or doesn’t, depending on your view–by targeting reimbursement rates (what the government pays doctors and hospitals for services). In short, services dictate payments. This is what the Affordable Care Act is designed to to on a larger scale in coming years, with payment reform efforts like ACOs, the IPAB, and PCORI (Ezra Klein breaks down that alphabet soup usefully here).

Here’s the problem: The Ryan budget wants to change the method we use for controlling spending to something called “defined contribution” starting in 2023. This restructuring would mean that Medicare (or a private plan bought through a competitive voucher system) would have a set annual contribution towards health expenses. Anything over that dollar amount would come out of the beneficiary’s pocket (and so, payment dictates services). In theory, this encourages prudent health spending. As it stands, the budget cites an annual contribution of $7,500 (in 2023 dollars), which can be adjusted for health status. I would like to take this opportunity to remind you that my relatively inexpensive, community-rated health insurance (primarily for people younger than 65) runs over $5,300/year in 2012 dollars.

Warning–more numbers ahead: That amount ($7,500) is only permitted grow at a rate of GDP+0.5%. If health spending grows faster than that rate, beneficiaries will be responsible for excess expenditures. Fun fact: the CBO estimates that costs will grow at GDP+0.8% from 2023-2032, and at GDP+1.7% after 2032. Fun fact part deux: this assumes that all provisions in the ACA designed to reduce Medicare spending stick around and work. In English, if the CBO estimates are accurate, health spending growth will never meet the goals outlined by Ryan’s budget (but the government will be off the hook). This would immediately result in higher out-of-pocket expenditures–and these costs to individuals would grow as spending continued to outpace budgetary limits.

Click for larger versionWithout new safeguards, additional costs will be paid out of an individual’s income and savings. What happens when these sources are exhausted? If Medicaid was left unchanged, I muse–admittedly, without hard evidence–that we’d see an increase in the number of dual-eligibles receiving financial support from Medicaid to meet their medical expense needs. This would drive up Medicaid spending and distort perceptions how much we “save” in Medicare spending. To recap: Ryan’s Medicare plan → more out-of-pocket spending → more “low-income” elderly & disabled → more dual-eligible beneficiaries → more Medicaid spending.

But Ryan doesn’t intend to leave Medicaid unchanged, nor does he intend to make the program more generous. Ryan’s budget would repeal the Medicaid expansion (in addition to the individual mandate, the health insurance exchanges/subsidies, IPAB, and other features of the ACA). Instead, Ryan would “block-grant” funding to the states for Medicaid and CHIP (a program for low-income children). According to the CBO (page 9):

… even with significant efficiency gains, the magnitude of the reduction in spending relative to such spending in the other scenarios means that states would need to increase their spending on these programs, make considerable cutbacks in them, or both. Cutbacks might involve reduced eligibility for Medicaid and CHIP, coverage of fewer services, lower payments to providers, or increased cost-sharing by beneficiaries – all of which would reduce access to care.

The Kaiser Family Foundation quantified that concern. According to their estimates, 11 million people who would qualify for Medicaid under the ACA will be denied coverage. An additional 14-19 million Medicaid beneficiaries would likely lose coverage in the wake of budget cuts. None of this considers the possibility of a growing dual-eligible population.

So, let’s say we’re unable to keep health care spending in check the way that Ryan would like–let’s say reality reflects the CBO estimates in 2023. Where does that leave the elderly who deplete their life savings on medical expenses? Will children and mothers (the main recipients of Medicaid without the ACA expansion) be shunted out of the program to make room for the aged? The opposite? Or would benefits be dramatically reduced for everyone on Medicaid, regardless of age? Could (and would) states pick up the slack?

As of 2011, one in five (21%) Medicare recipients received Medicaid assistance. If Ryan’s budget passed, I don’t think this problem would stay hypothetical.

My lingering questions:

  • Is it even possible to empirically evaluate my question of “holding eligibility requirements constant, would Ryan’s 2013 budget plan increase the dual-eligible population–and if so, by how much?” I know nationally is probably impossible, as eligibility requirements vary, but could it be done at the state level?
  • My understanding is that private plans under Ryan’s premium support system wouldn’t be allowed to “cherry-pick” healthy enrollees. Has anyone discussed the potential problem of enrollees cherry-picking plans (with ostensibly variable benefits) as their health status changes?

ETA: Okay, so Romney has reneged on supporting the Ryan budget, because it keeps the Medicare changes in the ACA (which are included in the CBO scoring I discussed above), and Romney pledged to repeal Obamacare in full. But I imagine that he’s still in favor of Medicare reform through premium support, still in favor of capping contributions to encourage “free-market efficiency,” and his vague budget otherwise necessitates steep cuts to Medicaid. So I think my concerns stand.

ETA 03/12/2013: Yep, Ryan released his 2014 budget; concerns stand. The numbers may not be the same, but conceptually voucher Medicare + block-grant Medicaid presents this conundrum.

photo credit: PGPF, KFF

Adrianna works in clinical research and will begin graduate studies at the University of Michigan this fall.
Follow her on Twitter @onceuponA.


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