The news on Monday that one in six Americans are now enrolled in government poverty programs (Medicaid, food stamps, unemployment insurance and welfare) was an unsettling reminder of the economic fix we currently are in. Medicaid, as I’ve written before is now serving 50 million Americans, up at least 17% from when the recession began in 2007.
With a short-term, but ultimately inadequate, fix coming in the guise of Congress' $26 billion grant to states that extends federal increases in Medicaid funding that were part of the stimulus package, imminent disaster may have been averted. But according to Michael O’Grady and Jennifer Baxendell Young, both of whom served in senior positions at the Department of Health and Human Services before becoming policy consultants, it’s time to consider a longer term fix for a fundamental flaw in Medicaid financing. Writing on the Health Affairs blog, O’Grady and Young explain:
“States…face increasing Medicaid expenses at the very time they have decreasing revenues to pay for them. This is commonly referred to as the “counter cyclical” problem. Whenever the ranks of the newly unemployed surge because of economic downturns, the ranks of those newly eligible for Medicaid surge as well. The states confront fundamental challenges to their budgetary stability. Tax revenues go down; spending goes up. States then historically have three main options available to them: (1) cut Medicaid reimbursement, (2) eliminate Medicaid benefits, or (3) restrict Medicaid eligibility for those not entitled by federal statute.”
These draconian measures—which further thin the safety net at exactly the time it needs to be beefed up—will no longer be options for many states. The federal government is imposing new “maintenance-of-effort” rules on states that require them to maintain current benefits in order to be eligible for increased federal Medicaid assistance percentages (FMAP) once health reform legislation kicks in. Instead, O’Grady and Young have devised a novel (and potentially long-term) solution to the current Medicaid crisis. The general idea, which you can read about in more detail here is to adjust downward a state’s FMAP share during an economic downturn like we are currently experiencing.
The authors write: “The adjustment would allow states facing economic hardship to make a lower contribution during the downturn, i.e., the FMAP would increase and the federal government would pay more. However, unlike current practice, the additional federal funds would be paid back using a lower FMAP (therefore a higher state share) once the state’s economy rebounded. The design would achieve the dual policy goals of providing federal help to states during a downturn, and not adding to the federal debt.”
The Health Affairs post describes possible triggers for this emergency FMAP increase—state jobless rate hitting 10% or reduction in state gross domestic product of more than 5%—and adds that “the difference between the regular FMAP and the emergency FMAP would be treated as a loan with a five-year payback window.”
The authors offer their plan as a starting point—meant to stimulate discussion. But the goal, they write, is that “[t]his proposal allows states a path out of their problems, without shifting an ever-growing burden onto federal taxpayers.”
The data shows it is actually higher than 1 in 6. The system is beyond broken and we need real change. Heath care, like clean water is a human right and should not only be for the wealthy.
This is a great idea. I have maintained for a long time that state and local governments are 180 degrees out of phase with the economy, but states cannot spend more money than they take in. Shifting the burden to the federal government makes a lot of sense to me.
The solution to this problem — including the problems of state budget crises, inequality of benefits from state to state, extremely low payouts to providers that discourage provider enrollment, and the extremely high overhead costs associated with states’ efforts to police benefit enrollment as a way of containing costs — is to federalize Medicaid once and for all. States would be freed from the costs of providing health care for poor citizens, benefits would be identical from state to state, payments could be linked to Medicare’s higher rates, and enrollment could be based on the applicant’s income tax information in the same way as the earned income credit is today.
Historically, Medicaid was made a state program to placate racist politicians who were afraid that benefits would go to African Americans. It is time for us to drop this legacy of the Jim Crow era and guarantee good health care coverage for low income Americans as well as stop the crippling burden on state budgets.
Great idea to federalize Medicaid.
I mean where are the benefits more plentiful – through the states which have to balance their budgets or the federal government, whose “full faith and credit” is the newest form of God?
Its benefits, like God, are infinite.
Don Levit
While I agree conceptually with the idea of federalizing Medicaid, I think it’s important to note that millions of low income working people don’t pay income taxes or even file income tax returns because their income is earned and paid “off the books.” This makes determining eligibility for means tested programs like Medicaid, food stamps, housing vouchers and the like challenging to say the least. To address this, I think anyone who applies for federal benefits of any kind, including Social Security, Medicare and student loans, should be required to have a robust identification card that includes a picture, unique numerical identifier and a fingerprint or other appropriate biometric identifier. As a taxpayer, I don’t think it is too much to ask those who apply for federal benefits to prove that they are who they say they are and that they are applying only once and under one name. I am more than willing to do this myself when I ultimately apply for Social Security and Medicare benefits. Healthcare providers who have the power to bill Medicare and Medicaid should also have such ID cards to help mitigate fraud. There is way too much gaming of the system going on in all of these programs while efforts thus far to address fraud are woefully inadequate, in my opinion. It’s time to change that.
Barry —
I would be interested in seeing the data that supports the notion that millions of low income people earn enough money “off the books” to effect their potential eligibility for Medicaid. This sounds like the mythical “welfare Cadillac” of Ronald Reagan fame.
I would not argue that many people might earn a few dollars here and there and not report it, but I believe, based on my own experience with knowing low income people, that the amounts are trivial. I am very certain that fraud of this type amoung low income people costs taxpayers and the government far less than fraud amoung high income people and businesses who conceal income for tax purposes.
In fact, the main problem for Medicaid with understatement of income is not the income itself, which is almost never enough to make a difference in eligibility, but rather the obsession of many people with that notion and the high cost paid by states to attempt to detect that income, as well as the humiliation and frustration that clients have to go through to qualify and re-qualify for Medicaid in many states.
As to the idea of a national “strong” ID, I am ambivalent about it myself. I doubt that it would prove very useful in this setting, since I believe that people getting Medicaid by identity fraud is rare. I can see the utility for many other purposes, although the process of getting such ID might prove prohibitive for many people who are elderly, disabled, or who have had lives that make collection of documents to receive the ID a major problem, like women and children who have fled abuse and people who have moved repeatedly, had fires, and so on.
In general, the notion that there is a significant number of “undeserving poor” out there freeloading on the system tends to be a Glen Beck/Rush Limbaugh myth that actually costs tax payers far more money than it saves.
To summarize a point once made by conservative economist Milton Friedman, the worst thing that could happen here is that someone could get good health care, and in the long run the benefit of that to society outweighs the small risks of abuse.
Pat,
I don’t know about MN, but in NYC, the underground economy is all around us. Many people I know who employ nannies and maids tell me that they usually prefer and sometimes insist on being paid in cash. Contractors including landscapers, carpenters, plumbers, electricians, etc. frequently quote a lower price if the customer pays cash. Waiters and waitresses underreport their tip income. Anyone whose income does not show up on a W-2 or 1099 form including small business owners, doctors and lawyers have lots of opportunity to hide income in order to evade taxes. A neighbor of mine who is a retired IRS agent tells me that the IRS does a very good job of matching documents including W-2’s and 1099’s to individual taxpayers but is largely incapable of finding hidden income. He said they would probably need an agent on every street corner to go after it.
Medicaid eligibility includes an asset test as well as an income test. When it comes to long term care and home health care, many middle class elderly people are quite adept at transferring assets to children and other relatives in order to qualify for Medicaid to pay for their long term care. Some engage elder care attorneys to help in this effort. I suspect you are probably correct about the number of young families who qualify for Medicaid by hiding income. However, I think it’s interesting to note that since welfare reform passed in 1996, the welfare rolls are down by 50% or more in most states despite the weak economy. Moreover, Ken Feinberg, who is overseeing the BP oil spill fund, has told interviewers that many claimants cannot document their claims because they were routinely paid in cash. Finally, when my wife sold her late father’s house, valued at only about $40K, in 1998, one of the contractors who helped get it ready for sale expressed an interest in buying it but he couldn’t get a mortgage because he never filed tax returns. In short, the underground economy is more prevalent than you apparently think it is, though the amount of understated and hidden income is greater among the rich and middle class as compared to the poor.
As for the national ID card, the 9/11 Commission recommended it. I think there could be exceptions for the elderly, the disabled and children under 18. There could also be additional hardship exemptions or waivers. For the vast majority of people between 18 and 65, I think they make a lot of sense. Healthcare fraud is much greater on the provider side than on the patient side, and I think the ID cards could help to mitigate fraud by providers including billing for services never provided. If we had a national ID card and it turned out to cause more problems than it solved, we could always repeal the requirement or at least fine tune it. I think it’s worth a try.
Barry —
We are not talking about the question of how many people are dodging paying income taxes. We are talking about how many of those people are applying for Medicaid. Very few plumbers and painters working partly off the books are on Medicaid, nor are Gulf shrimpers or waiters at Peter Luger. Most of the nannies and housekeepers you allude to would qualify for Medicaid anyhow, and in fact most of the impetus for household workers to be “off the books” comes from employers who prefer not to pay social security, unemployment, overtime, or be drawn to the attention of immigration services. New York State has just passed a law, at the urging of household workers and their advocates, that addresses this very problem.
To get a true idea of the dimensions of any potential problem, examination of the Earned Income Credit provides a useful surrogate for other potential programs. The rate of fraud in the Earned Income Credit has been thoroughly investigated and has proven to be very low, much lower than fraud by higher earners. During the Bush administration, when conservatives became convinced that poor people were cheating and that most of the enforcement resources of the IRS should be spent on investigating the EIC, widespread audits of EIC beneficiaries failed to turn up a significant problem.
On the issue of a national ID for all Americans, as recommended by the 911 commission, I am not opposed to the idea of trying it if there are ways for people in the groups I mentioned to avoid mountains of red tape. I know a person who works with abused women and teens, and he reports that it is almost impossible for many of them to get government ID unless they are willing to reveal their location to the abusers they are fleeing.
Having been a provider under Medicare and Medicaid, I am doubtful that an ID program would have much impact on provider and supplier fraud if it were added on top of the already very thorough submission requirements that already exist. Suppliers wanting to commit fraud would just use the cards like they now use the existing ID system.
As to the drop in welfare payments, that is almost entirely due to severe cuts in benefits, including sunset clauses that eject people from welfare roles after a few years, exclusion of people in school or training programs, and rules that make it very hard for people to apply for assistance. The discussion of whether this is a positive or a negative trend is an ongoing battle that I won’t get into now. I will just say that data are quite clear that the people involved are not entering the workforce in any significant numbers.
I will readily grant you that there is a significant abuse of Medicaid by elderly people and their heirs who defraud Medicaid in order to conceal wealth when they need long term care. These people, of course, are middle class people who have suddenly discovered a belief in “socialized medicine” when they are confronted with significant out of pocket health costs.
Pat S., Barry
I can’t comment on the wisdom of federalizing Medicaid–in theory it makes a lot of sense and would certainly add equality to a seriously disparate system. Through health reform, there will be an expansion of the number of people who will qualify for benefits as some states that had met only the bare minimum (only pregnant women and children under 6 at 133% of poverty, for example)will have to offer benefits to others. Some studies have found that currently, some 60% of the poor do not even qualify for Medicaid benefits.
As to the situation that Barry describes in NYC, the main reason workers like nannies, house cleaners, construction workers and those with similar jobs want to be paid in cash, is that they are often here illegally. That means they are not “gaming” the system to apply for Medicaid–they are routinely uninsured. I have never heard of a middle-class or wealthy person (paid solely in cash)who receives Medicaid. The cumbersome and frequent renewal process (including face to face interviews in some cases), the terrible choice of caregivers and other hardships suffered by those on Medicaid does not makes this a benefit many covet.
Naomi
I really like what I see here. I hope it comes to pass.
Shifting to federalized Medicaid may mean broader coverage but there is also a greater chance of budgets being cut as the federal government won’t feel the heat of an individual state’s needs as keenly.
All three of the options presented are non-options due to the affect on either those receiving or those providing services. A real solution may be to look into why Medicaid is needed in the first place and work to help those on Medicaid be able to live without it.