The Medicaid local share

Are the counties and New York City going to get any relief on the local share of Medicaid costs? This is a question considered apart from issues of structural reform of the Medicaid program, but the structures and shares are actually interwoven. While the politics of the Medicaid shares are getting testy, there's more to it than which elected officials get to raise tax revenues (and tax rates) to pay for it. We need to consider this issue, not only for the current politics, but also for its interrelationships with the larger issues of Medicaid program reform.

Currently, the Medicaid local share is also mixed in with the State's responding to a court decision on inequities in the distribution of school aid. The Legislature and Governor are focusing more attention on the education financing issue and they'll likely focus many more dollars on resolving it. Both school aid and Medicaid have substantial tax incidence implications - which regions's taxpayers are net payers and which are net beneficiaries. But this isn't just about who pays. It's also about the politics of who benefits and how much is paid.

It would be easier to pick up the local share and get local officials off the backs of State officials if the local share had not become so expensive. So logically it would also be easier to pick up the local share if there were a prospect for structural reform that would rein in total Medicaid costs. This argues for structural reform first; pick up the local share later. The problem is that a local share reduces the pressure State budget to engage in structural reform while increasing the lobbying pressure not to. The standard lobbying argument "don't cut us to save 33 cents. It will cost us a dollar" has been historically potent.

New York's requirement that counties and New York City pay a substantial portion of the costs of the country's most expensive Medicaid program began as an artifact of the system in which counties actually administered the public welfare and medical systems that pre-dated Medicaid.

As the program has grown and services have expanded, policy and operational authority has become centralized. Counties have no say in Medicaid policy making and relatively little operational flexibility. It is the State which makes Medicaid policy, determines which institutions and individuals benefit from the program and to what degree, and creates the prices and structures that drive program costs.

So as Medicaid costs have grown, the alignment of financial and policy responsibilities have become weaker, exactly the opposite of what we should require. The State is only responsible for about one-third of the cost. This creates a political environment in which the State officials can provide a dollar’s benefit and reap a dollar's political benefits for only $.33.

But even those distorted figures don't present the whole picture. The differential in State/local share growth has accelerated. The State has used various new revenue streams such as the assessment and pooling arrangements under the “Health Care Reform Act” to generate off-budget revenues that partially offset general revenue requirements for the State’s share of Medicaid expenditures. Counties are unable to draw on these or comparable funds. Thus, the apparent increase in the State share is relatively small (a couple of percent) and, in terms of the State budget, it is relatively inexpensive for State policy makers to increase Medicaid spending. But it is other jurisdictions that bear the cost burdens. Thus there's been no new revenue for localities and their shares of Medicaid costs has risen at rates typically in the 12-14 percent range.

Given the legislative politics of interest groups especially hospitals and nursing homes, there were and still are counterpressures heavily weighing against it. As the healthcare industry has become more financially dependent on Medicaid and its lobbying more aggressive, the more expensive the program has become and the harder it's become to fix.

So, the local share of Medicaid is not only a problem for local officials and taxpayers. It's a structural barrier to structural program reform.

Comments

[Steven Davidson]

So, I both pay taxes and depend upon the largesse of Medicaid (in part) to enable that payment. I get the policy disconnect, but fear the "structural program reform" absent maintenance of hospital revenues. I just don't get the apparent lack of concern with hospital stability. Not that Medicaid should pay the full freight, but in the ER, we earn $17 for a Medicaid patient regardless of what we do for the patient. It costs $12 in malpractice insurance (Kings) and ~$7-8 in billing and collection costs to collect that $17. The hospital does a bit better and so can back subsidize my physician staff, but for how long?

[John]

Steven:

It may be paradoxical, but I'm quite concerned about hospital stability ... for individual hospitals. The problem is one of all hospitals in New York. In system terms, this is a problem of "sub-optimization" (optimizing the outcome for a subsystem leading to less than optimal outcomes for the system as a whole. This often collapses into a "tragedy of the commons" or exhaustion of shared resources that are seemingly free or priced below cost to each individual or individual sub-systems).

This is compounded by a repeating cycle in NYS hospital policy.

In New York we hospitalize people more often and keep them longer and spend more in the aggregate. In return for this, we do not get better outcomes, better access or higher patient satisfaction than elsewhere (see the work of Elliott Fisher, MD among others).

Hospitals in NY have been financially strapped for 30 years and repeatedly the policy prescription has been to try to keep all of them alive, primarily in response to political activity and primarily by throwing money at them. After 30 years one would think that we would have learned and changed our behavior. Well, most will admit the problem in private, but we keep behaving the same way.

As an ER manager, you're probably quite sensitive to the number uninsured patients and sensitive to their personal plight. Underneath it all is this raw economic fact: most people are uninsured because coverage is too expensive for them, their employer or the taxpayer. That's why we have over 3 million uninsured New Yorkers compared to 1.5 million 25 years ago. And, in large part, insurance and Medicaid costs are higher than these people can afford because of the aggregate costs of hospital care.

I'm convinced by the way that over time, this pattern of relying on politics for short-term fixes has biased Board and senior management decision making processes and criteria. More attention is paid to wielding political influence than operational and clinical improvements. There's some evidence that this pattern emerges in all regulated systems.