Beware Republicans Bearing "Flexibility"

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(Flickr/Canon in 2D)

After a holiday weekend, everybody wants to read a long post about Medicaid funding, so I am meeting the need. If you've heard Republicans talk about Medicaid, there's one word you've heard over and over: "flexibility." That's what they want states to have. Sounds good, right? Flexible is better than rigid. But let's explore what that really means.

Medicaid is run and funded jointly by the federal government and the states. Rep. Paul Ryan's budget plan, which all but a few Republicans in the House and Senate voted for, converts Medicaid from an entitlement (meaning everyone who qualifies gets coverage) to a block grant, in which every state would get a set amount of money at the beginning of the year to spend as they wish. Once states can be all flexible, Ryan and others argue, they will save money. These savings are supposed to enable the deep cuts in the program that the Ryan plan contains (more on that here).

But there are only a few ways you could wring savings out of Medicaid. First, you might be able to find so much bureaucratic inefficiency that addressing it could save tremendous amounts of money. This is, to say the least, highly unlikely. According to the Congressional Research Service, administrative costs make up only 5 percent of federal Medicaid spending and 5.75 percent of state Medicaid spending (see Table 1 here). That's slightly higher than the 2 percent Medicare spends but much lower than private insurers, many of which spend 20 percent or more of their premiums on non-medical costs (administration, marketing, profits, etc.). So Medicaid is already spending far less on bureaucracy than private insurers do, without the benefit of the insurance companies' magical market mojo. Not only that, states already have the power to improve their Medicaid administration if they can.

Second, you could come up with innovative ways to save money through making Medicaid recipients healthier. Great idea! Again, states don't need a block grant to do this; they can do it already. Or you could do things like move Medicaid patients into managed care, as some states are doing. Once again, they can do this already.

Another way you could get savings in Medicaid is to pay less for the services it funds. But this is essentially impossible; Medicaid reimbursement rates are already lower than what both private insurers and Medicare pay. According to the Kaiser Family Foundation, state Medicaid programs pay fee-for-service providers an average of only 72 percent of what Medicare pays for the same services. It's not surprising, then, that so many doctors simply refuse to see Medicaid patients, since they won't be paid enough to make it worth their time.

Which brings us to the last way you could save money in Medicaid: deny coverage to as many people as possible. That's "flexibility." As a matter of fact, a House subcommittee recently passed a Republican bill giving states permission to drop patients from Medicaid. And that's the whole point of the block grant idea: once states are free from the requirement to insure everyone who qualifies, they can start dropping people from their rolls.

Keep in mind that right now, every state has its own eligibility standard for Medicaid. If you live in Massachusetts, you can get on Medicaid if your income is below 133 percent of the federal poverty level, or $29,726 for a family of four. In Mississippi, you're only eligible if your income is less than $9828 a year. That's right – a family of four with an income of $10,000 a year is too rich to be eligible for Medicaid in Mississippi.

The good news is that this will change in 2014. When the Affordable Care Act fully takes effect that year, everyone in America with an income under 133 percent of the poverty level will be eligible for Medicaid. Is that "flexible"? Maybe not. But every time you hear Paul Ryan or anyone else saying that what Medicaid needs is flexibility, remember that what they're saying is that poor and elderly people should have their health insurance taken away.

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