A Dirty Job

After creating record federal budget deficits by giving tax cuts to the wealthy and financing the war in Iraq, the Bush administration's budget proposal in February is widely expected to try to shrink deficits largely by slashing programs for the poor and the elderly, particularly Medicaid. Capitol Hill is expecting the administration's fiscal 2006 budget to include drastic cuts in federal Medicaid spending, offering states more flexibility in deciding what Medicaid will cover and who can enroll, in exchange for caps on federal money. And to help implement this the White House has just installed former Utah Governor Mike Leavitt as the new secretary of health and human services.

Supporters of a strong Medicaid program look with alarm at Leavitt's track record as Utah governor. In 2003, he welcomed the administration's “Medicaid modernization” plan to offer some up-front money in exchange for caps down the road. And, ominously, Leavitt was the first governor to get federal permission to cut benefits and raise co-payments for existing Medicaid enrollees, in order to finance very limited benefits for expanded populations.

Leavitt, who was confirmed January 26 by the Senate, sidestepped questions at his confirmation hearings by worried senators, primarily Democrats but including Republicans such as Maine's Olympia Snowe, about whether he would back limits on Medicaid spending. Instead, he referenced what he did in Utah, insisting, “It's always been my belief that we can expand the number of people that we serve with the available resources.”

And if that means, as it has in Utah, cuts in what are called optional benefits, so be it. “Mandatory populations should remain mandatory.” he told senators. “Optional coverage should remain optional.” Mandatory coverage is what is required under federal law, optional coverage means additional benefits or people the individual states decide to cover. What Leavitt didn't mention was that optional benefits have become, in fact, a major part of Medicaid coverage. The Urban Institute estimated that in 1998, two-thirds of Medicaid spending was “optional” and almost 12 million out of 40 million beneficiaries received care on an optional basis.

Medicaid plays a critical role in providing health care for the old and the poor. It pays for about half of all nursing-home costs for the elderly, provides health insurance for about half of those living with AIDS, and covers about 25 percent of all children in the country. It has also provided a critical safety net for workers who either don't get health insurance on the job or have lost it due to employer cutbacks, job changes, or unemployment. A new study by the Urban Institute's John Holahan concluded that the jump in Medicaid costs by one-third between 2000 and 2003 was due largely to increased enrollment of children and their parents who had lost employment-related health coverage or had otherwise hit hard times. Federal and state spending on Medicaid is now neck and neck with total federal Medicare outlays.

Over the years, states have tried creative ways to cover more people under Medicaid, enrolling beneficiaries in lower-cost managed-care plans, pressing drug companies for lower-cost drugs, and using tobacco settlement dollars for programs.

But in 2001, the Bush administration offered the states a chance to dramatically restructure Medicaid. It announced it would grant states permission (or waivers from federal standards) to deviate from Medicaid coverage and co-payment and enrollment rules, saying that this money would be used to expand coverage to new populations. The administration promoted the waivers and promised to expedite their approval.

California and Arizona jumped at the offer, but proposed to cover uninsured parents through funds that were unused and would otherwise go back to the federal government.

Utah however, under Governor Leavitt, proposed eliminating some benefits and adding new cost sharing for parents already enrolled in Medicaid to finance a very limited benefit for some new enrollees. Utah, in February 2002, was the third state granted a waiver under the Bush administration's new plan.

But Utah's program marked the first time the federal government has allowed a state to pay for new beneficiaries by cutting care for current enrollees, and the first time that a state was able to offer some enrollees a limited benefit plan that did not include hospital coverage.

Under the plan, about 17,600 adults (children and the elderly were not affected) faced significant cuts in many benefits, including dental, vision, psychiatric, physical therapy, and drug coverage, and increased co-payments for many services, including doctor visits and drugs.

New coverage was provided for a limited number of adults up to 64 years old whose income was less than 150 percent of poverty. These enrollees were only covered for physician visits and some emergency and preventive care, but no hospital or specialty care. There was a $50 enrollment fee as well as co-payments for many services.

Additionally in 2003, the state provided a $50 monthly subsidy for employer-sponsored health insurance to workers earning less than 150 percent of poverty whose employer paid at least half the insurance premium.

What has been the result of this experiment, aside from a cut in benefits for some? A study by the Center on Budget and Policy Priorities found that the co-payments imposed by Utah on Medicaid beneficiaries, even if small, created a significant barrier to recipients' ability to get care. The study found that co-payments, which began when the waiver was approved in February 2002, significantly reduced the use of health-care services. Under one estimate, which assumed that physician visits would have remained constant at the same number per 1,000 enrollees if there had not been co-payments, the trips to doctors dropped to less than half when people paid even a small co-payment. Hospital co-payments led to about a 25-percent drop in utilization, the analysts found.

And this drop in utilization, caused by people unable to afford the added co-payments, may not even have lowered the state's longer term Medicaid spending. Studies have shown that co-payments can limit needed care, resulting in patients finally seeking care when they are much sicker and care costs are more.

At the same time Utah broke with the policy of providing any benefit offered to anyone who qualified. Instead, it became the first state to provide a benefit only to a limited group of those who qualified. The state offered a new physician benefit to 19,000 people and closed enrollment in November 2003. But the cost sharing imposed on enrollees for this limited benefit made it hard for many to utilize it. By May 2004, the number of enrolled had fallen to 14,700. A survey by the state health department of about 500 people (out of 1,709, or 27 percent) who had dropped out of the program after the first year, found that about one-third did so for financial reasons, in particular because they could not afford the enrollment fee of $50. Studies are under way to assess the impact of providing only physician overage without specialty or hospital care, especially for AIDS patients.

In August, 2003 Utah added another program to the expanded coverage financed by cuts to existing Medicaid enrollees. It offered a select group of those under 150% of poverty a $50 subsidy for individuals and $100 for families to help them pay their share of employer-provided health insurance. The state ear-marked 6,000 slots for enrollees. But in a report in December, Utah Issues Center for Poverty Research and Action said that only 49 workers were enrolled because the subsidy was way too little to make coverage affordable for such a low-income group.

Under Leavitt's guidance, Utah began dismantling its medical safety net for the poor under the guise of trying to help more of the uninsured. Many of those already enrolled in Medicaid lost benefits and paid more for care while a very small number of people got very limited help to see a doctor. Now, as Secretary of Health and Human Services, Leavitt is poised to try to do similar things nationally. The question is whether Congress will be a willing party to the dismantling of Medicaid.

Barbara T. Dreyfuss is a freelance writer based in Virginia.