The main purpose of this paper was to identify the problems associated with increasing costs of Medicaid expenditures in the United States. Medicaid spending usually takes up a significant proportion of the state budgets.
The problem statement aimed at analyzing how the Medicaid program reached to its present condition? The decline on the state revenue and an increase on the enrollment rates are imposing significant burdens on the government budgets; how can we address the problem without jeopardizing the goals of the program? It was established that the increasing Medicaid costs are mainly due to increasing individuals enrolling for the program, increase in the provider payments and an overall increase in healthcare prices in the United States. The complexity of the problem of the Medicaid costs in the US is worsened by the decreasing state revenue. The possible solutions identified in the paper included cutting the Medicaid costs, raising the taxes and using reforms in the Medicaid program. The paper justified the use of Medicaid reforms as an effective solution for addressing the challenges of rising Medicaid costs.
MEDICAID COSTS AND CUTS
Problem statement
Medicaid costs are increasingly taking a relatively larger share of the federal and state budgets in the nation. With the decline in the state and federal revenue, the Medicaid costs for a single enrollee have been on the increase over a last decade. The National Governors Association referred to the rising Medicaid expenditures as a fiscal crisis in the states (Galewitz, 2010). From a nationwide perspective, Medicaid and other healthcare services take up 30 percent of the state budgets, which is resulting an extreme strain on the state budgets. An increase in the Medicaid costs poses significant shortfalls in the Medicaid expenditure at the state level. Without the implementation of effective reforms, Medicaid costs are threatening to consume a greater share of the budgets adopted by the states, which in turn may affect other items in the budgets. It is projected that in 20 years, Medicaid has the potential of putting the states to bankruptcy (Cutler & Mark, 2000). The problem with Medicaid expenditure at the state level is worsened by the effects of the recent recession on the revenues of the states, which are relatively lower compared to the pre-recession levels. A notable trend is the increasing fiscal pressure on the Medicaid costs and the increasing number of enrollees for the program and cases of dual eligibility are exerting significant pressure on the Medicaid costs (Hadley, 2003). This largely attributed to the ongoing challenge associated with the expansion of the Medicaid program since its introduction, increasing the burden on the state and federal budgets due to the fact that Medicaid costs are increasing amid declines in the revenue levels of the states, forcing the state governments to reduce the expenditure on Medicaid. This implies that the adequate policy response to the issues and challenges associated with Medicaid costs requires a comprehensive review of the problem. How did the Medicaid program reach to its present condition? The decline on the state revenue and an increase on the enrollment rates are imposing significant burdens on the government budgets; how can we address the problem without jeopardizing the goals of the program?
Literature Review
The Medicaid program in the United States healthcare system focuses mainly on individuals and families who have low income. The Medicaid is a means-tested program that is financed mutually by the state and federal governments, although its management is under the discretion of the state (Levit, 2003). The program constitutes one of the largest expenditures associated with the provision of medical and health services for low-income individuals in the United States. People who are beneficiaries of the Medicaid program include the United States citizen, low income adults and their respective children and people with particular types of disabilities. Medicaid financing in the United States is a significant budgetary issue for most of the states over the years, with an average expenditure of about 16.8 percent of the state funds being directed at the program. When the general match is included in the states’ budget, then Medicaid comprises of approximately 22 percent of each of the budgets at the state level. The CMS reports that the Medicaid program offered healthcare services to at least 46 million United States citizens during 2001 (Centers for Medicare & Medicaid Services, 2008). The number of the enrollees during 2002 was approximately 39.9 million citizens, which the children being the largest percentage of the beneficiaries. During 2004, approximately 43 million individuals enrolled for the program, resulting to an expenditure of about $ 294 billion. The enrollees further increased during the 2008 to approximately 49 million at an estimated cost of about $ 208 billion. During 2009, Medicaid the states’ expenditure on Medicaid comprised of 15.7 % of the state general funding and 21.1 percent when the federal matching funds are included (Galewitz, 2010). The significant problem is that the Medicaid Expenditure is increasing exerting pressure on the state budgets amid the current situation associated with budget shortfalls at the state.
Holahan & Sharon (2011) state that increases in the Medicaid expenditure can be significantly attributed to the increase in the number of individuals enrolling for the program and ever increasing costs of healthcare services. In order for the states to balance their budgets, Medicaid expenditure cuts have been adopted by majority of the states. Mitchell & Fairgrieve, (2004) claim that such an approach has potential impacts on the vulnerable citizens especially those who vastly rely on the medical assistance from the program.
The Medicaid program was established during 1960s a strategy to enhance the war on poverty. Its initial objective was to serve as a social safety net used for offering health insurance for people with low income, old aged and people with disabilities. Just after its implementation, Medicaid expenditure exceeded the expectations of the United States Congress, the larger part of its history since its implementation has been majorly related to the increasing costs and the impacts it imposes on the state budgets (Levit, 2003). There are different views that attempt to explain the rising Medicaid expenditures including the increasing number of individuals who are enrolling for the program, increase in the usage and the costs of prescription drugs, increasing amounts of provider payments, general increase in the healthcare costs and long term care expenditures due to medical inflation. It is important to note that the above factors only attempt to give an account of the increasing Medicaid expenditures but not offer an explanation as why Medicaid is expensive. Cunningham & Len (2005) notes a number of factors that need to be taken into account when assessing the high cost of the Medicaid program. First and foremost, Medicaid offers coverage for medically needier citizens of the United States who lack the capability of attaining health insurance from the private sector. This population usually comprises of citizens who are old aged and those who have disabilities. In addition, Medicaid also comprises of low income citizens (Hadley, 2003). In contrary to the insurance schemes that are employer based whereby medical insurance coverage commences when an individual is hired, Medicaid is usually triggered by a particular medical need that is outlined in the criteria. The second reason that explains why the costs associated with Medicaid are high is due to the fact that the eligibility requirements for the program usually establish incentives for the potential beneficiaries (Mukamel & Glance, 2008). Owing to the fact that eligibility of the program depends on low income and being in possession of few resources, Medicaid usually penalizes the individuals who succeed and encourages people to dispose-off their assets so that they could be eligible beneficiaries for the program. In cases whereby the beneficiary earns a dollar above the threshold for the individual and household income, they are bound to lose the entire Medicaid coverage. In addition, the rules of eligibility permits people to deprive themselves of the resources through transferring to other family members and heirs, as such, they can easily qualify the Medicaid program in duration of 3 years (Hadley, 2003). Despite the fact that an empirical evaluation of the Medicaid problem is complex and not easy to be determined, the rapidly increasing law practices in the United States together with the plenty anecdotal evident serve to the actual presence of the problem. The third possible factor that can be used to explain the increasing costs of the Medicaid program is that the delivery of its services entirely cut offs the costs of care for the consumers (Mitchell & Fairgrieve, 2004). Owing to the fact that healthcare is considered free for the beneficiaries of the Medicaid program, their levels of consumption are high to a point where their marginal benefits is null, which in turn creates a situation whereby the costs of the procedures are more compared to the value to the patients. Programs associated with managed care have also adopted such spending schemes, although they have reported considerable savings. Managed care programs results to an increase in the complexity for the payment providers and the program beneficiaries. Despite the fact that beneficiaries turn out to be satisfied with the program, the providers have indicate high levels of discontent. From a holistic view, such factors have played an integral role in increasing the Medicaid expenditure in the United States.
High Medicaid costs are a looming crisis in the United States healthcare as evident by the statistical projections. Statistical projections by the Center for Medicare and Medicaid services (CMS) have reported that Medicaid expenditure is likely to increase at a rate that is faster when compared to the United States economic growth in the next 10 years (Centers for Medicare & Medicaid Services, 2008). The report states that Medicaid expenditure increased by a margin of 7.3 percent during the period 2007-2008 at an amount of $ 339 billion. It is estimated that Medicaid expenditure will increase at a yearly average rate of 7.9 percent to reach $ 674 billion during 2017, which is relatively higher when compared to the economic growth rate of approximately 4.8 percent. The report released by CMS can be used to conclude that the increasing costs of the Medicaid program is unsustainable for the state governments, posing the need to implement policy measures to ensure fiscal stability of the Medicaid expenditures (Office of the Actuary, Centers for Medicare and Medicaid Services, 2002). Failure to address the increasing costs threatens the effectiveness of the United States healthcare. The CMS report further highlights that the Medicaid expenditures in the United States have the potential of rising above the entire costs directed at the healthcare system in the United States. Amidst these projections by the CMS, other report findings indicate during the next decade, there is an anticipated increase in the average enrollment at a yearly rate of 1.2 percent to clock 55.1 million beneficiaries during 2017; such trend is worrying imposing significant challenges in policy implementations to address the increasing Medicaid costs (Galewitz, 2010). The sharp increase worsens in the wake of economic downturn that has played an integral role in reducing the state revenues. The challenge is the factors contributing to the increasing Medicaid costs are increasing, yet the funds at the disposal of the government are declining, leaving the states with the only option of cutting the Medicaid costs to address the shortfalls in the state budgets. The following section discusses a problem analysis of the increasing Medicaid costs in the United States.
Problem analysis
Holahan & Sharon (2011) assert that states are facing fiscal crises mainly due a decline in the state revenue that can adequately meet the provision of the public services, especially healthcare insurance for people with low incomes through the Medicaid problem. The situation is worsened by the fact that states are constantly facing budget shortfalls in the wake of sharply increasing Medicaid expenditures. The declining state revenues and the swelling Medicaid expenditures have resulted to Medicaid being debated subject within the state legislatures (Mukamel & Glance, 2008). This requires having a comprehensive understanding why the Medicaid costs are ever increasing, why the containing the Medicaid costs is difficult, the effectiveness of the program and what can be done to address the looming crisis…
References
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