Why is Medicaid so costly in New York and what can be done to control these costs?
In order to answer these questions it is essential to understand the original purpose of the Medicaid program and what it has become.
Medicaid was developed as a partnership between each of the 50 states and the federal government to insure that the poorest Americans had access to healthcare. The costs were to be split, with the federal government paying up to 80% of the cost. However, in NYS due to our relative wealth, the federal government pays 50% of the cost of the program. The other 50% is shared by the state and the counties.
In NYS the program has grown to the point that currently 1 in 4 New Yorkers are covered by Medicaid. In fact, during the past decade the number of Medicaid beneficiaries in New York State has grown from 2.7 million to 4.7 million people. This is the number one issue driving up the cost, the growth in enrollment, which is a reflection of the poor economy during much of the last decade, as well as government policy. (View graph of Medicaid's historical enrollment)
Another reason for the high cost is because of benefit design. All states must offer a Medicaid program with basic benefits in order to qualify for federal funds. There are 36 optional benefits that each state may offer, but they are not required to do so. In NYS the Medicaid program includes 31 of the 36 optional benefits. This also adds significantly to the cost. Next, it is important to note that approximately 1,000,000 of the Medicaid enrollees, or 20% of the total, account for 75% of the total cost. While the average cost per Medicaid enrollee is $8,108/year, for this group the annual cost per enrollee exceeds $30,000. We must understand who is in this high-cost group and implement strategies to have them utilize the healthcare system more efficiently if we are to get control of the total cost. This high-cost group primarily includes people with multiple medically complex chronic conditions, often complicated by mental health and substance abuse, who have difficulty accessing the healthcare system. Care coordination can reduce hospitalizations and reduce the rate of complications from chronic conditions.
Recently, Gov. Andrew M. Cuomo was quoted as saying a 13.2 percent increase in New York State Medicaid costs is too much for taxpayers to endure.
I believe that everyone in New York State would agree with that assessment but the fact is that the overwhelming majority of that increase is directly attributable to three factors over which hospitals and other providers have almost no control:
The number of people enrolled in the state Medicaid programs.
The use of health care services by those enrollees.
The state takeover of county costs for Medicaid.
In reality, only a tiny slice of the increase is attributable to the actual reimbursement increases given to providers to cover the surge in the overall costs of doing business, such as pay increases, increases in the cost of supplies including pharmaceuticals, and utility cost increases.
The 13.2 percent increase breaks down this way:
5.9 percent is enrollment growth, determined by New York State
3.4 percent is from the state takeover of local costs.
3.4 percent is the increased utilization of services by those enrolled in the programs.
Just 0.5 percent is attributable to the provider trend factor, which represents the increase in Medicaid rates paid to providers.
So, while the governor’s 13 percent figure is technically correct, it is also very misleading. New York State has made policy decisions that shepherd more and more New Yorkers into programs such as Child Health Plus and Family Health Plus. Around the state and particularly in Upstate New York, a faltering economy and high unemployment rates have only added to those rolls.
Providers have no say over who is eligible for these government-funded programs. And hospitals are obligated by law to address the ills of all those who come in their doors. These cost increases cannot continue to be borne by the healthcare providers that serve all of us, whether we are on Medicaid, or not.
It is important to know that hospitals in Upstate New York are already among the most efficient in the nation. The federal government recently rewarded hospitals for their efficiency. Forty-nine hospitals in New York State, all of which were located in Upstate New York, received awards. St. Elizabeth Medical Center, Faxton-St. Luke’s Healthcare and Rome Memorial Hospital were all included on this list of the most efficient hospitals in the United States. New York ranked first in the nation for the number of hospitals qualified and also ranked first in award value. Using a national measurement for efficiency, it is clear that Upstate hospitals are among the most efficient in the nation, and real Medicaid reform would reward hospitals for their efficiency.
Medicaid is a very important and complex program which provides insurance for many in our community. However, it is essential that we understand and address the issues that are driving up the cost. We need to work with our elected officials to make the necessary legislative fixes needed to address the costs of enrollment and optional benefits to meet both the needs of our vulnerable citizens and state’s fiscal responsibilities.
Richard H. Ketcham, FACHE
President & CEO