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The dumb design of Medicaid

In a recession, two things happen to Medicaid. First, Americans become a lot poorer, so more of them need the program's help:

The recession has fueled the greatest influx of Americans onto Medicaid since the earliest days of the public insurance program for the poor, according to new findings that show caseloads have surged in every state.

More than 3 million people joined Medicaid in the year that ended in June, the data released Thursday show. That pushed enrollment to a record 46.8 million, exacerbating the financial strains on already burdened states and complicating the federal politics of health care.

But because Medicaid is partially funded by the states, and states lose revenue during a recession (and can't smooth it out with deficit spending), they have to cut Medicaid to keep their budgets in balance.

Facing relentless fiscal pressure and exploding demand for government health care, virtually every state is making or considering substantial cuts in Medicaid.

The structure of Medicaid is such that at the exact moment when the program needs to expand, state budgets force it to contract. Right now, the federal government is standing between those forces. The stimulus pumped tens of billions into Medicaid and is scheduled to continue supporting the program till the end of the year. But barring an extension of that aid, come 2011, the need will still be great, state revenues will still be low, and the federal government will no longer be standing in the middle. The result will be either a lot of pain for the people who need help or an impossible expense for states that are already making deep cuts.

By Ezra Klein  |  February 19, 2010; 2:41 PM ET
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The 30 billion in the stimulus package that went to fund gold plated COBRA benefits for the unemployed should have gone to Medicaid, and the unemployed made eligible for benefits on a means tested basis.

Posted by: bgmma50 | February 19, 2010 3:32 PM | Report abuse

Its quite obvious that what we need is a bigger better replacement for Medicaid funded entirely at the federal level which will always have plenty of money and can provide any and all medical services desired by consumers whenever they need them.

We could even coat this new program in chocolate sprinkles and gumdrops.

Posted by: FastEddieO007 | February 19, 2010 3:59 PM | Report abuse

I shouldn't joke. My real point is that being generous with federal tax money always has its limits and this is it.

Just because the federal government can run a deficit doesn't mean it isn't without consequences.

The idea that responsible progressives should get their brain around is the technical principles in the design of a negative feedback amplifier. Our tax system needs to work like this....when times are good, we can increase our taxes(across-the-board), but when times are bad we need to decrease our taxes. You liberals think budgets can be balanced...but taxes take money away from the parts of the economy most ripe for growth. Their defined that way...more income, more taxes....generally speaking where will the most employment come from, or better question, who would you rather work for---a company making money hand-over-fist, or a company slugging by....increasing taxes suffocates the places pulling down money hand-over-fist until they shrink and shrink.

The USA has the ability to grow the economy to support almost any cost. But we must learn to value the genuine prosperity generated by successful American corporations.

Posted by: FastEddieO007 | February 19, 2010 4:06 PM | Report abuse

How about Obama do what the Republicans want: do nothing and let the governors make tough choices. If the Governors start cutting people out of Medicare and these people in turn can't afford healthcare, the Republican Party's joy of obstructive success will turn out to be a complete disaster.

Posted by: ATLGuy | February 19, 2010 4:24 PM | Report abuse

Republicans want to solve the rising healthcare cost problem. They don't want to follow the feel-good leadership of Obama and Pelosi, which promises to give healthcare to all in four years from now, but with no solution to the rising healthcare costs other than the underpayment to doctors, denial of services to elderly, and overcharging of the young and healthy once the federal government can bully its weight around.

Yeah....that ought to solve the problem Ezra describes once and for all. Sign me up. Republicans are such blockheads.

Posted by: FastEddieO007 | February 19, 2010 4:31 PM | Report abuse

Ezra, most people in the Medicaid biz expect FMAP enhancement to be extended through mid-2011 (believe it may have already been introduced in a recent bill?). Right now it is scheduled to expire on 12/31/10. This doesn't solve the entire problem, but will help states.

Posted by: mbp3 | February 19, 2010 5:04 PM | Report abuse

Also when you say they are considering "substantial cuts" not sure what exactly you mean. the original stimulus bill requires that states maintain the elgibility for Medicaid programs at the same level as june 2008 to qualify for Medicaid stimulus funds.

They can cut extra benefits such as vision, dental etc that are not federal requirements and they can cut payments to docs and hospitals but they can't restrict eligibility for Medicaid.

Posted by: mbp3 | February 19, 2010 5:07 PM | Report abuse

This is yet another reason that "incremental improvement" of our failed health care financing is doomed. The current reform effort focuses on buying more of what is broken -- in this case coverage that that doesn't pay doctors enough to actually deliver care.

Posted by: Athena_news | February 19, 2010 5:24 PM | Report abuse

Take a look at Sec. 1721 of the House bill. Sec. 1721 would take care of most of the counter-cyclical problem that you are pointing to by providing new federal funding to make provider payments reasonable (i.e., at Medicare rates) for primary care (E&M Codes). Along with an extension of the stimulus Maintenance of Effort on optional benefits and eligibility, Medicaid becomes a much bigger federal commitment - as it should be for the program to finally work right.

Posted by: rhall1 | February 19, 2010 6:03 PM | Report abuse

It has been widely reported that the Dem health plans would bend the cost of health care at the federal level.

What is not widely reported (or made clear) is that same plan would add substantially to state-level fiscal burdens because of the reliance on medicaid by the Dem plan to provide care for many people.

So I ask, is it fair to claim the health plan will bend the cost curve if in fact it is instead shifting the costs to the states?

Posted by: Lomillialor | February 19, 2010 10:00 PM | Report abuse


"So I ask, is it fair to claim the health plan will bend the cost curve if in fact it is instead shifting the costs to the states?"

1. No, but...

2. Read the comment by rhall1, immediately before your own.

Posted by: Patrick_M | February 20, 2010 11:47 AM | Report abuse

Disagree that COBRA is gold plated: A small subsidy to discourage adverse selection in recession when many are involuntarily separated, or new jobs don't offer coverage. Employer benefits still require higher copays than Medicaid, have limits on covered benefits. They do pay providers higher rates than Medicaid, so people who opt for COBRA rather than Medicaid because the subsidy could be said to benefit the provider community more.

Posted by: chazbet | February 22, 2010 6:35 PM | Report abuse

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