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Medicaid Spending Sustainable, Study Says

February 23, 2007 -- Fears that Medicaid spending is growing uncontrollably are unfounded and fundamental changes to the entitlement program could help eliminate interstate variations in benefits and help states cope with rising health costs, experts said Friday.

Two studies released as part of a Medicaid forum sponsored by the academic journal Health Affairs offered an array of ideas to resolve many challenges faced by the federal–state program, including funding, coverage and provider reimbursement levels. The authors discussed their findings during a briefing held by the Washington, D.C.–based Urban Institute.

A paper authored by Richard Kronick of the University of California, San Diego, and David Rousseau of the Kaiser Family Foundation's Commission on Medicaid and the Uninsured predicts that expected growth in federal and state revenues will likely be enough to sustain Medicaid spending increases over the next 40 years while allowing growth in spending for other public services.

A second paper written by John Holohan of the Urban Institute and Alan Weil of the National Academy for State Health Policy lays out four comprehensive options for restructuring Medicaid that would shift more of the cost and risk for growth in Medicaid spending to the federal government, producing a net federal spending increase of $24 billion to $34 billion a year.

In their report, Kronick and Rousseau conclude that despite the anticipated decline in employer-sponsored insurance and the long-term care needs of the baby boomers, Medicaid spending as a share of national health expenditures will remain almost constant from 2005 to 2025 at 16.6 percent, then increase very slowly to 19 percent by 2045.

They said that while some states in some years will experience fiscal pressure during recessions, state and federal government revenues will rise enough to sustain both Medicaid spending increases and substantial real growth in spending for other services.

But one could still "make the case to say there are changes that would improve the program," Kronick said.

The paper by Holohan and Weil presents options and cost estimates that the authors say could strengthen the program. Ideas they discuss include mandatory coverage expansions for groups such as parents and childless adults, shifting highest-cost cases to the federal government, and increasing federal matching rates for selected services or populations.

An overhaul or complete elimination of the current disproportionate share hospital or DSH funding system also is needed, the authors say, to help guard against current abuses.

"There may be a need for DSH but not the way it's structured," Holohan said.

Holohan and Weil also write that some widely held notions about the program—such as that Medicaid enrollees use too many services—are false. Medicaid beneficiaries' use of services is comparable to the private sector and enrollees often have a difficult time finding a physician who will accept Medicaid due to its low reimbursement levels, the authors wrote.

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