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"Medicaid: A Time to Act"

Note: The following remarks were made by Mike Leavitt, Secretary of Health and Human Services at the Marriott Wardman Park Hotel, Washington DC Tuesday, February 1, 2005; according to the HHS website.

A puzzel is superimposed over a photo of Mike Leavitt.There is a time in the life of every problem when it is big enough to see but small enough to solve. For Medicaid, that window of opportunity is upon us. The time to act is now. 

Medicaid is the spirit of American compassion in action. Through Medicaid, Americans help 46 million of our fellow citizens. This includes people with disabilities, the neediest of our elderly, and low-income families.

Until just over a year ago, I was this nation's longest-serving Governor. I was responsible for making Medicaid work in my state. And I know from experience that Medicaid is not meeting its potential. It is rigidly inflexible and inefficient. And, worst of all, it is not financially sustainable. 

Over the past ten years, Medicaid spending doubled. And this year, for the first time ever, states spent more on Medicaid than they spent on education. 

To illustrate this point, this morning I did a web search on the word Medicaid. Let me tell you what I found. 

In Tennessee, budget pressures are displacing thousands of people from Tennessee's health program for the poor, Tenncare. 

The deputy director of Ohio's Medicaid program summarized the situation by asking: "What's a word bigger than catastrophe?"

An Alabama paper discussed the legislative session that opens Tuesday by noting that one problem "looms over all the others: the funding crisis facing the state's Medicaid program."

In Ohio, a state legislator observed: "The question is going to end up being where do you cut and who is it going to hurt the most."

These state officials are worried. Low-income families are worried. And advocates are worried. They all want to solve this problem. But rigid rules are holding them back. 

We need to have a serious discussion on Medicaid. And I want to open this discussion today by defining what success would look like and offering a general strategy to achieve that success.

Success to me has three components. First, keep faith with the commitment this nation has made to provide access to acute and long-term care services to people with low incomes, disabilities, the elderly, and children. 

Second, create enough flexibility in Medicaid that states are able to continue serving optional groups and expand the number of people they serve.

Third, assure the financial sustainability of Medicaid by returning integrity to the funding partnership.

Today I want to offer thoughts in three areas: three myths, three changes, and three opportunities.

ADAPT shuts down HHS in March of 2004, Barbara Bounds of Memphis is in the center of this photo. First, the three myths: 

Myth one: Some have predicted that reform would break our commitment to our neediest and most vulnerable citizens: our mandatory populations, such as people with disabilities and children in low-income families or foster care. This is not true. These mandatory populations must continue to receive the comprehensive coverage that they receive now-including Early Periodic Screening Diagnosis and Treatment.

Myth two: Some are concerned that we will propose a block grant system, like the one that was discussed in 1995. NOT so. There will be no block grant system for Medicaid.

Myth three: Some expect that there will be a cut in available resources. NO again. While we must never stop looking for ways to make Medicaid efficient and to slow its growth, Medicaid will continue to be one of the fastest growing items in the Federal budget, growing at an average rate that exceeds 7% per year. Over the next ten years, American taxpayers will spend nearly $5 trillion on Medicaid.

Those are the three myths. Now, I would like to suggest three changes to Medicaid. We've got to remove the vulnerabilities that threaten Medicaid's viability. 

Change one: We must find every inefficiency, because waste means covering fewer people. We must stop overpaying for prescription drugs. Pharmacies and Medicare buy drugs wholesale for a low price. But under Medicaid, state governments usually pay a much higher price. We must change the law so that states pay the same low rate. This will save the federal government $15 billion over the next ten years. It will save state governments $11 billion.

Change two: Medicaid must not become an inheritance protection plan. Right now, many older Americans take advantage of Medicaid loopholes to become eligible for Medicaid by giving away assets to their children. There is a whole industry that actually helps people shift costs to the taxpayer. There are ways families can preserve assets without shifting the costs of long-term care to Medicaid. We must close these loopholes and focus Medicaid's resources on helping those who really need it. Doing so will save $4.5 billion during the next decade.

And finally, Change three: We must have an uncomfortable, but necessary, conversation with our funding partners, the states. 

As a former Governor, I understand the pressure state budgets face, particularly given the lack of flexibility in the current Medicaid law. However, state officials have resorted to a variety of loopholes and accounting gimmicks that shift the costs they claim to pay to the taxpayers of other states. If we don't close these loopholes, we project that over the next ten years they will shift $40 billion through various means.

Let me illustrate with an analogy. I live on a cul de sac that has three houses. There's the Federal house, the States house, and the Jones house. 

The Jones daughter has a chronic disease, and needs $1000 worth of treatment every month. The Joneses have no health insurance but the little girl will die without treatment. 

I go to my other neighbor, Mr. States, and propose that we get together to help the Joneses. 

I tell Mr. States, "You know the Joneses best. Why don't you work things out with them? I'm willing to pick up two thirds of the cost, if you will pay one third and make arrangements with the Joneses.

This works well for a while. Mrs. Jones's doctor sends the invoice directly to Mr. States every month. Mr. States pays the invoice, and then walks over to my house to collect my payment of 2/3.

A few years pass and my friend, Mr. States, starts to run short of money. Things are tight for all of us.

But Mr. States is really feeling the pinch. He goes to Mrs. Jones' doctor and says, "Listen, I'm having some trouble coming up with my share of the money. Here's an idea that's good for both of us." 

Mr. States then talks to the doctor and suggests that he raise his price to $1500, but offer a "special Mr. States discount coupon" of $300. 

When Mr. States drops by my house to get my money, he says, "Mr. Federal, I have some bad news; the doctor has raised his prices and the Jones's health care has now gone up from $1,000 to $1,500. I'm here to collect your share…let's see, 67% of $1500 is…yes, $1000. 

I take his word for it and give him $1000. 

Now, let's think about this. At the beginning, Mr. States was paying $333 for his one third. I assume with the price increase he's paying $500. 

But I haven't accounted for the "special Mr. States discount coupon." Mr. States is now paying $200 instead of $333. I'm paying $1000 instead of $667. And together, we're paying $1200 instead of $1000.

Eventually, I discover what Mr. States has done. Now, I really like Mr. States. I really want to help the Jones daughter. But I don't feel particularly good about this arrangement. It's time for me to have an awkward conversation with Mr. States. I want to restore a straightforward, transparent, and effective system.

A majority of states have employed one or more of these practices to maximize their reimbursement.This analogy tells one general story of an accounting gimmick. But the Medicaid reality tells at least seven variations on this theme. A majority of states have employed one or more of these practices to maximize their reimbursement. With apologies to my friend Stephen Covey, I call them the Seven Harmful Habits of Highly Desperate States. 

Let me give you some examples of these Harmful Habits. 

One harmful habit is double dipping, just like the story I told. States overpay providers, get the overpayment returned to them, and spend the same dollars a second time. It's a shell game that makes no one healthier. We need to ensure that states meet commitments with real dollars.

Another harmful habit is inflated overhead. States are shifting costs to the federal treasury for "administration." This accounting gimmick encourages wasteful spending and bloated bureaucracy.

I won't list all seven, but you get the idea. 

I want to stress that I sympathize with the state officials who face these pressures. I know why they act this way. I've been a governor, and I've struggled to make Utah's Medicaid system balance its budget and meet its commitments. This isn't about blame; it's a simple statement that it has to stop. 

We must stop overpaying for drugs.We must stop harmful habits that are needlessly driving up costs. We must stop overpaying for drugs. We must stop rewarding higher spending and start rewarding better performance. And we must start ensuring that Medicaid is saved for those truly in need. If we make these changes, we can make Medicaid an economically sustainable program that will provide essential health coverage for more Americans and better long-term care choices for seniors and the disabled. 

Those are the three changes. Now let's talk about opportunities. We are looking at many ideas to improve Medicaid coverage. Let me talk about three of them.

First, we can ensure that seniors and people with disabilities get long-term care where they want it. The President's New Freedom Initiative points us in the right direction. Home care and community care can allow many Americans with disabilities to continue to live at home, where they can enjoy family, neighbors, and the comfort of familiar surroundings. Medicaid should not force these people to live in institutions. Just as importantly, we can serve more people. 

Look at Vermont and New Hampshire. Vermont has a highly developed home and community based health care system. New Hampshire continues to rely on institutional care. In Vermont, 85% of Medicaid population over 65 still live at home. In New Hampshire, only half can live at home. And Vermont spends less than half as much per elderly person on Medicaid as New Hampshire, freeing up money that can serve more people. 

Let me repeat that. Providing the care that lets people live at home if they want is less expensive than providing nursing home care. It frees up resources that can help other people. And obviously, many people are happier living at home.

Second, we can expand access to more children. We will discuss this further in the next few weeks. But the principles will be the same. We can provide access to more needy people by providing common sense flexibility.

Third, improving coverage of optional populations. Whether it's a lady in a nursing home or a boy in a wheelchair, we have a very special obligation to our neighbors who are elderly, low-income, or have disabilities. We meet that obligation by providing a comprehensive package of benefits and services. Mandatory populations need the help. They must receive the help. 

The optional populations, on the other hand, may not need such a comprehensive solution. Most of them are healthy people who just need help paying for health insurance.

We've already proven a way to provide that help. The State Children's Health Insurance Program, S-CHIP has allowed 5.8 million children in low-income families who don't qualify for Medicaid to have health insurance. 

Hary Caulder of Memphis speaks with the acting head of the HHS in March of 2004. One of the key reasons S-CHIP has been such a resounding success is that it allows states to ask the question, "What is quality basic health coverage?" And each state can choose from five answers: the health benefits state employees get, the benefits federal employees get, the best private health plan in their state, Medicaid, or some hybrid of private and government plans. Fewer than 20 states and territories chose the straight Medicaid option. A majority chose some other combination. It costs states less, on average, to provide health insurance than to provide comprehensive care. 

Wouldn't it be better to provide health insurance to more people, rather than comprehensive care to a smaller group? Wouldn't it be better to give Chevies to everyone rather than Cadillacs to a few?

I am already working with governors and other state officials to strengthen and modernize Medicaid. And I look forward to working with them, with members of Congress, and with all of you in the health care community to ensure that every family in America has the power to make wise, well-informed decisions to sustain and improve their health. 

We can be a nation of healthier Americans. A nation where health insurance is within the reach of every American. A nation where seniors and people with disabilities get long term care where they want it.

We can transform our health care system so informed consumers own their own health records, own their health savings, and own their own health insurance. Ownership engages consumers, and engaged consumers get better results.

We can be a nation where families embrace the power of prevention and wellness-where fewer people get sick because they take action to stay healthy.

We can be a nation where American workers have a comparative advantage in the global economy because they are healthy and productive and because, through the power of technology, our health care system produces fewer mistakes, lower costs, and better health.

We can do all of this in a way that makes our economy and our health care sustainable, compassionate, and competitive. Let's get to work. 

Thank you.

Mike Leavitt, Secretary of Health and Human Services.


MCIL Journal Index 2005

Follow the TennCare Sit-in

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