Recent coverage of the proposals offered by President Obama's debt commission managed to gloss over a huge issue that is adding to the nation's deficit — Medicaid. The impact of this federal-state partnership program on the country's long-term fiscal future is just as real and consequential as Medicare and Social Security. Plus, Medicaid also adds to the financial burdens on states' budgets.
The problem wasn't just on the coverage front, but the commission report itself. The final version ignored the massive expansion of the Medicaid program included in the new health care law. At the very least, the commission, which was chaired by former Sen. Alan Simpson, R-Wyo., and Clinton White House Chief of Staff Erskine Bowles, should have acknowledged this costly addition and suggested repealing the Medicaid expansion, as it did with the CLASS Act, which is a new government long-term care entitlement program.
Beyond repealing the new health care law entirely, the panel should have pushed for structural reforms in Medicaid. Unfortunately, the final report took a pass on offering any concrete, long-term recommendations. Instead, the commission proposed states use waivers to ask the secretary of the Dept. of Health and Human Services for permission to experiment and try alternative reform methods. A waiver process can be productive if Secretary Kathleen Sebelius approves aggressive, innovative reforms, such as the Rhode Island Global Consumer Choice Compact Medicaid Waiver. However, a waiver does not ensure structural, long-term reform. Additionally, it leaves too much power in the hands of a politically appointed federal bureaucracy to control the final outcome of state proposals.
It's not that Medicaid reform was off the table. An early Bowles-Simpson draft offered a good start by suggesting that Congress convert the federal share of Medicaid's long-term care payments into a capped allotment. Former Congressional Budget Office Director Alice Rivlin, now with the Brookings Institution, and Rep. Paul Ryan, R-Wis., took the idea a step further in their long-term plan for Medicare and Medicaid reform, by proposing a conversion of the long-term and acute-care payments into a capped allotment. This approach would give states the flexibility to determine how best to meet the needs of their low-income recipients. A capped allotment is an important policy recommendation. If the goal of the commission is to get America's fiscal house in order, acknowledging that Medicaid's open-ended federal entitlement is outdated and unsustainable is a critical first step.
Often, Medicaid is overshadowed by Medicare. But the reality is Medicaid is a larger federal health program than Medicare. In 2010, the Center for Medicare and Medicaid Services estimated 60 million people received coverage through Medicaid and the state-run Children's Health Insurance Program, whereas Medicare had 47 million beneficiaries. Total Medicaid spending -- federal and state -- is projected to reach $430 billion this year, nearing $900 billion over the next 10 years. Medicaid spending on the federal side alone will surpass $540 billion by 2019. At the state level, Medicaid now exceeds other state spending priorities such as education.
In its current form, Medicaid faces tremendous quality and access problems. Medicaid pays doctors and hospitals on average about 35 to 40 percent less than private insurance. With fewer doctors willing to see Medicaid patients, it is no surprise that Medicaid and CHIP patients visit the emergency room more than people who are privately insured, making it a costly and inefficient way to deliver care. Two recent studies highlight more troubles. One concluded that Medicaid patients were less likely to receive "evidence-based therapies and had worse outcomes" than patients with private insurance. Another study, by researchers at the University of Virginia, found Medicaid patients had a higher rate of hospital mortality than even the uninsured.
More than half of the "gains" in coverage under the new health care law will be achieved by expanding access to Medicaid. The new law adds 18 million more people to the Medicaid rolls, without addressing any of the long-term structural challenges. This shortcut to coverage only makes the gloomy scenario worse.
The final report fell short on the Medicaid front. Even the immediate Medicaid savings options were more of the same. Hopefully, alternative ideas that offer a clear path to reform, like the Rivlin-Ryan plan, will take root on Capitol Hill. After all, if the new Congress wants to restore the nation's fiscal health, it will need to focus on Medicaid's long-term problems as part of any solution.
Nina Owcharenko is the director of the Heritage Foundation's Center for Health Policy Studies .