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You are here: Home / Anderson On Health Insurance / Incentives from caps in Medicaid

Incentives from caps in Medicaid

by David Anderson|  May 24, 20173:22 pm| 4 Comments

This post is in: Anderson On Health Insurance

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I was on a webinar this afternoon listening to analysis and “analysis” of the Medicaid proposals in the AHCA. One of the things that I wish they brought up was the incentives that a cap structure gives state Medicaid directors to severely limit care that patients with outlying care requirements can receive. Let’s assume that the incentives for state Medicaid directors is to do as much good for as many people as they can given the state budget constraint with a weaker objective of minimizing how many times and how loudly they get yelled at.

Let’s take the $12,000,000 member in Iowa and assume s/he is on Medicaid instead of an Exchange plan.

Currently, if s/he receives an additional dollar of Medicaid spending to finance care, the state pays $0.42 and the Federal government pays $0.58 if s/he is Legacy qualified or the state pays a nickel and the feds pay $0.95. There is a very loose constraint on spending based on Iowa’s state budget but the spending is leveraged through the federal match rate.

Under a cap system, an extreme outlier does not bring in any additional federal funding. Any incremental dollars spent on an individual with extremely costly needs will be originating from only state level funds. Outlier funding is tough as it would be explicitly moving money from dozens or hundreds or thousands of people to spend it on one or two extremely expensive to care for people.

The state director’s incentive is to severely limit outlier spending. That could be done by eliminating coverage of certain classes of care. It could be done by instituting annual or life time caps. In both cases the societal response is to either let people bankrupt themselves and die or shift the cost of care to the hospital and doctors in the form of noncollectable debt instead of spreading the costs to society in the form of taxes.

In each major eligibility category, there is a spread of spending. Some people in the Aged&Disabled category are far more expensive to cover than others even if the absolute average spending is high. Some kids are more expensive than others to cover. The incentive under a capped system of funding where all outlier costs are borne by the state government is to aggressively reduce outlier costs even if those costs are efficient, effective and medically necessary.

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4Comments

  1. 1.

    Aleta

    May 24, 2017 at 3:24 pm

    Federal authorities charged five people, including three who worked for a New York hedge fund, with insider trading in shares of several health care stocks using confidential information passed on by a health care consulting firm.

    Three current and former partners at Deerfield Management, a health care hedge fund firm, paid an employee of the Washington health care consulting firm to provide inside information about policy decisions at the Centers for Medicare and Medicaid Services, or C.M.S., a move that led to millions of dollars in illegal profits, according to federal prosecutors in New York and securities regulators.

    David Blaszczak, a former employee at C.M.S. and founder of Precipio Health Strategies, was accused on Wednesday of pumping a friend at C.M.S. for market-moving information that he then passed along to the three partners at Deerfield, according to an unsealed indictment.

    NYT

  2. 2.

    JPL

    May 24, 2017 at 4:26 pm

    David, I hope that you are around at 4:30 to help us understand the CBO score.

  3. 3.

    Another Scott

    May 24, 2017 at 4:41 pm

    The CBO Score is here:

    CBO and JCT estimate that, in 2018, 14 million more people would be uninsured under H.R. 1628 than under current law. The increase in the number of uninsured people relative to the number projected under current law would reach 19 million in 2020 and 23 million in 2026. In 2026, an estimated 51 million people under age 65 would be uninsured, compared with 28 million who would lack insurance that year under current law. Under the legislation, a few million of those people would use tax credits to purchase policies that would not cover major medical risks.

    Etc.

    Cheers,
    Scott.

  4. 4.

    JFA

    May 25, 2017 at 2:22 pm

    Just an observation: if we’re talking about efficiency (which I assume you mean benefits > costs), then it would seem that some care (e.g. the $12 million per year Iowan) would be inefficient if we compare the cost of care to the current estimates of value of statistical life (US DOT uses $9.6 million as of 2016). This seems to be how the NHS in Britain makes decisions on what procedures to cover. It would be interesting to see how much care at the high dollar amount would actually be considered efficiently spent. My guess 20-30 percent… but you could probably get an ex post measure. The real problem comes when trying to predict, ex ante, which costs will be efficiently spent.

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