Media Inquiries: Véronique Rodman

FOR IMMEDIATE RELEASE: July 1, 2009

Significant differences among state Medicaid programs will hinder national health care reform, warn two distinguished health economists, Thomas W. Grannemann (Centers for Medicare and Medicaid Services) and Mark V. Pauly (Wharton School of Business, University of Pennsylvania). In Reform Medicaid First: Laying the Foundation for National Health Care Reform (AEI Press, July 2009), Grannemann and Pauly explain that Medicaid will need to be reformed as an early step in any serious health care reform effort. While states such as Mississippi and Nevada spend as little as $5,000 per poor person annually, New York and Alaska annually spend more than $15,000 per person below the federal poverty level. Large differences remain even after correcting for cost-of-living and medical-price differences. This imbalance among states creates an uneven and unstable foundation for any national program to address the needs of uninsured Americans.

Public choice economists Grannemann and Pauly view both Medicaid and broader health care reform as a choice about medical care spending. Says Pauly, "In our democracy, the 'willingness-to-pay' of middle-class voter-taxpayers specifies what is socially desirable and limits what is possible from politically stable reforms."

Controlling the flow of health care dollars is therefore key to reform. Grannemann and Pauly suggest that any new federal health care funds should be directed first toward the lower-income states where the largest numbers of uninsured persons live. Otherwise, Medicaid coverage mandates could overburden some resource-strapped states, creating a taxpayer backlash that could doom the cause of reform. Grannemann and Pauly propose specific changes in Medicaid's federal medical assistance percentage (FMAP) that would prevent this.

FMAP, the federal government's share of each state's expenditure for Medicaid, is calculated according to a formula based on the per-capita income in each state. By law, the federal share cannot be lower than 50 percent or higher than 83 percent of a state's Medicaid spending. But mandating higher benefits and leaving the state to pay even its 17 to 50 percent share could impose an undue burden on taxpayers in a state with many poor persons and few wealthy taxpayers.

The FMAP changes being considered by the Senate Finance Committee would do little to change this. But Grannemann and Pauly's Equal-Burden-for-Equal-Benefit proposal would enable all states (including lower-income states) to both provide a specified standard benefit level and to spend no more than other states to pay for the state share of Medicaid. Of course, this would require greater federal support for Medicaid in the lower-income states. But these states are where rates of uninsurance are highest and where the largest share of new resources will need to go if we are to cover more of those currently without health insurance. Starting reform with changes in Medicaid's federal financing would direct resources where they are needed most to correct the inequities of the current system.

While the authors support the development, testing, and evaluation of health information technology, medical homes (which provide comprehensive primary health care), and comparative-effectiveness research, they do not believe these quality-enhancing reforms will produce cost-savings large enough to make major coverage expansions affordable. Furthermore, the public will not perceive near-universal coverage to be affordable until the rate of growth in health program spending is reduced to a rate closer to the long-term rate of growth in taxpayer income. Grannemann and Pauly highlight controls on provider payment and federal financing as the tools needed to slow spending growth.

The need to focus first on Medicaid reform is underscored by Robert Helms, a resident scholar at the American Enterprise Institute who served as a member of the Medicaid Commission under the U.S. Department of Health and Human Services. Says Helms, "Medicaid has thus far received too little attention in the reform debate. In this study, Grannemann and Pauly make a strong case for starting system-wide health reform with Medicaid."

Beyond Medicaid, the authors offer several principles for reform intended to encourage equity, efficiency, and accountability in all publicly funded health-care programs. The Grannemann-Pauly principles for health care reform include: interstate equity, equality of payment across settings, claims-based accountability, provider network control, and value-based cost containment.

The principles provide a useful checklist for evaluating and comparing the health reform proposals emerging from Congress this summer. Reform that focuses on these principles will require upfront changes in Medicaid and improved access to care for low-income persons in low-Medicaid-benefit states. Such changes are needed to level the ground and provide a foundation for further reform. The authors also propose ways to coordinate the Medicaid program with new national plans, such as one based on the Massachusetts model.

Grannemann adds a cautionary (and culinary) note for health-care reformers:

Tough meat requires a slow braise. It will take time to shift resources wisely and without major disruptions for beneficiaries, providers, and state governments. With slow reform, as with slow food, it pays to have a clear idea of what you want, include all the right ingredients, and keep the heat on low for a sustained period of time.

Thomas W. Grannemann is a health economist and an associate regional administrator for the Centers for Medicare and Medicaid Services in Boston. Mark V. Pauly is a professor in the Health Care Systems Department at the University of Pennsylvania's Wharton School.

EVENT INFORMATION:

Grannemann and Pauly will discuss Reform Medicaid First: Laying the Foundation for National Health Care Reform on Tuesday, July 7, 2009 from 9:30 a.m. – 11:30 a.m. at AEI (1150 Seventeenth Street, N.W., 12th floor Wohlstetter Conference Center, Washington, DC). More information can be found here: http://www.aei.org/event/100082.

INTERVIEW REQUESTS:

For interview requests, please contact the authors directly. Thomas W. Grannemann can be reached at tom@andoverecon.com or 978.372.7123, and Mark V. Pauly at pauly@wharton.upenn.edu or 215.898.6861. For all other media inquiries, please contact Véronique Rodman at vrodman@aei.org (202.862.4871) or Sara Huneke at sara.huneke@aei.org (202.862.4870).

COMPLIMENTARY BOOK:

To request a complimentary copy of Reform Medicaid First: Laying the Foundation for National Health Care Reform, please contact Sara Huneke at sara.huneke@aei.org or 202.862.4870.