S.C. Medicaid: More Spending, Lower Quality Care on the Horizon

As the Policy Council has previously reported, South Carolina’s Medicaid spending has increased rapidly in recent years. South Carolina already spends more than 20 percent of its total $21 billion budget on Medicaid alone. For FY07-2008, total statewide Medicaid expenditures were $4.7 billion. Medicaid enrollment is also growing rapidly:
  • Medicaid enrollment in South Carolina has doubled in the past 15 years, reaching 903,397 in 2008.
  • 1 out of every 5 South Carolinians is already enrolled in Medicaid.
  • More than half of all South Carolina births – 55 percent – in 2008 were paid for by Medicaid. This is the third-highest rate of Medicaid births in the country, behind only Mississippi and Louisiana.
  • Currently, federal taxpayers are responsible for 70.07 percent of Medicaid spending in South Carolina – the remaining 29.93 percent falls directly on South Carolina taxpayers.
  • Medicaid spending has doubled over the past 10 years, increasing from $2.4 billion in FY97-1998 to $4.7 billion.
Health care legislation before Congress is expected to increase South Carolina’s Medicaid tab even more. In particular, the various plans would force all states to expand Medicaid eligibility to include single, childless adults (up to 133 percent of federal poverty level). This would swell enrollment numbers as South Carolina’s Medicaid program is currently geared toward serving children and families, the handicapped, and the aged. Indeed, the mandatory of expansion of Medicaid to include healthy adults is arguably a backdoor mechanism for creating a “public option” style federal health insurance program.
If a federal plan increases enrollment numbers, we can expect South Carolina’s Medicaid spending to rise rapidly. The proposed federal health care proposals would shift 11 million more persons on to Medicaid. Here in South Carolina, the Department of Health & Human Services (DHHS) estimates the health care bill (HR 3200) before the U.S. House would increase state Medicaid rolls by nearly 50 percent in year one (2010), rising to a 58 percent increase by 2020. Figure 1 below details this increase.
Figure 1
As delineated in Figure 2, passage of the House’s health care bill would increase state Medicaid expenditures by $450 million in 2010. This number would more than double to $972 million within 10 years. For FY08-2009, about $1.1 billion in state funds were allocated to Medicaid, according to DHHS. Thus, the proposed health care legislation would nearly double state Medicaid costs.
Figure 2:

 

 

 

As Medicaid enrollment increases, the state will face pressure to either increase taxes, cut spending in other areas, or both. Another unintended consequence of Medicaid expansion will be provider shortages and waiting periods.

 

Provider shortages and waiting periods. Simply expanding Medicaid by 11 million people will result in doctor shortages and thus waiting periods. According to the Center for Studying Health System Change, only 28 percent of physicians nationwide are accepting new Medicaid patients. In South Carolina 80 percent of doctors are technically able to bill for Medicaid, but DHHS acknowledges that it does not know how many doctors are actually accepting new patients. As states struggle to meet this new unfunded Medicaid mandate, they may also reduce physician reimbursements even further, driving additional doctors away.

 

The alternative to provider shortages is to force physicians to treat Medicaid patients, or more precisely, accept Medicaid reimbursement rates, no matter how low. In effect, this makes physicians agents of the state, regardless of whether they want to be or not. A more likely scenario is to provide taxpayer-funded scholarships/loan forgiveness to medical students who agree to participate in Medicaid after graduation. Conceivably, the government might even extend tax credits to physicians who agree to treat Medicaid patients, thus indirectly shifting costs to other taxpayers.

 

In any case, it is clear that expanding Medicaid is not the solution to improving health care. A better option is to make Medicaid reform a part of an overall, free market health care reform initiative. South Carolina has experimented with Medicaid reform in recent years, but has fallen behind other states, such as Florida. Two reforms the state should undertake include:

 

1) Eliminate or reduce optional coverage benefits for Medicaid. South Carolina currently has 29 coverage mandates that drive up the cost of private health insurance by 30 percent. But the state also requires a number of optional benefits for Medicaid. For instance, last session the General Assembly passed a chiropractic coverage mandate for Medicaid enrollees (budget proviso 21.11). Nationwide, approximately 70 percent of Medicaid spending is for optional services. Eliminating some of these coverage mandates would lower costs for taxpayers while preserving core health services for Medicaid clients.

 

2) Encourage healthy lifestyle changes. While South Carolina already provides some incentives for Medicaid enrollees to make healthy choices, the state could do more to encourage such behaviors. In West Virginia, for instance, an enhanced Medicaid benefits coverage option obligates users to create a Health Improvement Plan aimed at encouraging healthy behaviors. In Florida, the state uses an “Enhanced Benefits Account” that provides additional health care dollars to enrollees who make healthy lifestyle changes. Another option may be to require that Medicaid clients who are smokers or engage in other unhealthy activities contribute to the cost of their coverage.

 

Like nearly all government programs, Medicaid spending has spiraled out of control. But the program itself is not beyond repair. Regardless of what transpires in Washington, Medicaid reform here in South Carolina is a necessary part of capping state spending at manageable levels.


 

The federal stimulus act (ARRA) increases the federal match to 79.36 percent until December 31, 2010.
Analysis from the Urban Institute likewise found that the Senate health care bill would result in 390,058 newly eligible enrollees between 2014-2019, with 221,559 actually enrolling in Medicaid.
Nothing in the foregoing should be construed as an attempt to aid or hinder passage of any legislation. Copyright 2010. South Carolina Policy Council Education Foundation, 1323 Pendleton Street, Columbia, South Carolina 29201.
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