Idaho’s spiraling Medicaid costs can be attributed to structural program changes following the 2006 Idaho Medicaid Simplification Act, along with substantial increases in enrollment, according to a recent study from the Mercatus Center, a policy research group centered at George Mason University.

In March, both the House and Senate approved a 5.7 percent increase to the Medicaid budget for 2013, including an approrpation of $474 million in state funding. Gov. C.L. “Butch” Otter signed the bill on April 3. And, although a 2011 bill eliminated $34.6 million in services for targeted Medicaid beneficiaries in 2012, the same bill reversed $1.5 million of those cuts in March, restoring preventative dental services for the disabled and elderly and reinstating dual diagnosis treatment programs.

“Idaho’s spending increased following the 2006 Idaho Medicaid Simplification Act due to its segmented approach, which reduced the risk pool causing significant adverse effects,” wrote the study’s authors, economist Scott Beaulier and Mercatus fellow Brandon Pizzola. “By segmenting people into separate risk categories, the high-risk pool became underfunded, and an excessive number of risky enrollees were wrongly placed in safer pools.”

This led to a much greater average expenditure per enrollee, they report, and so as the number of Medicaid recipients climbed substantially in subsequent years, overall program expenses grew as well. Although Medicaid costs have almost consistently risen since the 2006 act was implemented, Beaulier and Pizzola noted that the law was marketed to voters and easily passed largely thanks to promises of substantial cost savings.

“The reforms were popular at the time, and then-Governor Dirk Kempthorne encountered minimal opposition,” they wrote. “This was partly because of his willingness to hold town hall meetings and public forums to discuss the reform proposal. Kempthorne combined the topics of cost savings and state control versus federal control: Idaho’s reforms promised to not leave anyone without coverage, to reduce costs, and to return more power and control to the state.”

The Mercatus study also considers Medicaid reforms from four other states—Florida, Rhode Island, Tennessee and Washington. Out of all five, they suggest, the reforms in Rhode Island and Washington are the most promising for long-term cost savings. Washington focused on establishing “a block-grant-like approach to funding,” and Rhode Island’s plan “set spending for five years and gave state leaders flexibility to introduce market principles to the Medicaid program. The plan encouraged cost control through an incentive system: When the state spent less than the capped amount, it could keep a fraction of the federal money.”

Beaulier and Pizzola conclude that a key to establishing reforms that last is for lawmakers to take a careful, deliberative approach and encourage debate from all corners.

“Politics can kill the best of ideas,” they wrote. “Reforms in Tennessee and Florida were radical in scale and scope. But they were not as successful as reforms in Rhode Island and Washington because they were rushed and stakeholders were less engaged. Reformers must work to bring key interest groups—even opponents—into discussions. Skeptics can provide input while gaining an understanding of the seriousness of the fiscal problems.”

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