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Why Medicaid Seems Immune to Reform

Why Medicaid Seems Immune to Reform

Fred Birnbaum
April 16, 2024
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April 16, 2024

One of the last bills passed in the 2024 legislative session was Senate Bill 1456. It appropriates $4.7 billion for Idaho’s Medicaid program, the largest single budget of any kind in Idaho. This budget follows many years of massive increases in Medicaid spending, which have doubled in the last six years. This budget also follows an interim session task force convened after the last session to save costs but yielded nothing.

The reason for stalled reform efforts is many Republicans are content to partner with Democrats in the Legislature to thwart real reform.

An iron triangle of interests prevents reform, and the public pressure to overcome this thicket of interests is not nearly strong enough. 

Who are these interests? The federal bureaucracy — specifically, the Centers for Medicare and Medicaid (CMS), the State Medicaid Division, and the providers of Medicaid services themselves, including hospitals and the pharmaceutical industry. Historically, over 95% of the budget is paid to Medicaid providers, meaning they receive about $4.5 billion of the budget. 

If you think this means the program is efficient, think again. The cost per patient is up over 28% from Fiscal Year 2023 (FY23) to the FY25 appropriation. This means for FY25, the providers are projected to get, on average, about $12,000 in provider payments per participant. 

When we review the historical data on actual claims paid, a number of things stand out. The most recent data on claims paid is for FY23. The average annualized cost per hospital user was over $48,000; for pharmaceutical users, it was over $13,700 per year for FY23. 

That’s a lot of money flowing to Idaho’s medical industry. And keep in mind that the Biden administration views more people on Medicaid as a winning strategy. CMS has been pushing state Medicaid agencies to keep people on post-COVID. So there we have it: a federal bureaucracy viewing Medicaid dependency as a win and a state bureaucracy as a willing intermediary between the federal government and Idaho providers, who gladly sop up the billions of dollars Medicaid provides. 

Another wrinkle in the equation is federal money, which many Republicans and most Democrats view as free money. The federal government provides over $3 billion, or about 65% of the total, to the Medicaid budget. Too many legislators who ought to know better won’t make the connection between this growing entitlement spending and the surging federal debt, now quickly approaching $35 trillion. 

We know this because, this session, the Legislature passed two bills that soak up more federal money for Medicaid. House Bill 577 increases federal spending through a directed payments scheme allowing increased payments to providers without tapping the General Fund. The majority of Republicans voted for this bill. 

Another bill, House Bill 633, automatically extended Medicaid’s 60-day postpartum coverage to 12 months, even if the recipients don’t ask for it. This bill was also sold as having no impact on state funds and, therefore, no fiscal impact because it shifts costs to the federal taxpayers — which somehow doesn’t matter. Again, a majority of Republicans voted for this bill. 

Can anything be done? Well, we need a Governor and more legislators with better financial acumen, for starters. In what universe is it okay for those claiming to be Republicans to support siphoning more federal funding into Idaho when the federal debt has been increasing by about $1 trillion every 100 days?

There are only three ways to save money in the Medicaid program: reduce the number of people on Medicaid, provide people with fewer services, and reduce payments to providers. 

The best Medicaid reform bill in years, House Bill 419, died in the House Health and Welfare Committee when several Republicans sided with Democrats to kill the bill. The program integrity and cost savings measures in this bill need to be considered again in the next session. Otherwise, the Medicaid budget will close in on $5 billion, and the U.S, debt will continue to grow commensurately. Idaho needs a large dose of fiscal restraint to truly fix Medicaid. 

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