As state lawmakers contemplate reorganizing the state’s Medicaid program, a look at what services and patients drive the costs.
By Rose Hoban
Tucked into the latest version of a Medicaid reform plan passed by the North Carolina Senate this month is a single line of text that could cost North Carolina billions of dollars.
In a section on page three of the 27-page bill, where it describes the bids that companies would have to submit in order to get a contract to manage the care of tens of thousands of Medicaid beneficiaries, is a note that those contracts must provide coverage “in all categories except the dual eligible categories.”
Those eight words represent spending that could top $4 billion in state and federal appropriations next year.
That’s because spending on the so-called “dual eligibles” – elderly and disabled Medicare beneficiaries who are also poor enough to qualify for Medicaid – is about a third of the total cost of North Carolina’s nearly $14 billion Medicaid program.
Those beneficiaries “are among the sickest, most expensive Medicaid beneficiaries, in large part because they are receiving lots of long-term care in addition to acute care,” wrote Don Taylor, a health economist from Duke’s Sanford School of Public Policy, on his blog.
That “carve-out” of dual eligibles is new in the rhetoric about revamping Medicaid. Until now, Republican members of the Senate have insisted that managed care companies would have to take on all of the state’s beneficiaries, no matter how difficult to cover, no matter the cost.
Taylor quipped that he’d divest himself of stock he held in a company that agreed to take on dual eligibles, because a company that did was likely to lose money.
And that’s why in other states where managed care companies run Medicaid programs, expensive beneficiaries with unpredictable costs – like the dual eligibles or people with mental health problems – are carved out of those contracts.
So they remain the pricey responsibility of state governments.
Holding steady
Despite talk of cost overruns and glitchy software rollouts, North Carolina’s Medicaid program has grown more slowly than much of the rest of the country’s for close to a decade.
“At one point, Medicaid spending was out of control,” said Wake Forest University research analyst Edwin Shoaf. But that was in the 1990s and early 2000s.
“We were consistently between 2 to 4 percent above the national average for growth,” Shoaf said. “But since 2007, North Carolina has had an annual growth rate that’s under the national average.”
Numbers compiled by the Kaiser Family Foundation tell the tale. From 2007 to 2010, North Carolina’s Medicaid program grew at the slowest year-over-year rate in the country, 3 percent, despite the recession that flooded the Medicaid rolls with new beneficiaries.
From 2010 to 2013, North Carolina Medicaid has held growth more or less steady at 3 percent from year to year, still below the national average. Other states though have slashed rolls and benefits since the economic downturn, so now 22 states have grown more slowly than North Carolina, or even shrunk their program spending.
Lots of kids
In presentations given this past winter to state lawmakers, analyst Steve Owen from the legislative Fiscal Research Division said that part of North Carolina’s secret sauce was the large number of kids on the program.
Children are cheap to insure. For the most part, they only need well-child visits, immunizations and care for the occasional bump or bruise.
According to Owen, in fiscal year 2013 children comprised 59 percent of North Carolina’s Medicaid program but they made up only 24 percent of the total spending, at a cost of about $2,700 per year on average (see diagram).
Owen said he wasn’t sure why North Carolina has so many kids on the Medicaid program, but N.C. State economist Mike Walden said he thinks he knows why.
“One of the disappointments of the economic recovery is that wages, particularly when you adjust for inflation, have remained flat,” Walden said. He pointed to demographic changes driving the high number of kids on the program.
“A higher percentage of children are coming from households with lower than median income,” he said.
For a family of four, the federal poverty level is $24,250, and a child is eligible for coverage under Medicaid if family income is below 210 percent of that, or $50,925.
In North Carolina last year, the median family income, according to the U.S. Census, was $46,334.
Picking up the pieces
In contrast, the “aged, blind and disabled” category, which includes most of the state’s dual eligibles, comprised only 24 percent of the beneficiaries, but their care cost about 63 percent of the state’s Medicaid spending.
Nonetheless, in 2011 (the last year for which data is available on all 50 states) North Carolina’s average spending on dual eligibles was well below the national average.
Elderly dual eligibles live in expensive nursing homes or need frequent home care.
“The reason that duals are so expensive is that they have long-term care costs, in addition to acute care costs, whereas adults and pregnant women mostly have acute care costs,” Duke’s Don Taylor said.
He explained that children and adults with developmental or intellectual disabilities need intensive care, therapy, equipment to keep them alive, frequent nursing visits and other services that can run up costs. A typical person in this category cost just under $17,000 per year on average to care for in 2013.
And that’s even after years of cuts and trims to Medicaid benefits, including significant trims to the state’s personal-care services.
“The worst cost problem is in long-term care, and that’s because we don’t have a coherent long-term care financing plan,” Taylor said. “Medicaid picks up the pieces for people who need long-term care. They don’t have money.”
And Taylor said it’s not about people who might be gaming the system.
“The impression is that people are lying and cheating and hiding their money to qualify for Medicaid, but that’s not the most common way that people get on Medicaid,” he said. “Most people don’t have the money to make the lying, cheating and stealing worth their time.”
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