Slowing the Growth of Medicaid

New York state has a process for meeting an attractive goal: slowing the growth of Medicaid spending to the level of medical inflation. The New York Times opined positively on it in March. The article is worth reading and it sounds really great, but you have to understand what it means.

Medicaid cost growth has two components: medical inflation and caseload growth. Medical inflation is growth in the cost of covering a single patient, and caseload growth is the increase in the number of patients. Caseload growth is inversely correlated with the economy. When we’re doing well there are fewer people eligible, and when we have high unemployment more people are eligible. As you might expect, we’re swimming in patients right now.

Average medical cost inflation since 2000 in Washington is about 3.7%. The Office of Financial Management (the Gov’s budget shop) is predicting total medicaid cost growth of around 6.5% for the next several years. Getting this down to 3.7% would be a major win, and an effective reduction of billions of dollars in the budget.

Keeping the total growth over time to the rate of medical cost inflation means that the inflation rate has to be kept lower than it is in the general population to make up for growth in caseloads. This can happen, and we can be pretty innovative about it.

For example, as we move low-income healthcare clinics into Medicaid in 2014 as part of the federal healthcare reform (“Obamacare”) we are going to want to move to a managed care model instead of the current fee for service model. We would pay a “capitated” rate per month for each client to the clinics, not pay them per visit. They would have incentives to drive down the number of visits with better care, where today they have a financial incentive to get people to come back over and over. This will require a federal Medicaid waiver and we’re working on it.

I hope to implement a similar project in Washington – managing the cost growth in the out years of Medicaid is crucial to having enough money to fund our investment portfolio: education, higher ed, etc.

About the Author

I am the Director of the Department of Early Learning for Washington State. I formerly represented the 48th Legislative District in the State House of Representatives, chairing the Appropriations committee and spent many a year at Microsoft.