How to cut State Medicaid Costs

In the third post using information from The Politics of Medicaid series, we will discuss how States often try to reduce Medicaid spending.  From a fiscal point of few, Medicaid spending is often attractive since it is accompanied by matching federal dollars.  On the other hand, Medicaid trails only elementary and secondary education in terms of state outlays.  [According to this study, States spent more on Medicaid (21.5%) than education (21.4%) using total dollars, since the State often spends a large amount of money received from the Feds.  Counting just state expenditures, States spent more on education (34.8%) than Medicaid (16.8%)]  Regardless of how the numbers are computed, States spend a large share of their budgets on Medicaid.

States generally pursue 4 types of policies to reduce Medicaid costs.  These include:

  • Restrict beneficiary eligibility,
  • reduce provider reimbursements,
  • Prevent fraud and abuse, and
  • Eliminate certain benefits.

The easiest way to reduce costs is to cut the number of people eligible for Medicaid.  Although the federal government imposes minimum eligibility requirements (which have been increased after Health Reform passed), the State still has significant discretion of who to cover.  In rough economic times (such as now), States have an inceptive to reduce eligibility levels.  These tough times, however, are just the instances when individuals need Medicaid the most.

Reducing the generosity of provider payments can also save State and Federal funds.  However, years of declining reimbursement levels has meant that fewer and fewer providers accept Medicaid patients.  Thus, even if beneficiaries technically have Medicaid coverage, oftentimes they cannot find quality physicians to treat them.

Similarly, reducing fraud, waste and abuse can also save money.  In the 1970s, Medicaid Mills made huge profits by providing low quality services or billing services that were not provided.  Many times, increased effort to reduce fraud can save significant government funds.  On the other hand, if enforcement efforts are too strict, providers may not wish to participate in Medicaid due to onerous paperwork or the risk of being accused of providing unnecessary care.

States can also reduce the scope of benefits as well.  Many of these benefits are benefited at the federal level.  Other times, States can receive matching funds for providing certain services.  In general, however, States can reduce costs by decreasing the scope of services covered by Medicaid.

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