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Cut the Medicaid budget? It won’t be easy 

Can New YorkState really stop spending so much money on Medicaid? And do it without hurting people?

            Or will the money we save now just cost us more in the end?

            Once again, the governor is promising to do something about Medicaid. In his budget address last week he warned, again, that Medicaid costs in New York are skyrocketing, that New York has the highest Medicaid costs in the country, that New York can't let the costs keep going up.

            "If left unchecked," Pataki said, "within the next six years Medicaid costs could actually consume more than half of our entire state budget."

            And so Pataki outlined, to borrow a phrase from his State of the State message earlier this month, bold measures to deal with Medicaid. One is crucial: Currently, most of the state's Medicaid costs are borne by the federal government and the state. But New York requires its counties to contribute as well, and that's a major cause of the increase in local budgets and property taxes.

            Pataki wants to shift that burden and have the state absorb the local Medicaid costs by 2008. State legislators may not like it, but taxpayers and county officials --- who have been pushing for this for years --- will love it, and this may be the year progress is finally made.

            Shifting the cost to the state won't address the cost of Medicaid, though, and it won't do anything to stop the increase in that cost. So Pataki has proposed a variety of cuts in Medicaid services. "Let me be clear," he said last week. "There can be no Medicaid takeover without cost containment."

            The options for saving money are obvious. New York will have to provide fewer services, provide them to fewer people, or reduce the cost of the services --- or all three.

            That is a lot easier said than done.

            Pataki's proposals will run up against powerful interests. For instance, he wants to cut reimbursements to hospitals and nursing homes and increase their taxes. Unionized workers, hospitals, and nursing homes are well organized, and they give money to political campaigns. In the Medicaid discussions, they'll fight to protect their own interests. So will New York businesses, taxpayer groups, and county leaders, who are insisting on lower Medicaid costs.

            In the end, if there's any change to Medicaid, it will be because of compromise. Somebody will have to give up something. And the "somebody" may be people in need.

            The elderly poor, the disabled, the blind, people addicted to drugs and alcohol --- the people using Medicaid services --- will have little voice. They're the ones at risk in the negotiations that will start soon in Albany.

            The public tends to assume that most Medicaid spending goes to care for low-income children and non-elderly adults. Those children and adults are the majority of New York's Medicaid recipients: two-thirds, according to a study done in late 2003 by the Center for Governmental Research. But that's not what is driving up Medicaid costs and driving state and county officials crazy. It's the increasing cost of services for the disabled and elderly.

            The statistics are startling. Only a quarter of the Medicaid budget goes for services for able-bodied adults and children. The elderly, on the other hand, are only 10 percent of the total number --- but their services consume a third of the Medicaid budget. And the number of elderly is expected to keep increasing.

            The blind or disabled are only one-fifth of the recipients --- but half of the Medicaid budget goes to providing their services.

            In addition, services for the elderly, the blind, and the disabled are more expensive than those for able-bodied adults and children. Prescription-drug expenses, for example, are one of the fastest growing areas of Medicaid. And the elderly and disabled use more of those drugs, notes Charles Zettek, CGR's director of government management services and author of the 2003 report.

            CGR predicts that costs for the elderly and disabled will be responsible for three-fourths of Medicaid's cost increase over the next several years.

One way to reduce the costs of elderly care is to provide more in-home care, which is less expensive than institutional care. Many elderly people would prefer to stay at home, if sufficient, quality care were available.

            But another way to cut costs is to eliminate service altogether for some current recipients: the non-poor elderly. Some middle-income New Yorkers have been able to transfer their assets --- putting them in trusts for their children, for example --- so that they don't have to spend them down to qualify for Medicaid. (The state has already begun to tighten up in this area.)

            And that raises both ethical and long-term cost questions. Is it reasonable, asks Zettek, to require taxpayers to pay for long-term care for people who have the assets to pay for it?

            On the other hand, says Zettek, maybe providing long-term care is an attraction for the state --- and not just for the elderly. Maybe it improves the quality of life for families who want to be near their elderly parents.

            "There's beginning to be a reverse migration of the elderly from the South to New York," says Zettek, "with people wanting to come back to New York when they become less mobile."

            Older New Yorkers may raise yet another question: Should adequate long-term care be considered a right, regardless of your income? There's also a short-term, long-term cost question. Taxpayers could save money by blocking aid to the middle-income elderly. But if those New Yorkers spend themselves into poverty to qualify for long-term care, won't they now need taxpayer support? If later, they're able to return home but can't support themselves --- or if they leave impoverished spouses who need state support --- what are the savings?

Beyond that issue, what about the low-income elderly? What about the blind and the disabled? Should they not receive the services Medicaid provides now? Is the state's growing Medicaid budget due to extravagance? Or need? Are we spending too much? Or are other states not spending enough --- not covering enough people, not providing enough services?

            In many cases, says Zettek, nobody knows.

            "What's the standard?" he asks. "Nobody's really defined what the ideal is. What's the appropriate standard for health care for our type of population?"

            "You can predict what the short-term cost savings will be," says Zettek, "but you cannot predict what the long-term societal impact will be. There is some research out there, but not on a comprehensive basis. It requires a long-term study that cuts across populations."

            Pataki --- like many critics of the state's Medicaid spending --- talks about cutting off funds for services like podiatry and clinical psychology. But we don't know what the result will be, says Zettek, if the state stops funding those services. We don't know, for instance, whether by saving $100 now for podiatry, a patient's back pain will increase and require back surgery that will cost $100,000.

            "The state spends $44 billion on Medicaid," says Zettek. "That's a function of thousands and thousands of decisions. Now let's find out what works and what doesn't work."

            A good example: spending for drug and alcohol treatment. Some counties that haven't studied costs and results have a high use of short-term outpatient treatment programs, says Zettek. Others, however, have done an analysis and are using longer, in-patient treatment. And they're finding both that the cost and the relapse rates are lower.

            New York, says Zettek, has to figure out what reduces long-term costs.

            Since it hasn't done that, should the state just be jumping right into reform?

            "It looks like we are going to," says Zettek. "From the point of view of a social scientist, it would be nice to have a better link between short-term savings and long-term costs. On the other side of the coin, since we don't have the data, people will say, 'We'll just cut, because we're just cutting fluff.' It evolves into an emotional argument rather than a rational argument."

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