HealthBiz: Bigger Medicaid is Kerry's plan

Sep 14, 2004 (United Press International via COMTEX) -- EDITORS NOTE: HealthBiz will spend the next two columns exploring the healthcare plans proposed by President George W. Bush and Sen. John F. Kerry, D-Mass., as their presidential campaigns enter the final weeks. Tuesday's edition look's at the Kerry plan.

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WASHINGTON, Sept. 14 (UPI) -- Democratic presidential candidate John Kerry's health plan hinges on a big expansion of Medicaid -- and it would represent a key shift, not only in the health insurance program for the indigent, but also in the overall direction of U.S. healthcare policy.

Both Kerry and President Bush are trying to answer voter concerns and alarm over the rising cost of health insurance and a general public outcry over the 45 million Americans currently uninsured. The candidates, however, take two very different approaches.

Many people have gotten caught up in the projected costs of Kerry's plan, which eventually will be important, but right now are based on few details and lots of speculation. Cost estimates without legislation basically are talking points.

Emory University Professor Ken Thorpe in Atlanta has estimated Kerry's plan will cost $653 billion over nine years -- this is what Kerry's campaign uses -- while other actuaries, including a panel that presented analysis this week at the American Enterprise Institute, have put the total at $1.5 trillion over 10 years -- the figure the Bush campaign uses to criticize it.

Either estimate shows, however, a fundamental change in Medicaid, which now is funded by a state-federal split -- on average, 57 percent federal monies, 43 percent state contributions.

The federal government matches state money spent on Medicaid -- which covers some 50 million people, mainly children and poor mothers and disabled. Total federal spending for Medicaid is estimated to be $2.6 trillion over the next 10 years.

One of the biggest successes in Medicaid is the State Children's Health Insurance Program, set up under the Clinton administration. SCHIP is a federal match program for states that set up plans to insure children of poor families at 200 percent of poverty or less -- families that cannot afford health insurance but make too much money to qualify for regular Medicaid.

SCHIP -- which operates in all 50 states and U.S. territories and covers some 6 million people -- has been expanded since its inception in 1997 to include children of families with increasingly higher incomes and many states also have expanded some coverage to other family members.

Kerry's plan would create a swap rather than a match -- with the federal government paying all the costs associated with the children in these Medicaid SCHIP programs.

The next part of the Kerry plan would expand Medicaid eligibility to children in families making up to 300 percent of the federal poverty level -- about $56,550 for a family of four. A third Medicaid upgrade would include parents with incomes at 200 percent or less of poverty.

The entire Kerry plan would provide insurance to about 27 million people -- and about 18 million, according to the AEI estimate, would come through the Medicaid expansion.

Of the $1.5 trillion AEI estimated the total Kerry health proposal would cost, $881 billion comes via the Medicaid proposals. Thorpe's figures estimate $571 billion of the total $653 billion package would be from Medicaid -- but those numbers are deceiving. Both estimates show even while spending more, Kerry also has some savings tucked in -- not much, $116 billion in the AEI estimate and $299 billion in the Thorpe review, but enough to take the edge off the Medicaid figures.

Where do the Kerry plan savings come from? Kerry would reduce payments to disproportionate-share hospitals -- those hospitals that receive extra government money for treating an extra-large share of the poor and indigent -- by $100 billion over 10 years. He also would take out of the new Medicare law $16 billion the Republicans demanded be included to entice managed-care plans to participate in the new Medicare Advantage program in rural and under-served areas beginning in 2006.

Less than $100 million each would come as savings from disease-management or healthcare-technology upgrades. AEI and Thorpe differ here in their estimates, but using either set of figures, the savings over the long-term are not substantial.

Kerry also has proposed saving healthcare dollars by

-- allowing drug reimportation;

-- having the government negotiate drug prices for Medicare;

-- limiting medical-malpractice cases, and

-- requiring greater financial disclosure of deals by pharmacy benefit-management companies.

Estimates on these ideas were not considered by Thorpe at the time of his analysis and the AEI actuaries said their combined effect would be insignificant.

Kerry is giving a lot of lip service to the idea that people and small businesses should be able to buy into the Federal Employees Health Benefit Program -- under new risk pools created especially for them. There were not enough details yet for the actuaries to make projections, but their reaction was if the plans offered via the Kerry option are as generous as those now in the FEHBP, few people would be able to afford them because they would lack the generous FEHBP government subsidy.

A more substantial Kerry health initiative is called Premium Rebate, which is another swap idea.

In exchange for offering health insurance to all workers, Kerry's plan would give employers a subsidy equal to 75 percent of the cost of catastrophic healthcare -- which would trigger whenever health spending on an employee hit $36,000. If no one in that employer's workforce hit that spending limit, however, there would be no subsidy. Employers also would be required to adopt disease-management plans and pass back all savings to employees.

Critics of the plan say it basically is a boon to companies that already offer full insurance to employees and intend to keep doing so, but the AEI actuaries estimate that 1.8 million newly-insured folks also could be tallied for Kerry at a cost of $573 billion over 10 years. Thorpe estimates the premium-rebate initiative would cost $257 billion over nine years.

The rest of the newly insured under the Kerry program -- about 7 million people -- would come via some refundable tax credits, including one for up to 50 percent of the premium for small businesses that offer health benefits. That might end up being more of a subsidy to employers that already offer coverage.

Unemployed workers could claim up to a 75 percent credit and there is an unspecified subsidy in the Kerry plan to help people ages 54 to 65 purchase insurance if they need it. There also is a tax credit for individuals whose premiums exceed 6 percent of their income.

Both AEI and Thorpe are close on their cost projections for the final segment: $182 billion over 10 years for AEI and $177 billion over nine years for Thorpe.

AEI's Joe Antos called the Kerry plan a "very ambitious program of expanded health programs" and it probably is the largest expansion of Medicaid proposed in the past decade. It would reverse a trend of the Bush administration to try to use Medicaid waivers -- granting states more flexibility in their Medicaid programs -- in exchange for some restrictions on funding. The administration would like to turn Medicaid into a defined contribution plan, limiting the amount of money spent by the federal government.

The cost estimates, however, must be taken with a grain of salt. They presume the Kerry plan would be enacted fully as described. Such a prospect does not account for changes made during the legislative process, or in shifts in the economic picture next year should Kerry become president. Kerry could take one look at looming deficit numbers and actually propose a far scaled-back proposal, or decide to push the health plan through in stages -- either way, reducing costs significantly.

Jeff Lemieux of Centrist.org, a politically moderate think tank, said at this point a numbers game is "foolish." It does give the policy folks, numbers crunchers or Washington media something to use to keep healthcare on a front political burner at a time when the very complicated, dense and not-always-voter-friendly issue is often overwhelmed by Iraq and terrorism.

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e-mail ebeck@upi.com

Copyright 2004 by United Press International.