Proposed state Medicaid cuts are a budget boomerang

State must take financial responsibility, not shift costs

June 6, 2005

By Jonathan Baird
Member, New Hampshire Child Advocacy Network steering committee

As our Legislature wrestles with the budget deficit, a variety of fixes have been suggested. Many center on cutting Medicaid, a joint federal-state program that provides health services to especially vulnerable populations. Medicaid serves around 95,000 people in the state.

These legislative proposals include cutting Medicaid reimbursement rates to hospitals, counties and other medical providers, putting an asset test on the Healthy Kids program and imposing monthly premiums on Medicaid recipients.

The proposals have been put forward in the name of fiscal responsibility. But it is not fiscally responsible to make proposals that ignore significant adverse effects on the health-care system as a whole. A better characterization would be passing the buck.

The suggested Medicaid measures mask cost shifting that ultimately harms consumers of health care along with private businesses. This cost shifting is a budget boomerang that needs to be more widely understood.

The clearest explanation I have seen about health-care cost shifting comes from Doug Hall of the New Hampshire Center for Public Policy Studies. In 2003, Hall reported that New Hampshire Medicaid reimbursed only 77 percent of actual expenses incurred by hospitals. That means taking any Medicaid patient is a losing proposition.

Of course, hospitals will not simply eat the loss. They shift costs to private insurance and private-pay patients to compensate for lost revenue. Hall compares the revenue structure of a health-care provider to a hydraulic system. He says push down on one revenue source and another must rise to compensate.

When public programs like Medicaid fail to pay real cost and do not increase their payments consistent as costs rise, insured and private-pay patients will have to make up the difference. In publications, both Hall and the Business and Industry Association have well described this reality.

Hall reports that in 2001 New Hampshire hospitals shifted $198 million in costs onto insurers and self-pay patients. This amounts to a 23 percent surcharge over the true cost of health care.

Legislators who propose further Medicaid reimbursement reductions are not thinking through the consequences of their actions. Their acts will cause a ratcheting up of costs outside Medicaid while weakening that program.

It is ridiculous that the state has built the Medicaid program on the expectation that health-care providers should donate their services for Medicaid recipients without fair compensation. This amounts to undermining the program. It is not a recipe for any long-term survival.

The problem has gotten much worse during the last decade. Ten years ago, New Hampshire paid much closer to the actual cost of Medicaid patients. According to the New Hampshire Hospital Association, we are now last among the states in the adequacy of Medicaid payment. Our reimbursement rates are nearly 20 percent lower than the national average.

Further underpayment of Medicaid has additional dark sides. More medical providers will limit access of Medicaid patients in the future because of the steeper financial loss. When care is denied, the patient in need will still be there. If the patient gets care, the likely place will be an ER and the likely result of the delay will be more expensive treatment due to a worsened condition.

I am no expert, but I expect the Medicaid cost shifting is approaching a breaking point. Public rates are too low and private rates are too high. Something will have to give. Yet the government, in effect, looks away.

At its best, New Hampshire is a genuine community based on a shared sense of caring. A community must take care of its members. We need an organized way of helping the sick and infirm. It undermines our community when Medicaid is significantly under-funded.

Fiscal responsibility requires adequate public funding, in part, so that the private system does not pass on even more exorbitant price increases that would turn health care into an even more unaffordable commodity than it is at present.

In stepping back from the immediate crisis, I find it embarrassing that our neighbor Vermont can actively consider universal health care while we remain mired in a dispiriting, backward-looking legislative debate that will deny care to more citizens. It is time New Hampshire moved in a different direction.

Jonathan Baird lives in Wilmot and works for New Hampshire Legal Assistance