Pew Center on the States Examines State Innovation in Medicaid Policy

All 50 states are experimenting with new ways to try to rein in Medicaid costs. While these approaches may save money, they could limit the program's capacity to provide vital health care to the nearly 60 million Americans who depend on it. Which reforms have been most effective? What may be the unintended consequences of reforms to Medicaid? The Pew Center on the States, a division of The Pew Charitable Trusts, today issued its first state policy report, Special Report on Medicaid: Bridging the Gap Between Care and Cost, which analyzes how state Medicaid programs are wrestling with rising costs and highlights examples of which innovations are working, which are not, and why.

Last year alone, states and the federal government spent a hefty $329 billion on Medicaid, a program serving many of the country's low-income children, pregnant women, senior citizens and the disabled. With a changing economic climate and an aging population, Medicaid caseloads have increased by 40 percent in the past five years, causing many programs to inflate beyond what states and the federal government can afford.

“Medicaid now represents 21 percent of total state budgets. States are trying to balance the need to control these costs while still ensuring quality care,” said Sue Urahn, director, State Policy Initiatives at The Pew Charitable Trusts. “We hope this report will help states see the costs and benefits of the approaches other states are taking and aid them in crafting their own strategies to tackle this growing challenge.”

Bridging the Gap Between Care and Cost provides a comprehensive picture of how states are trying to control Medicaid spending by examining specific areas of reform, including long-term care, prescription drugs, new technology, changes in co-payments, program management and privatization.

Key findings of the report:

• Though the focus in the states and federal government has been on saving money in the Medicaid program, there's an underlying problem: When access or quality of care is ratcheted back in Medicaid, the dollars spent are often not actually reduced -- they're simply shifted elsewhere in the healthcare system, and still paid for by taxpayers.   
• Co-payments, deductibles and premiums are favored by leaders who believe they not only save money, but also instill a greater sense of personal responsibility among recipients. But there's evidence that such approaches can backfire. Medicaid recipients can forgo necessary short-term or preventive care, which can result in far larger medical bills in the future. States' efforts to save money on prescription drugs have been extremely successful in cutting the growth rates on drug costs.   
• Although up-front costs for technology have held back many efforts in the states, programs in Arkansas, Florida, Utah, Wisconsin and elsewhere demonstrate this is an area well worth exploring for enormous savings as well as improved care.   
• One way to avoid difficult tradeoffs between costs, access and care is to improve the management of the entire Medicaid enterprise. In fact, effective managed care and disease management can both save money and improve quality. Strong evidence of this is seen in states like North Carolina, Virginia, Arkansas and Washington.   
• The nation is witnessing a massive increase in the number of elderly who receive long-term care through home and community based services. The challenge is to make certain that people who need long-term care are steered to the setting that provides the most appropriate level of care at the lowest cost. Some states are showing signs of success in this area.

The Pew Center on the States, an operating division of The Pew Charitable Trusts, helps the Trusts and its partners examine effective policy approaches to critical issues facing states. The Center conducts research, brings together diverse perspectives and analyzes states' experiences to determine what works and what does not.

Click here for more information about the Center and the Medicaid report.