S.C. Proposing to Redefine Medicaid

by Kevin Freking

Associate Press

On the left, they're calling it radical. On the right, the buzzword is bold. Either way, South Carolina is proposing major changes in Medicaid, the giant federal-state health insurance program for the poor and disabled.

The state says its proposal to establish personal health accounts for most of the state's 850,000 Medicaid recipients will "redefine health care in the United States." The account would be used to purchase private health insurance, or pay for care directly. And the amount of money allocated to each account would depend on the person's age, sex and physical condition.

That's much different from the way Medicaid operates. Now, those whose incomes are low enough and who meet other eligibility requirements are entitled to receive certain approved health care services regardless of costs.

South Carolina would cap how much it will spend on a recipient, and if health care costs more than the account will pay for, then the low-income people would have to make up the difference themselves or go without.
States have to get waivers from the federal government whenever they want to use federal Medicaid funds in ways not authorized in federal law. But the implications of South Carolina's waiver request, contained in a 42-page document submitted to the Centers for Medicare and Medicaid Services in June, extend far beyond the Palmetto State.

If South Carolina's plan is approved, analysts believe other states will seek similar changes. Eventually, the experiment could influence national policy, said Nina Owcharenko, a senior health care analyst with the Heritage Foundation, a conservative think tank.

"Remember, welfare reform didn't come from Washington the first time around," she said. "It came from states like Wisconsin, which received waivers, and their work later encouraged new federal policy."

South Carolina's request is based on the belief that Medicaid has created little incentive for frugality. Rather, it has created incentives for beneficiaries to seek health care services without regard for the costs.
South Carolina's share of Medicaid expenditures has grown more slowly than the national average, but the state spends nearly 19 percent of its budget on Medicaid. That is expected to grow to 24 percent in five years, and 29 percent in a decade, said Robert Kerr, the director of the state's Health and Human Services Department.

With that kind of growth, Kerr said, "you (will) have to decide whether you're going to pay for education or health care, and the state doesn't have to be in that situation."

Kerr said he would rather attempt to improve the "delivery system" now than recommend cuts in services a few years from now.

Some analysts say South Carolina's proposal amounts to a cut.

Judith Solomon, a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank, said many South Carolina residents would be priced out of health care.

South Carolina has relied on some faulty assumptions, Solomon said. There is no evidence Medicaid beneficiaries get too many or inappropriate services. Adults on Medicaid spend a larger percentage of their income on medical expenses that do wealthier individuals with private insurance, she says.

Most importantly, she said, some people who are poor and sick will go without health care rather than pay more out-of-pocket.

"I think they'll definitely be left unable to get the health care they need and could suffer serious harm," Solomon said.

But conservative think tank analysts applaud the South Carolina plan. Devon Herrick , a senior fellow at the National Center for Policy Analysis, said the plan promotes personal responsibility.

"If they've made wise choices, they might have money left over," Herrick said. "If they've made poor choices, it might take some money out of their pockets."

Herrick said Medicaid recipients already have a hard time finding doctors willing to see them because of the program's reimbursement rates, he said. The lack of access can itself lead to health problems.

"I think they'll get better care because I think most of us in private health plans do get better coverage than Medicaid enrollees, even if on paper, Medicaid looks better," Herrick said.

Kerr said he's sensitive to the concern that South Carolina's approach would hurt the most frail of the state's Medicaid recipients. "We'll make sure there's enough in that account to purchase health insurance coverage," he said.

Kerr said two managed care companies in South Carolina serve Medicaid recipients, and insurance coverage costs can vary dramatically, so it's hard to estimate how much would be set aside for the accounts. But he said it typically costs about $1,000 to buy insurance for a child, and about $4,000 a year for somebody age 45, and that cost can increase significantly for anyone who is disabled.

The amounts dedicated to the personal health accounts would be comparable to the managed care payments, he said.

There is no deadline for the Department of Health and Human Services to rule on South Carolina's proposal. The department has approved 19 comprehensive Medicaid waivers since 2001, according to the Kaiser Family Foundation, a health care research organization.

As governor of Utah, HHS Secretary Mike Leavitt obtained a waiver to reduce coverage for some adults to finance expansion of the program to previously ineligible adults.

Kerr said the Centers for Medicare and Medicaid Services, which is part of HHS, has "been very encouraging." The state is working on some revisions the agency requested, he said.