State could save millions from Medicaid reform

April 26, 2012

Following is an excerpt from OCPA’s Proposed State Budget for the Fiscal Year ending June 30, 2013.

With Oklahoma government spending at an all-time high (see chart), the time has come to set priorities and to exercise spending discipline.

According to the state’s FY 2011 Comprehensive Annual Financial Report, total state spending on health services has grown from $3.13 billion in FY 2005 to $4.85 billion in FY 2011—an increase of 54.3 percent in six years.

According to the Oklahoma Health Care Authority’s FY 2010 annual report:

• In FY 2005 there were nearly 630,000 Medicaid enrollees, and total (state and federal) Medicaid expenditures of $2.81 billion. By FY 2010, the number of Medicaid enrollees had ballooned to 881,220 (about 24 percent of the state’s population) and expenditures had skyrocketed to $4.33 billion—an increase of 54 percent in just five years.

• In Federal Fiscal Year 2000, total (state and federal) Medicaid spending in Oklahoma was $1.64 billion. But by Federal Fiscal Year 2010, total Medicaid spending in Oklahoma was $4.35 billion—a 165 percent increase in just 10 years.

• For Federal Fiscal Year 2000, total state share/appropriations for Medicaid were $435.9 million. In Federal Fiscal Year 2010, total state share/appropriations for Medicaid were $1.1 billion—a 169 percent increase in just 10 years.

• In 2010, approximately 562,000 children under the age of 21 were covered by Medicaid.

• Approximately 67 percent of all Oklahoma children under the age of five have been covered by Medicaid at some point in their lives.

• Of Oklahoma’s 77 counties, 38 counties have 25 percent or more of the population enrolled in Medicaid. Eighteen counties have 30 percent or more of the population enrolled in Medicaid. One county has 43 percent of its population on Medicaid.

The problem is not that there is too little money for Medicaid; the problem is there are too many people on Medicaid—and those enrollees are driving program expenditures beyond sustainable limits.

Oklahoma voters decided to install a center-right government last year because they are looking for real leadership and real solutions. The governor, executive branch leaders, state legislators, and Oklahoma’s congressional delegation should lead an unrelenting effort to obtain waivers from the federal government that would allow Oklahoma to implement significant reforms to the Medicaid program. Preferably, the state should seek federal approval to convert Medicaid into a block-grant program, which would give the state more control over how program dollars are spent.

Block grants hold the potential of restraining Medicaid growth because the state would know how much federal aid it will be receiving from year to year, as opposed to the current “as needed” funding scheme that incentivizes expansion by the promise of unlimited federal funds. A block grant program could be paired with a premium-support program, whereby the state provides low-income and disabled individuals a risk-adjusted credit or voucher to purchase coverage from among competing private plans. Under this model, an individual would own the plan and could opt to continue paying for the coverage out of pocket if he were to lose eligibility.

Until a block grant and premium assistance program can be implemented, state leaders should take advantage of all currently available options to find efficiencies in the existing program, including:

• Member cost-sharing

• Long-term-care reform

• Examining and reducing “optional” benefits (family planning services, etc.)

• Insure Oklahoma: Legislators should allow the approximately 13,000 current individual Insure Oklahoma members to obtain coverage through the private market rather than being forced onto Medicaid.

• Employer-sponsored insurance for part-time workers: Legislators should incentivize employer-sponsored insurance for employees (and their dependents) who work at least 24 hours each week, which current state law defines as “full time” employment, instead of inducements to enter the state Medicaid program.

• Medicaid-reform task force: Legislators should create a task force to begin studying Medicaid and options for reducing costs.

The potential savings from implementing such reforms would be $87 million annually.

Submitted each year by the Oklahoma Council of Public Affairs, Inc. to the taxpayers of the State of Oklahoma and their elected Officials, the OCPA “Budget Book” is carefully crafted by Fiscal Policy Director Jonathan Small to help lawmakers set priorities and exercise spending discipline while creating a state budget that respects your family budget. Offering unmatched fiscal policy analysis and recommendations, Small draws on his experiences as a former budget analyst for the Oklahoma Office of State Finance, former fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and former director of government affairs for the Oklahoma Insurance Department to provide perspective on the state budget that you cannot find anywhere else.