Bullet:  Does Medicaid Solvency Matter?

Friday, October 31, 2014


LTC Comment:  CMS says Medicaid solvency “is not an issue.”  We beg to differ after the ***news.*** [omitted]


LTC Comment:  For the past five years, the Centers for Medicare and Medicaid Services (CMS) has published an “Actuarial Report on the Financial Outlook for Medicaid.”  The report looks only ten years into the future and contains, we believe, some misguided assumptions and, consequently, some mistaken predictions.  Examples follow as we quote the latest edition and then comment.


Quotes from and comments on:

Christopher J. Truffer, et al., “Report to Congress:  2013 Actuarial Report on the Financial Outlook for Medicaid,” Office of the Actuary, Centers for Medicare & Medicaid Services, United States Department of Health & Human Services, Kathleen Sebelius, Secretary of Health and Human Services, 2013;

Quote:  “The economic assumptions used to generate the Medicaid projections in this report are the same as those used by the 2013 OASDI and Medicare Boards of Trustees in their annual reports to Congress.”  (p. i)

LTC Comment:  The Social Security and Medicare trustees’ assumptions lead them to estimate those programs’ infinite-horizon unfunded liabilities at $25 trillion and $43 respectively.  We’re well-advised to consider the likely consequences of applying the same assumptions to Medicaid.  But . . .

Quote:  “. . . Medicaid outlays and revenues are automatically in financial balance, there is no need to maintain a contingency reserve, and, unlike Medicare, the ‘financial status’ of the program is not in question from an actuarial perspective.”  (pps. 3-4)

LTC Comment:  What precisely is the value of an “actuarial perspective” if it doesn’t question Medicaid’s “financial status”?

Quote:  “Because Medicaid does not have any dedicated revenue source at the Federal level or a trust fund approach to financing, the solvency of the program is not an issue; the expenditures of each State (or Territory) program are covered by the State’s revenues plus Federal matching general revenues. However, even without solvency as a concern, Medicaid constitutes a significant portion of spending by both Federal and State governments and thus is important to evaluate as part of the budget.”  (p. 56)

LTC Comment:  According to Wikipedia, “Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity.”  Evidently, solvency in government is something different if all that matters is that spending for a program comes from general funds (vulnerable to deficit spending) and not from “trust funds” (that contain only government-bond IOUs).  Cold comfort considering the authors’ acknowledgement that federal and state Medicaid spending are “important to evaluate as part of the budget.”

“Actuarial perspective,” “financial status,” and “solvency” are terms of art.  What matters is whether or not we can have a reasonable expectation that America’s Medicaid-based long-term care financing system can survive future demographic and economic challenges.  The Center for Long-Term Care Reform’s “Index of Long-Term Care Vulnerability,” operationalized with our Excel-based “Table of Long-Term Care Vulnerability,” is a tool designed to help answer that critical question.  You can find the Index and the Table explained with examples in our three most recent state level reports here (Virginia), here (Georgia) and here (New Jersey).

Quote:  “The purpose of this report is to describe the past and projected trends for Medicaid expenditures and enrollment, including estimates for Federal fiscal years (FYs) 2012 and 2013 and projections over the next 10 years.  …  Finally, this report places the Medicaid program within the context of Federal and State government spending and the U.S. health care system.”  (p. 1)

LTC Comment:  By looking only at the next ten years, this report misses most of the impact of the looming demographic age wave on Medicaid acute care and long-term care expenditures for the aged.  Although it does a creditable job of reviewing likely federal Medicaid expenditures for this narrow time frame, the report lacks any state-by-state analysis.  We are working with the State Budget Solutions think tank to design a study to fill this gaping hole in the CMS study.  We propose to estimate, analyze and critique likely Medicaid expenditures over a 30-year period using data and projections for a specific state.  Anyone interested in sponsorship opportunities for this important study, please contact me:

Quote:  “Yet another limitation is the unavailability of demographic, macroeconomic, health care, and program assumptions specific to each State. Because these State-specific assumptions are not available, it is not possible to credibly project Medicaid spending or enrollment separately by State.”  (p. 8)

LTC Comment:  Of course it is possible to project Medicaid spending and enrollment by state.  The data is readily available, or obtainable by means of Freedom of Information (FOI) queries, to make such estimates.  If CMS lacks the time, resources or inclination to do so, then we believe someone else should take on this important task.  Federal revenue to support Medicaid may seem unlimited, but states lack the ability to deficit-spend or to print money and their economies have to somehow generate the revenue to attract federal matching funds.  Can states be expected to do so?  That question is every bit as important as whether or not the federal government can meet its statutory obligations to support Medicaid.

Quote:  “From 2001 to 2012, Medicaid payments for managed care plans and other premiums grew on average 12.0 percent per year, faster than overall Medicaid benefit expenditures (6.1 percent). The use of managed care plans within Medicaid has increased over the last 10 years, and this increase accounts for much of the difference between the capitation payment and overall Medicaid expenditure growth rates.”  (p. 29)

LTC Comment:  In fact, Medicaid managed care has grown explosively across the USA.  It was overdue and saved a lot of money on the program’s acute care side.  But applied to long-term care—and especially to high-cost, highly vulnerable “dual eligibles”—the jury is still out on managed care.  LTC providers and senior advocates express grave concerns that care quality will suffer and that anticipated savings may not materialize.

Quote:  “Medicaid spending on long-term care is projected to grow by 6.0 percent on average for 2013 through 2022. The aging of the population is one contributing factor to growth in expenditures for long-term care. As the number of people aged 65 or older increases—and especially the number of those over age 85—there is a corresponding projected increase in the amount of long-term care spending, since elderly beneficiaries use more long-term care than younger beneficiaries. As the oldest members of the baby boom generation begin to reach age 65, both the number of aged enrollees in Medicaid and eventually the rate of long-term care expenditure growth are projected to increase. While the baby boom generation is not estimated to have a major effect on long-term care spending during 2013 through 2022, the increase in the number of people over age 85 in the next 10 years is expected to lead to growth in such expenditures. Additionally, while few of the newly eligible [ObamaCare] Medicaid enrollees are anticipated to have significant or immediate long-term care needs, several provisions in the legislation are expected to expand access to, and modestly increase spending for, long-term care services.”  (p. 29, emphasis added)

LTC Comment:  We could not compose a better argument against this document’s ten-year diagnosis and in favor of a 30-year or longer perspective.

Quote:  Footnote 43:  “Use of home and community-based services can substantially reduce expenditures for enrollees who would otherwise have had to enter a nursing home or who transition from institutional to community settings.”

LTC Comment:  The myth that home and community-based services (HCBS) save money is widely believed but belied by the facts.  Medicaid’s combined HCBS and institutional LTC expenditures continue to increase relentlessly despite a decade of aggressive “rebalancing.”  Research shows HCBS delay but do not replace nursing home care and that their combined costs increase rather than decrease overall costs.  Providing care in the most appropriate, least institutionalized setting is a worthy goal, but it does not save money.  (See “Briefing Paper #4:  Rebalancing Long-Term Care.”)  The best way for individuals and families to ensure access to quality long-term care in their homes and communities is to prepare to pay privately. 

Quote:  “Many people who pay for nursing home care privately become impoverished due to the expense; as a result, these people eventually become eligible for Medicaid.”  (p. 51)

LTC Comment:  This is another commonplace myth that reflects the authors’ lack of understanding about Medicaid long-term care eligibility rules.  The proportion of people paying privately for nursing home care has plummeted from over 50 percent to under15 percent.  It may be true that many of the remaining private payers become impoverished paying for their care, but it is equally true that such an outcome is unnecessary, occurs only voluntarily or out of ignorance of the rules, and that many more people easily avoid the alleged consequences of “spend down.”  We’ve explained why this is true in all of our major reports here and especially here.


LTC Comment:  CMS’s “Actuarial Report on the Financial Outlook for Medicaid” contains a wealth of interesting numbers, estimates and projections.  It’s a worthy piece of work within the boundaries of its short-term, federally focused mandate.  So read it and worry about Medicaid’s next ten years even as you truly agonize over the greater, longer-term vulnerabilities the report does not address.