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Medicaid and health choice

Medicaid in North Carolina desperately needs patient-driven reform. State and federal expansions of Medicaid in the last 20 years have helped make it the fastest growing portion of the state budget.

North Carolina already has one of the most expensive Medicaid programs in the Southeast. Needed reforms go beyond cracking down on abuse and implementing a preferred drug list. Without reform, the state must either reduce the number of services covered or reduce the number of people eligible for Medicaid. With patient-driven reform, most enrollees can help reduce costs by making decisions about their own care.

Key Facts

• Medicaid was 5.5 percent of General Fund spending in fiscal year 1990 but climbed to 15.5 percent by fiscal year 2010.
• North Carolina has one of the most expensive Medicaid systems in the Southeast.
• Getting per-capita or per-enrollee costs in line with the regional average would save North Carolina more than $400 million per year.
• The North Carolina Division of Medical Assistance expects the recently passed national health care reform to add 500,000 people to Medicaid in North Carolina by 2016.
• North Carolina Medicaid enrollment among adults under 65 more than doubled between 1999 and 2008 and is now near the national average.
• Private health insurance coverage in North Carolina fell from 77 percent in 1999 to 67 percent in 2008.
• Medicaid and NC Health Choice covered 31 percent of all North Carolina children in 2008, up from 19 percent in 1999.
• The Congressional Budget Office estimates that six children lose private health insurance for every ten added to SCHIP.
• Losing Medicaid benefits is equivalent to paying a very high marginal tax rate.

Recommendations

1. Seek a block grant. State policy should not be held hostage to the whims of politicians in Washington, D.C. North Carolina should seek a block grant that would give the state more freedom to reform Medicaid.
2. Use funds for premium support, not government insurance. Despite its expense, Medicaid pays providers less than private insurance and leaves customers with less choice. The state should provide risk-rated subsidies to Medicaid recipients that can be used to purchase private insurance, with the option to continue coverage after they lose eligibility.
3. Offer patient-controlled accounts. Medicaid dedicates significant resources to monitoring and approving health expenses, but fraud and abuse remain major problems. Individuals with private sector health savings accounts have been more active in managing their health and had lower costs than those with traditional insurance. Medicaid patients could find similar savings. If the state allowed recipients to keep these accounts, the benefit could offset the high effective marginal tax rate that results from losing benefits.