Weaving the Safety Net: Vermont Experiments with Medicaid

If your family has health insurance, you know that your health care is tied to your job. So what happens if you become unemployed? Medicaid is America’s only heath safety net.

But states and the federal government are struggling to keep up with Medicaid costs, which rise by about 20 percent each year.

In an attempt to cut costs and improve services, Vermont has come up with a daring new plan.

What is Medicaid?

Medicaid is a joint federal and state program that has provided healthcare to low-income citizens since Lyndon Johnson’s day in 1966.

States decide who is eligible for Medicaid (and all citizens who meet eligibility requirements are entitled to services) and how much money to spend on the program. The federal government then matches those funds, paying up to 60 percent of the costs. In turn, the federal government imposes upon states rules about how their Medicaid program should be structured.

Vermont experiment

Vermont has agreed to cap federal spending on its state Medicaid program in exchange for more flexibility in how to run that program. Over the next five years, Vermont will receive a set amount of money - $4.7 billion - that it can use as it sees fit. Governor James Douglas says he’s confident that state officials will be able to better manage the state insurance program and begin to lower costs without cutting benefits.

Critics say that Vermont Medicaid could suffer if health care costs rise even more dramatically and the state is forced to pay anything above the $4.7 billion ceiling. But the state estimates that it will save anywhere from $135 million to $165 million in the next five years through a statewide managed care organization that would be paid a fee for each person it chose to insure. After that, no additional funds would be added. The assumption is that costs can be trimmed by weeding out what the government considers unnecessary medical services. An example is going to the emergency room of a hospital rather than waiting for tomorrow and going to a primary care physician. The Douglas administration assumes that the savings can be used to pay down its $80 million Medicaid deficit.

Federal and state governments borrow money when entitlements turn out to be more expensive than the tax dollars that are collected to pay for them.

Potential problem

In Vermont, a full fifth of state residents are on Medicaid because the state has made eligible some middle-income families that cannot manage a catastrophic illness.

Since the agreement allows the federal government to review its contribution level each year, critics worry that Washington will shrink its portion if Vermont succeeds in cutting costs.

The Vermont state legislature is also concerned that the pilot program will have unforeseen consequences that then affect a large portion of the residents.

But the legislature does have power over changes in service and eligibility -- modifications will have to be approved by a majority.

Positive change?

Vermont’s willingness to experiment may help solve the Medicaid financial crisis for states and the federal government.

Other strapped states like Florida, South Carolina, Missouri, and California are considering making changes to their Medicaid programs as well.

And legislators in the U.S. House and Senate are working to ease eligibility requirements for Hurricane Katrina victims.

The importance of Medicaid

Hurricane Katrina has underscored the importance of health care for all Americans.

Senator Charles E. Grassley (R-Iowa) and Senator Max Baucus (D-Montana) are working to provide Medicaid health coverage to the hurricane victims that need it.

The legislation is stalled on the Senate floor, where fiscal conservatives have blocked it. Grassley says that the Bush administration is dragging its feet on the measure as well; he criticizes the slow response as compared to the White House’s quick legislative reactions to 9-11.

How do you see Medicaid? Should your state and local governments protect you from a catastrophic illness or accident that puts you and your family into bankruptcy? Would you start the reform debate on how much it costs or on what it should deliver?

What do you think?

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Posted on: 10/9/2005