HEALTHCAREBIGIDEAS

View Original

The "New Normal" Medicaid: A Viable Public Option Alternative to Medicare-for-All

Since we launched healthcarebigideas.com with the “New Normal” Medicaid on May 8th, the world has continued change at an incredible pace.  The economy, as measured by gross domestic product (GDP), has declined by historic levels not seen since the Great Depression.  New tragic events of racism have resulted in renewed societal unrest and pressure for immediate solutions to improve social justice.

 

Through last week, over 45 million Americans had filed for unemployment since the beginning of the COVID-19 crisis.  This represents more than the cumulative populations of over 40% of the states in the union and has raised the overall unemployment rate to 14.7%, with a range of 7% in Connecticut to 28% in Nevada[1].  Not surprisingly, the unemployment rate is the highest among minorities with Black unemployment above 16%, and Hispanic unemployment ranging from almost 17% for men to over 20% for women[2]. 

 

According to a study by the Annuals of Internal Medicine, this unemployment is projected to result in more than 7 million Americans losing their health insurance by the end of this month.  This has led to renewed calls for Medicaid expansion in some of the 14 states which have so far declined that opportunity. But unlike the federal government, state and local governments cannot afford to run ongoing annual budget deficits.  Even with the enhanced matching funds provided under the Affordable Care Act (ACA) for states which expand Medicaid eligibility, non-expansion states still fear their share additional Medicaid funding responsibilities may not be able to be sustained in the future. The reality is that the current economic crisis has only further supported that position[3].

 

As we described last month, Medicaid enrollment and spending growth have peaked in past economic downturns (2002 & 2009)[4].  At the same time, the looming crisis for state and local government revenue shortfalls will inevitably impact their ability to sustain even current Medicaid funding levels. New York has already passed a $400 million cut to hospitals and the Governor has warned that hospitals could face 20% cuts without further federal government relief[5].  And, that type of scenario is also playing out across the country.

 

Another current reality is that even if all states expanded Medicaid, the majority of the 7 million projected newly uninsured would not qualify under current guidelines.  The ACA currently provides subsidized individual coverage for people not eligible for Medicaid, however most of the working poor struggle to meet even these subsidized commercial premiums and their related higher deductibles and co-insurance requirements. 

 

Consequently, it was not a surprise that even before COVID-19 came on the scene, there was much debate over the “Medicare for All” plan proposed by Senator Bernie Sanders.  But under current conditions, a single payer government system would be financially devasting to the U.S. healthcare provider system.  Virtually all healthcare providers currently rely upon commercial insurance business to produce even modest overall operating margins.  That is because they generally lose money on Medicare and Medicaid patients even though both programs are based on regulations which require reimbursement that meets “reasonable cost”. 

 

In 2017, the Medicare Payment Advisory Committee (MedPAC) reported that 2015 hospital margins for Medicare were a negative 7.1% and that combined losses from Medicare and Medicaid payers approximated $58 billion[6].  More recently, the American Hospital Association reported that in 2017, U.S. hospitals lost approximately $77 billion from Medicare and Medicaid patients, including $54 billion from Medicare and $23 billion from Medicaid[7].   These losses have historically been covered by commercial payers through employer-sponsored health insurance.  This commercial subsidy is essentially a “hidden tax” that employers pay to support the viability of healthcare providers in their regions.

 

The U.S. healthcare system is also under substantial financial stress due to the COVID-19 crisis because of the substantial costs in treating these patients and self-imposed significant reductions of elective procedures, outpatient visits and commercially insured patients during this time. Kaufman Hall reported that April 2020 represented the worst monthly financial performance in history for over 800 hospitals nationwide.  They reported a median hospital operating loss of 29% for the month, despite $50 billion in relief provided by The CARES Act[8].

 

This scenario will require a broader response than the Affordable Care Act health insurance exchanges can offer.  As mentioned earlier, many of ACA exchange health plans currently offered are unaffordable to a large portion of the uninsured population even with subsidies.  The reasons include:

 

1.       The most affordable ACA plans typically include large deductible and co-insurance requirements, which results in significant medical debt for the subscribers.

2.       These plans are competing in the commercial market and tend to be relatively small.  As a result, they do not have the scale to negotiate favorable rates with providers.

3.       This lack of scale also tends to result in unfavorable actuarial performance due to the likelihood that cost outliers will result in negative financial performance for the plan.

 

Consequently, it is very likely that millions of newly uninsured patients will exert more financial pressure on a U.S. healthcare system already under extreme financial duress due to COVID-19.  As an example, New York City’s Health & Hospitals System is currently running with approximately 18 days cash on hand; and the expected cost of treating patient with COVID-19 is $1.1 billion, with only $824 million received to date from federal relief programs[9].

 

All this likely points to renewed arguments that a Medicare-for-All single payer government healthcare system would be a potential solution to this new normal scenario.  We do not support that plan for all the reasons described above.  However, we are convinced that the current crisis will require some type of public option alternative going forward. We believe that the New Normal Medicaid program we described last month could be utilized as one model for this type of public option alternative.

 

The upcoming political elections will undoubtedly include substantial debate about various healthcare systemic changes.  Even prior to the COVID-19 crisis, Deloitte produced a comprehensive comparison of the numerous current healthcare coverage proposals relative to insurance coverage and affordability[10].  Without concluding as to a preferred approach, the authors acknowledged that “The U.S. health care system is a balance of public programs and private sponsorship….Health care is dynamic by nature—diseases emerge, discoveries are made, and new paths to wellness are emulated.” 

 

These statements particularly resonate today with how the healthcare system has rapidly responded over the past several months to the COVID-19 pandemic.  We do not want to see this balance between public programs and private sponsorship eliminated by a single payer system.  However, for the U.S. healthcare system to survive this crisis and adequately respond to its responsibilities in a world demanding social justice, our country must implement pragmatic and well thought out solutions to the healthcare needs of our most vulnerable citizens.

 

[1] L. Lambert, Fortune, A State-by-state breakdown of unemployment in the U.S. according to latest figures, May 22, 2020

[2] USA Facts, Unemployment rate during COVID-19 highest among Hispanic and Black Americans, June 2, 2020

[3] S. Armour, Coronavirus Pandemic Renews Push for Medicaid Expansion in GOP-Led States, May 11,2020

[4] The Kaiser Family Foundation, Medicaid Financing: The Basics, Figure 4, March 21, 2019

[5] R. Cohrs, Modern Healthcare, Providers could bear the brunt of COVID-19 Medicaid cuts, May 19, 2020

[6] V. Dickson, Modern Healthcare, Slumping Medicare Margins Put Hospitals on Precarious Cliff, November 25, 2017

[7] Healthcare Finance News, “Medicare, Medicaid Underpaid U.S. Hospitals by $76.8 billion in 2017, AHA Says”, January 4, 2019

[8] Kaufman Hall, National Hospital Flash Report, May 2020

[9] M. Grayce West and J. Palazzolo, Wall Street Journal, Coronavirus Takes Financial Toll on New York City’s Safety Net Hospitals, June 12, 2020

[10] A. Phelps, S. Thomas, and C. Boozer Cruse, Deloitte Insights, Setting the stage for Medicare for All and the health care coverage debate, 2020