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Introduction
Overall Healthcare Challenges
Medicaid and What It Does Well
Challenges Facing Medicaid
The Promise of Reform Under the Deficit Reduction Act
Where We Are Going in Virginia
Conclusion

Introduction    

Good afternoon.  I’m honored to be here today to talk to you about our nation’s largest health insurance program, Medicaid.

Medicaid was conceived 40 years ago in a very different healthcare system than the one that exists today.  Medicaid was conceived before the rise of ambulatory surgery, before the revolution in diagnostic imaging, before the widespread use of home and community based long-term care services, and before the evolution of a whole array of services that we take for granted today.

Medicaid began as a program to fund healthcare services largely for recipients of welfare and their children.  Medicaid was conceived as an acute health care program.  Long-term care services were added later, as almost an afterthought.  Today, of course, long-term care expenses for the elderly and disabled drive the cost of the Medicaid Program. 

As Medicaid nears its 41st birthday on July 30, we need to work hard on asking how we can do better.  In many ways, the growing challenges facing Medicaid parallel those facing the entire health care system, particularly the challenge of rapidly rising costs.  At the same time, Medicaid has some unique challenges reflective of the vulnerable populations that it serves.

I’d like to talk first about some overall problems in health care.  I’d then like to talk about Medicaid generally and in my state, Virginia.  I’ll share a few thoughts about the recent Medicaid reform efforts. And I’ll conclude with some observations about health care in the United States.

Challenges Facing Health Care Overall    

Meaningful reform of Medicaid is only possible if we focus on the larger healthcare system as well.  And there are some significant challenges facing healthcare in the United States.

At $1.8 trillion in total spending, the United State spends more per-capita than any other nation in the world.  And that staggering figure is only getting bigger.  Over the past 40 years, rising health care cost has greatly exceeded overall inflation, often by a factor of two to one.

Despite this spending, we have an unacceptably high number of uninsured, estimated at around 45 or 46 million; that number has been steadily growing since it was declared a crisis in 1992, when there were 38 million uninsured Americans.  In my state, there are 1 million uninsured, one out of every seven Virginians.

Why?  The cost of insurance premiums and the process of risk selection by major insurers have essentially moved insurance beyond the reach of many small businesses and the self-employed.  As you know, when the uninsured can no longer avoid care they obtain it in free clinics, community health centers and hospital emergency rooms.  Of course these costs are ultimately borne by private payers or government subsidies, further fueling the rise in health plan premiums and public budgets.

We also have wide variation in health care practice and costs without any correlation to quality outcomes.  Professor Jack Wennberg at Dartmouth Medical School has been the leader in researching practice variation for more than three decades.  He confirms what we all know – that too much of our health care practice is based more on regional or local custom and training rather than on scientific data on outcomes.

In general, our system suffers from a lack of standardized performance measures and outcome reporting to promote quality. We have an unacceptably high level of medical errors, most prominently highlighted by the Institute of Medicine in To Err is Human.  That is why we must work together to develop a better way of tracking health care services through electronic records and computerized order entry.

Our healthcare system fails to encourage healthy living in a consistent or significant way.  Poor nutrition, risky behavior and lifestyle choices like smoking – practices that are all avoidable – continue unabated as major cost drivers in the American health care system. Despite a generation of rhetoric around managed care, we still fundamentally pay providers to treat you when you’re sick, not to keep you well.

As payers for health care – and state governments are major payers for health care with both Medicaid and their state employee health insurance plans – we have a responsibility to do what we can to reduce variation, to promote patient safety and quality, and to encourage healthy lifestyles.

Medicaid and What it Does Well    

This brings me to the subject of today, Medicaid.  As we talk about Medicaid reform, we should first acknowledge what Medicaid does well.

Medicaid is the largest insurance safety net in the country because it provides benefits to the poor who can not afford healthcare and the chronically ill and disabled who pose too much of an underwriting risk for private insurers.  In other words, Medicaid is often the insurance of last resort for vulnerable people with significant health needs.

Medicaid and its sister program SCHIP have worked together in my state and the two programs seamlessly cover millions of uninsured children. 

Despite legislative efforts at both the state and federal level, private insurance companies continue to reduce and eliminate coverage for mental and behavioral health issues, often leaving the mentally ill and mentally retarded with nowhere to turn but Medicaid for coverage. And through the EPSTD Program, Medicaid delivers on a promised healthcare benefit to many poor children when no other payer will.

Challenges Facing Medicaid    

Medicaid costs in many states have become difficult to manage.  In Virginia, Medicaid was a $1 billion program in 1990, a $2.5 billion program in 2000, and it is a $5 billion program today.  At current rates of growth, a governor newly elected this November will see their Medicaid program double in cost over the next eight years.

Medicaid benefit design is rigid and Medicaid benefits are largely "one size fits all."  The distinction of mandatory versus optional services in Medicaid makes little practical sense.  Prescription drugs are still an optional service in Medicaid, while transportation is a mandatory service. 

Medicaid is practically the sole payer of long-term care.  Despite the promise touted by its supporters, long-term care insurance – a critical part of the solution for long-term care financing – is still in its infancy.  And to the surprise of many seniors, Medicare pays for long-term care only for a short time (up to 100 days) and only in very narrow circumstances.

Despite the efforts by Secretaries Thompson and Leavitt, and others before them to streamline the federal waiver application process, state innovation often falls victim to red tape frustration.  That said, the federal government plays an important role in the process to ensure program consistency and to ensure that attempts at state innovation are more than an effort to race to the bottom in terms of benefits.

The Promise of Reform Under the 2005 Deficit Reduction Act (DRA)    

Last year’s Deficit Reduction Act has some reform components, though too much of it was driven by a desire to cut social programs for symbolic reasons. 

The promise of DRA is that this reform will allow states to move larger portions of long-term care populations from institutions to the community; better manage the care provided the elderly; afford recipients greater control over their own care; and possibly expand coverage for some of the uninsured.

In particular, moving more people to the community from institutional care is absolutely critical in moral, fiscal, and health policy terms.  The Olmstead decision, best practices in long-term care, and – most important of all – the desires of individual patients and families all point to investing more in home- and community-based services while maintaining an institutional safety net.

On the provisions of DRA, let me offer an important caveat with respect to some of the rhetoric around cost control in Medicaid.   States – especially Southern states with very low eligibility levels, like my state – should exercise extreme caution and careful thought before deciding whether to impose higher co-payment obligations on the poor, establishing high deductible health plans, or devising programs with capped healthcare benefits. 

Increasing co-payments on poor people has historically produced adverse consequences.  Further, the use of high deductible or capped benefit plans for this population is an untested concept that I believe has the potential for more harm than good.

Where We Are Going In Virginia    

This raises the question of where we are going with respect to Medicaid in Virginia.

We’ve done a good job managing Medicaid in Virginia.  Virginia was the first state to adopt nursing home pre-admission screening and carefully controls costs.  We have, thanks in large part to my predecessor Governor Warner’s leadership, a model children’s health program that covers nearly every eligible child.

We’ve expanded managed care to a large segment of beneficiaries while actually improving management of care, most notably for pregnant women.  This includes making managed care work successfully in rural areas of the state where it was thought impossible to implement it.

We’ve made aggressive use of Preferred Drug Lists to maintain access to needed drugs, while greatly reducing prescription drug costs.  Virginia has been a model of a prudent purchaser.

But we have work to do in Medicaid.

We need to do a better job controlling costs.  We can’t afford the current rate of growth we are seeing in Medicaid, in the high single digits, to say nothing of the double digit growth that has characterized much of the program’s history.

This summer, I will be forming a high level commission to examine health care generally in Virginia.  The General Assembly passed, with my active support, some enabling legislation on Medicaid Reform to start looking at ways to strengthen our system. I’ve got an outstanding Secretary of Health and Human Resources with nearly three decades of health care leadership under her belt, and I’ve got a nationally respected Medicaid Director.

We want Virginia to be a leader in Medicaid innovation.

Too often both the federal government and the states look for ways to reduce Medicaid costs by cutting services to adults and children. The reality is that nearly 75% of most state Medicaid budgets are spent on long-term care services for the elderly and disabled through a patchwork system without the benefit of care coordination or case management.

We believe further reforms in Virginia must come through innovation such as managed care for the elderly; new ways of thinking, such as population-based healthcare reform to promote healthy living; and creative service options for the uninsured who live beneath Virginia’s low eligibility thresholds – not by rationing healthcare.

We’ll be looking at the best way to implement managed care for our long-term care population.

We’ll be examining healthy living programs for at-risk populations, particularly children in our Medicaid Program, to combat obesity and other lifestyle issues that lead to chronic disease later in life.  Governor Huckabee has made promoting healthy lifestyles the centerpiece of his tenure as chairman of NGA and his approach is something I wholeheartedly endorse.

We’ll also be looking at how to combat the problem of the uninsured in our state.  In terms of health care policy, addressing the uninsured remains the fundamental question.

Conclusion    

In closing, I would like to emphasize that we must always address Medicaid reform in the context of overall health reform – and that means dealing head-on with the financing issue for mental health and long-term care.  Medicaid has become the national mental health and long-term care system for the country and this is not sustainable.

This also means dealing with the problem of the uninsured.  States can be the headquarters of incremental reform in this area but comprehensive reform will require leadership from Washington.

We have an employer-based system of health insurance in our country.  And it’s breaking down.  Health insurance is unaffordable for many small businesses.  More and more employers are opting out of offering health insurance or limiting the services that they do offer, even some of our largest and most successful companies.  We need to bolster and improve our employer based system, not give up and leave government to pick up the pieces.

In my state, I worked in a bipartisan way with our General Assembly leadership to pass legislation allowing small business to pool health insurance.  I was astounded to learn during my time as Lt. Governor that Virginia law didn’t clearly allow this. This is a modest step forward, but it’s an important step.

I’m interested in how we can use the state’s leverage to strengthen private health insurance.  I’m open to expansion of public programs to fill in gaps, but I feel strongly that we need to provide the uninsured what they want and need, health insurance.

As we approach reauthorization of the tremendously successful State Children’s Health Insurance Program, we should all draw a lesson from SCHIP’s success on how much the state and federal government can accomplish in working together.

That after all, is the whole premise that underlies Medicaid, a state federal partnership.

Thank you for taking the time to listen to me today.

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