Given Facts, Cause to Slash Medicaid Not So Clear-Cut : Budget: Increasingly, it’s the health care provider of last resort for older, hard-working American taxpayers.

WASHINGTON — It has helped expand the federal budget deficit, threatened to topple state budgets and earned the dubious distinction of being one of the nation’s fastest-growing entitlement programs, with an annual price tag exceeding $150 billion.

Under the circumstances, it is hardly surprising that Medicaid is on the congressional cutting board, with some budget hawks going so far as to suggest dicing it up into 50 separate state programs and ending its status as an “entitlement.”

Yet even as they seek to curtail its growth, members of Congress are coming face to face with a little-known but politically explosive reality: Most people, including members of Congress, think of Medicaid as part of the welfare system, the part that finances health care for the poor. But that popular impression is only partly true.

Increasingly, Medicaid is the provider of last resort for elderly members of the middle class--and for their adult children, who make up a potentially enormous bloc of voters. And squeezing benefits for the poor, whom many voters suspect of ripping off an overly softhearted system, may be politically popular, but it is another matter to cut back care for older Americans who have worked hard and paid taxes.

Medicaid is the only government program that underwrites long-term care for the public. As the nation’s population has aged, more and more Americans end up needing long-term care. And such care is so expensive that all but the very rich soon run out of money and turn to Medicaid.

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This year, 60% of Medicaid’s $157-billion federal-state budget will be spent on the frail elderly or disabled, who count on the program to cover hospital, doctor and nursing home fees and other health costs.

Many Medicaid recipients have been in poverty or near it for all or most of their lives and have relied on other welfare programs in times past. A significant number, however, are strangers to welfare. They have exhausted their savings and other financial assets but they are in every other way solid members of the middle class. So are their children, who could themselves face enormous and unexpected financial burdens if the federal government pulls back.

“These are not stereotypical recipients of welfare,” said Stephen McConnell, senior vice president of the Alzheimer’s Assn., part of a coalition of groups that launched an all-out defense of the program last week. “They are middle-class working families who have spent all their money (on care) and now turn to Medicaid.”

To be sure, the emerging battle over Medicaid is deeply intertwined with welfare. Children from low-income families--more than 16 million of them--are the largest single group of beneficiaries, according to the Kaiser Commission on the Future of Medicaid. Adults who receive welfare and low-income pregnant women make up another large group of more than 7 million recipients.

Yet when it comes to costs, underprivileged children and their parents are just a fragment of the Medicaid story. Overall, 10.3 million elderly, blind or disabled recipients account for 60% of the program’s bills, reflecting the crushing expense of long-term care and other medical needs of those who cannot live independently.

Nursing homes, for example, may cost $35,000 to $40,000 a year or more, a tab that is obviously beyond the reach of most ordinary households.

Somewhere between 10% and 30% of people who enter nursing homes pay their own bills at first but eventually run out of money and turn to Medicaid, estimates Joshua M. Wiener, a health care expert at the Brookings Institution, a Washington public-policy research organization.

Some manage to qualify for federal assistance while concealing assets or transferring them to family members through legal trusts and other techniques. No one knows how many such cases there are but experts think it is not common--at least not now.

(This is a difficult public-policy question in its own right: On one hand, it may not seem fair for people to work and save all their lives to pay for a home and other assets, only to lose it all in their declining years. On the other hand, should the public finance long-term care so that the children of such people can receive an inheritance?)

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“People understand that everyone benefits from Medicare, while they wrongly think that Medicaid goes to these ‘undeserving’ welfare people,” Wiener said.

Such perceptions hover over the budget debate at the outset. As Congress attempts the feat of cutting the budget deficit and cutting taxes at the same time, Medicaid stands out as an obvious target. Indeed, it has grown astronomically--in excess of 20% during the early 1990s and at an annual average of 16% between 1988 and 1993. That’s faster than the pace of health care inflation or of Medicare.

Yet Medicaid’s relentless growth is not just another tale of spiraling health care prices.

All states provide a basic set of services to qualified beneficiaries, including hospital stays, doctor visits and nursing home costs. Other services, such as prescription drugs and hearing aids, may be offered.

In the last several years, however, eligibility has widened dramatically. Court decisions broadened coverage for the disabled and other groups. In addition, state officials became increasingly adept at exploiting complex funding formulas to draw in ever-rising amounts of federal dollars.

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The federal government, meanwhile, mandated broader coverage for pregnant women whose income already lifted their households above the poverty level, moving the program further beyond a stereotypical poverty clientele.

Propelled by such expansions, Medicaid now covers close to 37 million Americans. The federal share will hit $89 billion this year, with the states kicking in another $68 billion.

That, of course, is real money by any standard: The $157-billion price tag now represents more than 1% of the nation’s gross domestic product, making Medicaid an economic phenomenon in itself and putting it in a league with the even more colossal federal programs of Medicare and Social Security.

“You can’t ignore this (budget) pressure,” said Gail Wilensky, a Republican policy adviser who ran the Health Care Financing Administration during the George Bush Administration.

And congressional Republicans are not ignoring it, but--mindful of the political minefield--they have not proposed the sweeping kinds of changes put forward for the welfare system. Lawmakers are considering restricting Medicaid’s annual growth to 5% and turning it into a block grant program, in which the 50 states would be given extremely wide latitude to run their own programs.

By some estimates, a 5% cap would mean that Medicaid would get $85 billion less from the federal government over the next several years than it would under current law. The dollar savings, when compared with current trends, would broaden even more dramatically in the future because the caps have a compounding effect.

Some budget-cutters say that there is ample room for savings without sacrificing quality. There are governors who agree, arguing in favor of state control and an end to supposedly costly federal rules and requirements.

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A greater reliance on managed care, in which health care providers receive a single payment to watch over an individual, rather than separate payments each time a service is performed, is one step that proponents say would yield substantial savings.

“Just because the dollar amount may be less than you’re accustomed to getting doesn’t mean that the quality of health care has to go down at all,” contended John Liu, a senior health care policy analyst with the conservative Heritage Foundation.

As budget-cutters delve deeper into the issue, however, proposed cuts may become controversial and some of the projected savings could prove short-lived.

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For one thing, the savings available from managed care are uncertain. Few managed health plans are experienced in dealing with large numbers of severely disabled patients, for example, and some analysts argue that many elderly beneficiaries of Medicaid already receive insufficient care.

Moreover, while health maintenance organizations that have signed up elderly patients for Medicare report lower costs than those for patients using the traditional fee-for-service system, the HMOs generally have focused on recruiting relatively healthy older people, not those with the kinds of severe problems leading to long-term care. This process of signing up low-risk clients is sometimes called “cherry-picking,” and it tends to understate the cost of caring for an entire population.

Similarly, the case for home-based care as a cost-effective alternative to costly institutions is still being argued.

Then too, the idea of prodding people into managed care programs, a pillar of President Clinton’s ideas for health care reform, collides with the cherished ideal of freedom of choice.

And the notion of fostering self-sufficiency, which has become so central to welfare reform, has little meaning for many elderly and disabled recipients of Medicaid.

The possibility of turning Medicaid into a block grant program raises other issues: Which Medicaid beneficiaries would have their benefits cut by the states as budgets are tightened? In theory, a block grant would mean the end of Medicaid as an entitlement, in which eligible beneficiaries automatically get benefits.

On Thursday, a coalition representing 141 groups, including the Alzheimer’s Assn., the American Assn. of Retired Persons and the American Federation of State, County and Municipal Employees, lashed out at the proposed changes, warning that they would have dire consequences for long-term care and families of various income levels.

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In a manner reminiscent of the senior citizen lobby’s fierce protection of Social Security and Medicare in the past, the “Long Term Care Campaign” vowed to alert tens of thousands of citizens, call press conferences in several states, lobby key congressional committees--and be sure to raise the issue in the districts of House Speaker Newt Gingrich (R-Ga.) and House Ways and Means Committee Chairman Bill Archer (R-Tex.).

The coalition also released a study contending that the proposed 5% cap could put nursing home benefits out of the reach of more than 1 million people who need them, while knocking $37 billion off projected long-term care costs in the next five years.