The Fund supports several networks of state health policymakers to help identify, inspire, and inform policy leaders.
The Fund identifies and shares policy ideas and analysis on topics important to state health policymakers, particularly on issues related to state leadership, primary care, aging, and total costs of care.
Keep up with news and updates from the Milbank Memorial Fund. And read the latest blogs from our thought leaders, including Fund President Christopher F. Koller.
The Fund publishes The Milbank Quarterly, as well as reports, issues briefs, and case studies on topics important to health policy leaders.
The Milbank Memorial Fund is an endowed operating foundation that publishes The Milbank Quarterly, commissions projects, and convenes state health policy decision makers on issues they identify as important to population health.
June 13, 2019
Total Costs of Care
Governor John Kitzhaber
Back to The Milbank Blog
As the cost of health care continues to rise faster than state revenue, states’ Medicaid commitments undermine their ability to invest in education and other important priorities.1 In response, some states have embraced Medicaid block grants, in which they would receive a fixed annual sum from the federal government, as a way to avoid increasing program costs. The Tennessee legislature, for example, recently passed a bill requiring the state to submit a request for a Medicaid block grant within the next six months. But, in reality, this approach does nothing to reduce the cost of care and hurts Medicaid recipients. Let’s examine why—and look at an alternative approach we put in place in Oregon that can contain costs by improving efficiency in care delivery.
First, the problem with block grants. Suppose a state gets a block grant of $1 million in 2019 to provide care for 2,000 Medicaid recipients. That’s $500 per person. This fixes the amount of money the state spends on Medicaid but does nothing to reduce the cost of care itself. If medical inflation is 10% over the course of the year, in 2020 it will cost $1.1 million to provide the same care that was delivered in 2019, forcing the state to reduce benefits by $100,000 and shifting the cost of paying for those services to people on Medicaid.
Or suppose we have another recession. Unemployment rises and another 1,000 people become eligible for Medicaid, but the block grant is still $1 million. Now the state has only $333 to spend on each Medicaid recipient. Its options are to cut benefits further or drop 1,000 people from coverage to maintain the benefit at $500 per person. Both actions simply shift cost to Medicaid. Thus, while block grants reduce the cost of Medicaid to the state, they do nothing to reduce the cost of care being delivered.
Over time, block grants also undermine health and drive up the total cost of care because, when those without coverage get sick enough, they access the system through the emergency department, one of the most expensive care settings. The subsequent uncompensated costs are then shifted back to private-sector employers and workers through increases in their premiums, repeating the cycle.
Fortunately, there is another way. A number of states are encouraging their health care providers to address the underlying inefficiencies that drive the cost of health care while maintaining access, quality, and health outcomes by setting targets or global budgets for health care spending growth based on the total cost of care.2
Oregon’s 1115 Medicaid waiver, put into place in 2012, required the state to reduce per capita Medicaid spending by 2 percentage points below the expected rise, without reducing benefits or enrollment, while also improving quality and health outcomes. This was accomplished through new “coordinated care organizations” (CCOs), composed of physical and mental health providers that serve Medicaid beneficiaries who are paid a risk-adjusted per-capita payment that grows at 3.4% per member per year, per the waiver agreement with the Centers for Medicare and Medicaid Services. Without the ability to negotiate for extra revenues, CCOs have focused on redesigning how to deliver care more efficiently. Between 2013 and 2017, an estimated $2.2 billion in state and federal funds were saved while seeing substantial improvements in quality indicators.3 And the yearly payment increase to CCOs of 3.4% for each person covered in the Medicaid program creates a sustainable trajectory that is in line with the state’s revenue growth.
Medicaid is part of the critical infrastructure that helps people move toward self-sufficiency. The cost of care delivered through this program, however, can compromise resources available for other important programs. Block grants can trigger a reduction in health coverage and health care services to vulnerable people, leading to needless suffering and even death.3,4 As state budgets face increasing pressure from escalating health care costs, a global budget with a fair negotiated per-capita rate of increase—linked to strong access, quality, and outcome metrics—offers a way to both maintain access and manage costs.
Jul 8, 2019
Jun 13, 2019
May 29, 2019
Get the Latest from the Milbank Memorial Fund
An endowed operating foundation that engages in nonpartisan analysis, collaboration, and communication, with an emphasis on state health policy.