Medicaid: 10 fixes that work: of all the reforms states have retired, these are the ones that hold the most promise.

• Author: King, Martha

The national economy hit states hard. Most cut their budgets, and Medicaid wasn't spared. States have trimmed services, cut provider payments and taken people off the rolls. Yet Medicaid continues to consume a larger and larger slice of revenues.

Over the past 15 years, Medicaid's piece of the budget has doubled from about 10 percent to 20 percent of spending.

State budgets grew an average of 1.2 percent in 2002, but Medicaid costs increased by 12.8 percent. The 2003 increase was 9.3 percent. And experts see no relief in sight. The Congressional Budget Office anticipates Medicaid costs will keep growing by at least 8 percent a year.

All 50 states and the District of Columbia have worked to contain costs and slow growth over the past couple of years, specifically by targeting provider payments and drug expenditures. In addition, nearly half the states have restricted eligibility, reduced benefits and increased copayments.

These approaches may be necessary in the short term. But many quick fixes could trigger costly consequences:

* Patients denied certain services may get sicker and ultimately seek more expensive treatments (e.g., people with diabetes or mental illness may need hospitalization if they cannot get needed medications.)

* Shifting costs to providers could cause them to drop out of the program. Or they may charge insured patients more, driving up private insurance premiums.

IMPORTANT TO THE BIG PICTURE

However costly, states aren't ready to scrap their Medicaid programs entirely, even if they could. Medicaid contributes substantially to every state economy. According to the Kaiser Commission on Medicaid and the Uninsured, it accounts nationally for:

* 17 percent of total personal health care.

* 48 percent of nursing home care.

* 17 percent of prescription drug payments.

* 17 percent of hospital care.

Medicaid--at least 50 percent of each state's spending is paid by the federal government--pays for about 3S percent of the nation's births. It also funds services to nearly one third of all Americans over the age of 85, including prescription drugs and long-term care not covered by Medicare.

So states keep searching for longer term reforms to meet the needs of their most vulnerable citizens. Below are the top 10 fixes:

1. REFORM LONG-TERM CARE

   States can save a lot by fixing expensive long-term care for low-income people with serious medical needs. Up to 40 percent of a state's medicaid spending can go to long term care.

   In just a few years, Maine cut the time Medicaid clients stay in nursing homes by 44 percent. The state also reduced the percentage of long-term care clients who live in nursing homes. And the total per person spending on Medicaid-funded long-term care has dropped by 12 percent.

   Maine tightened medical eligibility standards, substantially increased service capacity in the community and controlled administrative costs and per person expenditures. Because home care and assisted living generally cost less than institutional care, Maine has been able to serve more people with only modest increases in total spending. The number of people using long-term care services has increased by 30 percent since 1995, while total spending has increased only 17 percent.

   "It's not often you have the opportunity both to save money, and respond to consumer preferences," says Christine Giano-poulos, Maine's director of Elder and Adult Services.

2. FOCUS ON THE SICKEST PEOPLE

   People who are seriously and chronically ill account for a significant amount of Medicaid spending, even though they are a small percent of all Medicaid patients. By giving patients more intensive ongoing services, states can prevent or reduce serious problems later and save money.

   At least 21 states have programs to manage diseases--mainly asthma and diabetes--of chronically ill Medicaid beneficiaries. The goal is to improve their health and control costs. The jury is still out on how much is saved, but the theory is that the initial investment will pay off down the road.

   Florida...