Md. health cuts to mean higher insurance rates

Much of the $84.4 million in health budget cuts announced by Gov. Robert L. Ehrlich Jr. last week won't result in cuts in services. Instead, Marylanders will pay for them through higher health insurance rates.

Nelson J. Sabatini, secretary of Health and Mental Hygiene, acknowledged that cost shifting in an interview Thursday. He also warned that the state is likely to cut the health care services it will pay for in future years as costs continue to escalate faster than revenue.


He said hopes of providing basic health coverage for a growing number of uninsured families would depend on reining in existing programs. Sabatini recently expressed the desire to provide basic coverage for an estimated 580,000 uninsured state residents.

Ehrlich blamed the legislature for $208 million in health and other cuts made by the state Board of Public Works on Wednesday. He said his proposal to gain additional revenues from slot-machine gambling would have paid the bills.


About half the cuts in the health budget come from state spending on Medicaid, the program that provides medical coverage for low-income people, mostly seniors in nursing homes and children.

Sabatini said about half of the health care cuts overall could be replaced by shifting the cost to the federal government. But he acknowledged that the largest of the cuts would represent a cost-shifting to insured Marylanders.

The state will put a limit on the number of hospital days it will pay for in the Medicaid program. This is expected to save $20 million in state Medicaid spending. Sabatini said that won't mean patients will be pushed out of hospitals - but it means the hospitals will be forced to give more uncompensated care, which leads to higher hospital rates.

"While the taxpayers won't formally pay for it, they'll pay for it in a different way, through higher [health insurance] premiums. It's just not as visible as it would be if it were in the budget," said Kenneth Thorpe, chair of the health policy and management department at Emory University.

(Thorpe is familiar with Maryland's Health Services Cost Review Commission, which sets hospital rates, having appeared before the panel as a consultant to Johns Hopkins Hospital.)

"I call it a sick tax," in that those who are hospitalized pay for the uninsured and for shortfalls in Medicaid reimbursement, said Stuart H. Altman, professor of state and national health policy at Brandeis University and a consultant to the Maryland Hospital Association.

While Maryland has a direct system of passing the costs into hospital rates, "most of the other states do it in a less formal way, but it's happening all over the country," Altman said. "It's one of the main reasons health insurance costs are going up so fast."

Robert Murray, the rate-setting commission's executive director, said if the commission agrees to pass the full cost of the unpaid days into the rates hospitals charge, it could add perhaps half a percentage point to commercial insurance rates.


He said the commission had not yet considered the issue - with the cuts just announced last week, the hospitals haven't yet made a request - and that a pass-through was likely to be opposed by insurers, who can't change premiums in the current year if hospital charges rise unexpectedly.

Overall, Murray said, insured Marylanders (and the Medicare and Medicaid programs) pay about a half-billion dollars a year in hospital rates for uncompensated care, out of total hospital revenue of about $8 billion.

Beyond the cost-shifting, "there's a need for services that's not going to be met, there's no question about that," Sabatini said. While the cuts don't drop people from programs, they do limit new enrollments in some health programs.

For example, last week's budget package freezes at 3,135 the number of slots in a state program to provide help to frail seniors in their homes, with a goal of reducing the number of high-cost nursing home admissions, many paid by Medicare.

Before the cuts, the budget allowed 500 additional slots, at a cost of $1.5 million in state funds. According to the health department, there are about 2,700 people waiting to get into the program, although not all would qualify - about half of those who apply are eligible.

The cuts also lop off about a million dollars in funds to local health departments, which, in turn, are cutting programs.


For example, the Baltimore City Health Department said last week that it would eliminate a program that provides prenatal care and counseling to chronically ill or drug-addicted women and would not be able to offer as many drug treatment slots as had been planned.

Other cuts approved Wednesday hit those who provide health care, such as nursing homes and adult day programs. In general, they're not absolute cuts, but reductions or eliminations of inflation increases.

For example, the HMO-like managed care organizations (MCOs) that provide care for 400,000 Medicaid members, mostly children, will get 1 percentage point off their rate increase due in January, for projected savings of $3.5 million in state funds.

"That's a problem," said Carol Fanconi, health director for Advocates for Children and Youth. "The rates were set up to be actuarially sound, and we had a stable environment."

Lower compensation, she said, could lead MCOs to pull out of the program or to hold down rates to doctors, which in turn could mean fewer doctors will choose to serve Medicaid patients. Also, she said, MCOs might attempt to avoid higher-cost hospitals, making it difficult for patients to get specialized care.

Laura Howell, state public policy director for the Alzheimer's Association, said she was worried that elimination of the inflation increase for adult day care providers, for a saving of $1.25 million in state funds, could make the service harder to find. "This is very important to us," she said. "Seventy-five percent of the care for people with Alzheimer's is provided at home, and these day programs are a critical resource for families who need a break."


The latest round of cuts will mean the Coordinating Center, a Millersville nonprofit that helps manage care for Medicaid patients with rare and expensive diseases, such as cystic fibrosis, will lose about $350,000 in Medicaid revenue, from its $4.5 million budget, said Barbara McCord, the center's communications director.

The latest cuts are in addition to cuts made earlier this year as the state worked through the budget process.

The center has reduced its staff, which is made up largely of nurses and social workers, from 73 to 65 by attrition, McCord said. She is afraid it will not be able to contact patients as often.

Sabatini said that while such case management theoretically can hold costs down, "the theory is not proven" for the rare-and-expensive case program. The latest round of cuts lopped $1 million from a $5 million program - which at 20 precent is one of the heaviest percentage cuts in the package.

In general, the health secretary said, reductions in planned reimbursements to health providers will have "a negative impact, but I'm confident we will not be cutting them below survival rates." (Rates that will keep them open.)

Sabatini hopes some of the cuts can be restored in a year or two, as the state budget picture improves, but that some will not be. More cuts would be needed in the future if the state hopes to find the money to extend coverage to those currently uninsured, he said.


"Hope springs eternal," he said of desires to restore funds, "but the fact of the matter is that the Medicaid program has had double-digit growth rates, and you can't fund double-digit growth rates with a no-growth budget. The taxpayers, in some cases, are paying more to support the Medicaid program than they are for their own health insurance."

Payments for care have increased 39 percent over the past five years, and the program has expanded, particularly to cover more children from families above the poverty line.

"We need to stop incrementally expanding Medicaid and guarantee a basic package to all families," Sabatini said.

"This is a speech being given in almost every state in the union," said Robert Moffit, director of domestic policy for the Heritage Foundation. "Republicans and Democrats are giving that speech."

Cindy Mann, a health policy professor at Georgetown University, said the Medicaid debate recurs when the economy is soft because Medicaid spending is "counter-cyclical" - at the same time states are having trouble on the revenue side, more people are becoming unemployed and eligible for Medicaid.

The problem, she said, "is not Medicaid, but health costs generally. It's not a program out of control but that health costs are going through a spike."


In fact, she said, Medicaid costs per person have grown only 4.7 percent annually, compared with a 7 percent increase in private health premiums.

Sabatini said Medicaid offers a "rich benefit package," and needs to bring its coverage, and its cost control mechanisms, more in line with those offered by private employers through commercial insurance.

Mann, however, said the rich benefits are "largely a myth. The private sector does have much higher deductibles and cost sharing," she said, but imposing this on a program for the low-income "would have totally negated the purpose of the program."

Mann said the nursing home portion of Medicaid is "the big coster," with spending on the elderly and disabled accounting for 77 percent of the growth in federal Medicaid spending in the past year.

Sabatini agreed, noting that nursing home payments involve only 4 percent of the Medicaid population, but account for about 30 percent of the state's Medicaid spending.

While many states are cutting Medicaid spending, Mann said, cuts are more likely to come in services for welfare mothers and their children than in nursing home programs. The reasons, in part, are political: "the strength of the elder community vs. moms and kids, and the strength of the nursing home industry," she said.


Sabatini said he is just beginning to work on the problem of finding long-term ways to control Medicaid spending and extend coverage to the uninsured. The census bureau estimates that 11 percent of Marylanders are uninsured, about 580,000 people.

"We need to put the budget crisis we inherited behind us," he said. Then, "We will have a plan and vision," to be developed over the next year or two, for longer-range reforms.

"The longer-term issue is a vexing one," said Thorpe, the Emory health policy professor, with states depending to a large degree on federal action in areas such as prescription drug benefits.

"In the short-term," he said, "you've got to do something, and everybody has the same tools - fewer people, fewer services ... [lower compensation]."