Skip to main content

Chapter Summary

Savas, E. S., ed. 1992. Privatization for New York: Competing for a Better Future. The Lauder Report; A report of the NYS Senate Advisory Commission on Privatization. New York.

Chapter 3: Medicaid (Edwin S. Rubinstein)

Medicaid is a federally mandated program under which states provide health services to low-income and disabled people. New York State's Medicaid costs have escalated rapidly in recent years; the estimated expenditure in 1992 was $14 billion. These costs are shared by the federal, state, and local governments. New York spends much more on Medicaid than any other state in the country, largely because it has chosen to deliver more optional services than most other states, has fewer limitations on services, and has less stringent eligibility requirements than many other states. In addition to those who qualify under income guidelines, New York includes people considered "medically needy," meaning those who are not poor but face extraordinary medical bills. These cases represent 52 % of the total cost of New York's program. Unlike in most other states, more money goes to long-term carenursing homes and home health carein New York and less to physician visits, prescriptions, and outpatient clinics.

The reasons for the higher costs of New York's Medicaid program are primarily:

  • longer nursing home stays
  • higher labor costs
  • higher pay for nurses' aides
  • extensive use of home health care services for personal care services
  • more outpatient mental health care visits are allowed
  • inpatient stays are longer

In addition, fraud is estimated to cost $2 billion per year, mostly due to corrupt providers, not recipients of Medicaid.

The author believes that privatization techniques can be effectively used to control the spiraling costs of Medicaid, without reducing services, tightening eligibility requirements, or lowering reimbursement rates. He describes efforts to privatize some or all Medicaid services in states across the country, including California, Texas, Indiana, Arizona, Florida, Illinois, Wisconsin, Ohio, and Nevada. Many, but not all, of these efforts have been successful. The main techniques recommended for New York are:

  • managed care: requiring all Medicaid recipients to enroll in HMOs, which receive a fixed per-capita payment for providing services. Regulation should be reduced and doctors'; payments should be raised (they are now lower than in many other states). For example, Arizona assigned all Medicaid recipients to HMOs, saving 6 % a year in the first five years of the plan. In contrast, New York operates under the fee-for-service plan, which encourages costly and sometimes unnecessary tests and procedures.
  • abolish CON program: a CON (Certificate of Need) is required before any public or private hospital or clinic expands its facilities or equipment; this prevents supply from expanding in response to need and inhibits competition. Nursing homes in particular need to increase capacity.
  • cost sharing: small co-payments should be required of recipients, especially for prescriptions, non-urgent emergency room care, and home personal-care visits.
  • selective hospital contracting: for example, California was successful in contracting out its Medicaid hospital services to private hospitals, paying a flat monthly fee.
  • competitive bidding: some services, such a lab work, can be purchased under this approach, or using volume discounts.
  • long-term-care tax credit: this is a tax credit allowing middle-income earners to deduct a portion of their premium from their tax return when they purchase long-term-care insurance; it would shift some of the expense of long-term care to private insurers.
  • strengthen asset test for eligibility: to help eliminate abuse by those who spend down their assets in order to qualify as "medically needy."

Other recommendations include improving data management, possibly through outside contracting, reestablishing the post of Welfare Inspector General to coordinate anti-fraud efforts, and introducing photo ID cards for recipients to help prevent fraud (mostly a New York City problem). Through these measures, Rubinstein estimates that New York could save at least $1.2 billion a year. The recommended approach is a combination of several privatization techniqes, such as introducing competition, relaxing regulation, implementing cost-sharing, and moving some of the costs of care onto those who can afford it. The ultimate goal is to provide Medicaid recipients with more choices and better access to medical care, while lowering costs.