By Anthony Ogorek
Buffalo, NY – The State of New York has just received notice from the federal government that New York may be in line for $1.5 billion of additional funding to reform the Medicaid system. Unfortunately, the proposed reforms do not address the biggest problem with the Medicaid program: it is being increasingly viewed as a middle class entitlement program, rather than a means for the poor to access medical care.
The aid that the Feds are offering is based on a reform proposal from Governor George Pataki. The specifics of the governor's plan dance around the need for fundamental reform. For example, administrative functions for Medicaid will be consolidated at the state level, rather than by the counties. This proposal sounds good in theory; however our history of wringing inefficiencies out of government consolidation is not encouraging. Consolidation has the potential of shifting the administrative cost of this program from the county property taxpayer, to the State income taxpayer. From the taxpayer's perspective, our tax burden could be shifted but not reduced.
In fact, most of the proposals in the governor's plan deal with supply rather than demand issues. For example, new technologies are to be explored to run the system more efficiently. Dollars will be allocated to assist in the closing of hospitals which the Buffalo News has reported are running at a 35% vacancy rate. There may also be funding available to help provide more home health care options as an alternative to institutionalization.
This last point sounds like a good idea but may actually turn out to be a money loser. While it is true that it may be less expensive to care for an individual in their own home, a change in legislation may provoke a flood of new residents anxious for government subsidized home health care. There will be savings if the State can establish formularies with pre-approved lists of either generic drugs or brand name pharmaceuticals with heavily discounted prices.
On balance, the proposal put forth may provide some savings at the margin but does nothing to address the demand side of the equation. If demand pressures do not subside, the savings from this latest proposal will be viewed as a historical footnote, rather than the beginning of a meaningful reform effort.
As the law is now written, an individual can buy a $500,000 home as well as a Rolls Royce and still qualify for government subsidized nursing home care. These strategies, in addition to hiding assets in one's business, are perfectly legal ways to shelter assets so that Medicaid, the program established to provide care for the poor, can pay for their nursing home stay.
Nothing in the proposals deals with reducing the demand for Medicaid. In other words, not enough is being done to promote the fact that if you have the resources, you should be paying for your own care, or securing long term care insurance.
To its credit, New York has recently increased its tax credit on long term care policies to 20% of the premium for policies purchased since 1997. If the State really wants to encourage its citizens to pay for their long term care costs, they need to make insurance, the alternative to Medicaid more appealing. A 20% tax credit against premiums is a good start; a 50% match would really encourage consumers to do the right thing - especially if the ability to shift assets was severely restricted.
The governor's proposals are fine as far as they go. However, in order to reduce the demand for Medicaid as a payer of nursing home costs, government has to use both the carrot and the stick; the carrot of increased governmental underwriting of long term care premiums, and the stick of reducing the ability of the middle class to shift their assets to qualify for Medicaid.
Commentator Anthony Ogorek is operating manager of Ogorek Wealth Management in Williamsville.