Should States Lead Medicaid-Medicare Cost-Cutting Effort?

The 2010 federal health law calls on states to find better ways to coordinate care for people who qualify for both Medicare and Medicaid — two separate programs that together account for more than $730 billion in federal and state spending. The aim is to iron out inefficiencies and gaps between the two programs that drive up costs and result in preventable hospitalizations and lower-quality care.

But a new report argues that Washington, not the states, should take the cost-reduction reins. In Refocusing Responsibility for Dual Eligibles: Why Medicare Should Take the Lead , the Robert Wood Johnson Foundation and the Urban Institute say the federal government is "relying far too heavily on states to find a solution."

According to the report, states pay only 20 percent of the health care bill for so-called "dual eligibles" — people who qualify for both Medicare and Medicaid. Very little of that 20 percent goes toward hospital stays, where the greatest savings can be achieved. Moreover, giving cash-strapped states more responsibility for overall spending increases the risk of cost-shifting to Medicare, which unlike Medicaid is funded entirely by the federal government. The authors say this could undermine the quality of care for vulnerable beneficiaries.

One example of cost shifting occurs in nursing homes, which are primarily funded by Medicaid. When residents are hospitalized, Medicare pays the bill. In as many as 40 percent of the cases, hospitalization could be avoided if the nursing home provided adequate medical care, the report says. But correcting the problem "is unlikely to become a state priority," the authors argue.

Medicaid — the federal-state health care program for the poor — serves more than 60 million Americans, mostly children and pregnant women. Medicare serves about 50 million people, seniors and those with disabilities. About 9 million dual eligibles are enrolled in both programs. They are low-income elders and disabled adults who are among the sickest people in the country. As a group, dual eligibles account for more than 40 percent of both programs' costs.

That's why the federal health care law provides millions in grants for states to develop and test programs designed to better coordinate acute, long-term and behavioral health care for this high-cost population. This week, the U.S. Health and Human Services Department received applications from 37 states and the District of Columbia for grants to demonstrate programs that coordinate care for dual eligibles. Under new federal rules, states would share in any savings — which otherwise would almost exclusively accrue to Medicare.