Assessing the New Federalism Discussion Paper No. 00-06
Assessing the New Federalism is a multiyear Urban Institute project designed to analyze the devolution of responsibility for social programs from the federal government to the states, focusing primarily on health care, income security, employment and training programs, and social services. Alan Weil is the project director. Researchers monitor program changes and fiscal developments. In collaboration with Child Trends, the project studies changes in family well-being. The project aims to provide timely, nonpartisan information to inform public debate and to help state and local decisionmakers carry out their new responsibilities more effectively.
Key components of the project include a household survey, studies of policies in 13 states, and a database with information on all states and the District of Columbia, available at the Urban Institute's Web site: http://www.urban.org. This paper is one in a series of discussion papers analyzing information from these and other sources.
The project has received funding from the Annie E. Casey Foundation, the W.K. Kellogg Foundation, the Robert Wood Johnson Foundation, the Henry J. Kaiser Family Foundation, the Ford Foundation, the John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, the David and Lucile Packard Foundation, the McKnight Foundation, the Commonwealth Fund, the Stuart Foundation, the Weingart Foundation, the Fund for New Jersey, the Lynde and Harry Bradley Foundation, the Joyce Foundation, and the Rockerfeller Foundation.
The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.
Contents
Executive Summary
Do Welfare Caseload Declines Make the Medicaid Risk Pool Sicker
Introduction
Conceptual Framework and Empirical Strategy
Data and Methods
Results
Comparing current Medicaid recipients and welfare leavers who lose Medicaid
Comparing Medicaid enrollees to leavers with private insurance and to the uninsured
Comparing recent welfare entrants, returners, and ongoing recipients
Multivariate analyses
Sensitivity analyses
Discussion and Conclusion
Appendix: Medicaid Casemix Dynamics
References
About the Authors
Executive Summary
Welfare caseloads have been falling since 1994 and Medicaid caseloads have been falling since 1996, in part because many who leave welfare also leave Medicaid. This has caused concern that declining welfare caseloads may be leading to a sicker population remaining in the Medicaid program. This concern is based on the assumption that the healthiest will be the first to leave welfare as welfare reform is implemented and caseloads fall. Caseload declines have coincided with an increase in Medicaid managed care arrangements in which plans are paid capitation rates. The adequacy of capitation rates has been a problem in many states, and the problem with rates may worsen if rates are not adjusted to account for the potentially changing characteristics of the Medicaid population.
The objective of this study is to determine whether welfare declines will make the Medicaid risk pool sicker by examining (1) the differences between those who recently left Medicaid upon leaving welfare and those who remain on welfare or Medicaid and (2) the differences among people entering welfare (both new recipients and returners to welfare) and long-term recipients. We also seek to determine whether these differences remain after controlling for the factors many states use to adjust their capitation rates. Under certain conditions that we develop in the paper, if welfare leavers are healthier than welfare recipients, if entrants are sicker or at least more expensive, and if there are more leavers than entrants, then the average health status of the welfare caseload will fall as the size of the caseload declines.
Data and methods. The data we use are from the 1997 National Survey of America's Families (NSAF), which is a sample of 44,500 households and over 100,000 individuals. The survey contains representative samples in 13 states and the nation. The survey asked detailed questions about participation in public programs, health insurance coverage, and access to and utilization of health care services. We can identify adults and children who left welfare since January 1995 by their current insurance status. Of those currently on welfare, we can distinguish new entrants and returners to welfare from long-term welfare recipients.
Main findings. For adults, we find that Medicaid leavers were less likely to report fair or poor health and less likely to have a condition limiting work than those who remain on Medicaid. We also find that Medicaid leavers were less likely to have an inpatient stay (delivery and nondelivery), less likely to have a physician visit, and less likely to have an emergency room visit than Medicaid recipients. These differences remain after controlling for factors that states often use in adjusting their capitation rates. Thus adult Medicaid leavers are in better health and have lower utilization rates than those who remain on Medicaid.
Compared to long-term welfare recipients, new adult welfare entrants include a large fraction of women who recently gave birth. When we limit the analysis to those adults who had not recently delivered, we find that recent entrants were healthier and used fewer services than long-term recipients after controlling for factors that states use in adjusting their rates. Adults returners were more likely to have a health condition, more likely to have used the emergency room, and had more mental health visits, conditional on having any, even after controlling for risk-adjusters. On balance, our findings suggest welfare entrants are more costly than long-term recipients.
For children we found few significant differences, particularly after controlling for risk-adjusters. Medicaid leavers used more mental health services than Medicaid recipients, and new entrants were more likely to have an inpatient stay than long-term recipients.
Conclusions and implications. From these findings, we conclude that declining welfare caseloads will likely result in a sicker and more expensive adult Medicaid caseload and that, as a result, the utilization rates and per-enrollee costs will need to rise in order to provide a constant level of care. We find little evidence, however, that child Medicaid caseloads are getting sicker due to falling welfare caseloads, with the exception of the differences in child mental health service use. Other trends, which we do not examine, could work against this conclusion. For example, nonwelfare Medicaid is expanding to older and higher-income children.
The results do not allow us to quantify the extent of these differences in a way that can be directly used for adjusting rates. It is clear, however, that the differences between Medicaid enrollees and Medicaid leavers are substantial for many services. The extent to which rates should be adjusted depends on the importance of different services in a state's overall benefit package. These results are from a national sample and effects may differ from state to state. The results do suggest, however, that states need to be concerned with the impact of declining caseloads on the adequacy of their rates, especially for adults. Finally, these results imply that even states with limited reliance on capitated arrangements will likely see increased pressure on per-enrollee expenditures because of changing casemix.
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