Insurance is defined as protection from a financial loss. In this way, to think of Medicaid as an insurance product should create common ground between legislators from both sides of the aisle. For some, the objective of managing Medicaid policy is about containing cost growth and being cautious with limited resources. Others see the responsibility for this protection to extend to enrollees, directly. The actual responsibility lies somewhere in between, though one thing became clear during the proceedings at the most recent Joint Medicaid Oversight Committee (JMOC): the establishing of the target growth rate will likely increase the financial exposure for both the state of Ohio and Medicaid beneficiaries, and will create challenges for Governor-elect Mike DeWine’s administration.

In a state where the most significant cost center (nursing facilities) are protected in law, and where there is an aggressively low threshold for the governor in establishing his budget request, ODM will have to look other places to make up the difference.

Statute defines the responsibility of JMOC in establishing a target growth rate. This rate process however, should not be confused with the process of budgeting. The number is a percentage that essentially limits the Medicaid director and the executive branch in their appropriation requests to the General Assembly. In other words, it’s a ceiling that represents the total request that can be made. However, that equation is reductive, retrospective and does not fully consider the dynamic economics of healthcare.

I have previously written about those factors that influence cost in Ohio’s Medicaid program. These factors include demographic shifts, the acuity of the market, pricing and system design as promoted through policy and reform. A target, while useful in gaining understanding about how those factors affect average cost growth, does nothing to actually address those issues and will make it more difficult to manage the program.

To demonstrate this point, one can simply look at the independent actuary’s report about policy concepts that drive cost in long term care (like the most expensive Medicaid population which is also Ohio’s fastest growing demographic). While members debated the differences between 2.8 percent and 3.3 percent, they failed to recognize how earlier policy choices were actually driving up total cost and thus, the potential for failing to meet the target. Notably, statute requires the Ohio Department of Medicaid (ODM) to update nursing facility (NFs) rates semi-annually. This increases the statewide average per member cost by .3 percent. In another uniquely protectionist policy geared singularly for a particular industry, NFs will receive annual “market basket updates” the cost of which will be in the neighborhood of $300 million. Neither of these issues were discussed by committee members in the context of controlling spending and, what’s more, because these are mechanisms established in statute, there is little the Medicaid director will be able to do to affect the rates of these providers without a law change. This is a curious choice given Ohio’s dubious reputation as one of the lowest quality states in regards to long-term care.

Other market factors are also currently not contemplated in the JMOC target, including the escalating prices of drugs, the impact of consolidations in the market and the lack of control in spending across the industry.

So what does this mean? In a state where the most significant cost center (nursing facilities) are protected in law, and where there is an aggressively low threshold for the governor in establishing his budget request, ODM will have to look other places to make up the difference. In all likelihood, this means rate cuts or benefit restrictions. What’s more, beyond the mechanics of policy in influencing cost, we still do not know what the future holds in terms of a departmental projection based on larger economic trends.

For a moment, let’s imagine that the projected average cost growth rate in Medicaid increases beyond the JMOC target. Just looking at the Consumer Price Index from the last few years, this is certainly a possibility with periods of inflation as high as 5 to 6 percent. Other market factors are also currently not contemplated in the JMOC target, including the escalating prices of drugs, the impact of consolidations in the market and the lack of control in spending across the industry.

Simply put, the target process was off-target. Instead of identifying opportunities for greater efficiencies in spending, which is the essence of budgeting, the JMOC target will artificially limit the ability of ODM to develop cost-efficient programs. Additionally, it’s interesting that policies that directly support a single industry responsible for significant cost growth (NFs) are not only not the target of an examination for reform, they are not held accountable to the market principles of efficiency and quality. As we enter this upcoming budget process, I do not see how these issues will not come to back to haunt this group unless there is significant, extended luck with a low-inflation health care market.