Medicaid in Kentucky on an Unsustainable Path

On Wednesday, the Bluegrass Institute released “An Unsustainable Path: The Past and Future of Kentucky Medicaid Spending,” a report authored by University of Kentucky economist John Garen, Ph.D. Many notable guests were in attendance including state Sen. Kathy Stein, D-Lexington, and former gubernatorial candidate Phil Moffett.

In a policy briefing at the Gatton Business and Economics Building, Garen warned of the unsustainable rise in Medicaid spending, especially over the past ten years. From 1999 to 2009, Kentucky’s general-fund spending on Medicaid rose by 37%, while Kentucky’s economy grew by only 8% during the same period.

Such an alarming rise in costs will only be exacerbated by the recent reforms in national health care, Garen said.

He also discussed how perverse economic incentives have contributed to creating a Medicaid crisis. Among these:

-A lack of co-pays and deductibles for services used by Medicaid recipients has led to misuse and overuse of health care, subsidizing unsafe and unhealthy behavior in Kentucky.

- Medicaid recipients are poorly targeted. Kentucky allows families with middle-class incomes to be eligible for Medicaid. These families would have bought private insurance if not for perverse incentives. Thus, private healthcare providers are “crowded out” and Medicaid becomes even more bloated.

- Medicaid benefits are available only for those under a certain income threshold, above which recipients completely lose these benefits. This incentivizes limiting work effort to keep incomes low.

- Under-reimbursement for healthcare providers serving Medicaid patients results in an inability for Kentucky’s most vulnerable citizens to find doctors. Two out of 3 children on Medicaid are denied appointments with specialists.

Garen called for fundamental reform in Medicaid that focuses on the kinds of market-based solutions that have brought prosperity to so many other sectors of the economy. Kentucky’s poor and disabled depend on it.

See here for the full report.

By Phil Impellizzeri, Bluegrass Institute intern