Public Policy Analysis & Opinion

GAO questions state efficiency

Medicaid long-term care admissions come under scrutiny

By Kevin P. Hennosy

On August 27, 2012, the Government Accounting Office (GAO) issued a report on an investigation of state practices in vetting applications for long-term care insurance coverage under Medicaid.

Opponents of social insurance programs argue that the availability of long-term care coverage through the Medicaid program reduces the potential customer base for private long-term care policies. Raising the barriers to access to Medicaid would be consistent with that belief.

In a letter to the GAO requesting the report, Senator Tom Coburn (R-Okla.) observed, "In light of the increased demand and associated burden that this places on already strained federal and state resources, it is important to ensure that only eligible individuals receive Medicaid coverage for long-term care."

Senator Coburn's request revisits an old-school application of legislative power and revives memories of days of yesteryear when congressional barons regularly tested the effectiveness of state officials' antiperspirant by asking questions about insurance public policy.

The historian, and liberal political operative, Arthur M. Schlesinger Jr., explained the affirmative use of congressional investigations by citing the conservative political theorist John Stuart Mill who wrote that it was the duty of the legislature to "watch and control the government, to throw the light of publicity on its acts, to compel a full exposition and justification of all of them which anyone considers questionable; to censure them if found condemnable."

By asking for the report, Senator Coburn was using his ability to provide legislative oversight to pressure state governments to encourage states to meet federal expectations. In this instance, Senator Coburn asked for an investigation of state performance in implementing policies related to the federal Medicaid program, which is administered by the states.

Oversight

This brings back memories of investigatory hearings chaired by men with the names of O'Mahoney, Dodd, Proxmire, Hart, Metzenbaum, Brooks and Dingell. Those hearings focused on the delegation of federal authority to the states, rather than the implementation of a federal program.

Congressional investigative hearings focusing on insurance regulation used to be a common occurrence. In the half-century-long span between the 1945 passage of the McCarran-Ferguson Act and 1995, congressional committees applied affirmative oversight to state implementation of insurance public policy.

The McCarran-Ferguson Act implemented an innovation in constitutional theory in which Congress established a charge of executive authority in the several states rather than the federal executive, contingent upon the states using that authority.

Under orthodox constitutional theory, Congress would have established executive authority over the interstate commerce of insurance in the Federal Trade Commission (FTC) and the U.S. Justice Department. Using that model, Congress would have exerted oversight over those executive agencies through budgeting and investigatory hearings.

Under the McCarran-Ferguson model, Congress did not try to retain budgeting control over the several states. Such an extension of federal control would not pass constitutional muster. However, the McCarran-Ferguson Act does establish a revenue stream to the states by authorizing the insurance premium tax. Furthermore, Congress retains the oversight authority over how the states use, or disuse the executive authority granted to them under the federal law.

Then when Republicans took control of the House of Representatives in January 1995, the congressional investigating committee fell into disuse. The House of Representatives Financial Services Committee conducted several hearings between 2001 and 2006 aimed at constructing legislation to deregulate insurance, but that required ignoring McCarran-Ferguson rather than implementing it.

In 2007, when Democrats wrested back the gavel, many observers expected to see the formation of a number of investigating committees, but that did not happen. Even after the financial scandals that led to economic collapse in 2007-2008, the Democrats failed to use Congress's power to investigate. The Senate conducted a half-hearted investigation into McCarran-Ferguson during the debate on the Affordable Care Act (ACA), which appeared to be a political tweak of the insurance lobby's nose when the lobby reneged on a promise to support the bill if it included an individual mandate to buy health insurance. The lack of oversight hearings and investigations proved to be a folly that contributed to the Democrats' loss of the House in 2010.

Senator Coburn's inquiry into the state administration of the Medicaid plan is part of an effort to restrict public access to insurance coverage for long-term care services from the social insurance program to the poorest of the poor.

Theoretically, this restriction will benefit sales of publicly subsidized, private long-term care insurance. Ostensibly private long-term care insurance is one of the most highly subsidized commercial products available in the United States.

Under federal tax law, individuals who file an itemized return are eligible to deduct long-term care insurance premiums that exceed 7.5% of adjusted gross income from their taxable income as "medical expenses."

In the majority of states, even taxpayers who do not qualify for federal tax subsidies qualify for a subsidy through state tax law. The subsidies vary state-by-state, but in each case public money funds a private, for-profit product.

Even with the public subsidies, many potential buyers find long-term care insurance unaffordable. In other cases, individuals buy policies but let the contracts lapse as the price of the policy increases. The expense, or unaffordability, of long-term care insurance lead many people to seek coverage for long-term care services and facilities from social insurance.

Most health care-related economic loss generated by senior citizens is covered by the popular Medicare program, and private Medicare supplement insurance. The Medicare program excludes losses generated by long-term care facilities and services.

Romney model?

When legislation to establish the Medicare program worked its way through Congress, the Democratic leadership and Johnson White House looked with trepidation toward the tax law writing House Ways and Means Committee, and its chairman, Wilbur Mills (D-Ark.).

While in 1965, Democrats held overwhelming majorities in both houses of Congress, the seniority system of committee assignments concentrated conservative Democrats and Republicans on the Ways and Means Committee. No one knew if Chairman Mills would choose to take on a fight for a major spending bill, let alone win it.

Wilbur Mills rose to power from a boyhood in a town of fewer than 2,500 people. He had served as a county "judge"/executive in White County, Arkansas, at a time when "county courts" provided health care for destitute people based on political patronage or ad hoc decisions. Mills remembered the poor people who could not afford insurance at any price, even if it had been offered to them—which it was not.

This experience stuck with Mills. In 1960, he penned legislation with Senator Robert Kerr (D-Okla.) designed to provide a subsidy to pay for health care services for the aged-poor. The bill was built on 1950 legislation, which provided federal matching funds to states that provided reimbursement to providers for indigent medical care. States faced no sanction for declining to participate in the program.

One state where the Kerr-Mills program seemed to work better than most was Michigan, which constructed a benefit package based on that offered by Michigan BlueCross/BlueShield. In addition, the Michigan plan offered nursing home care and dental care. Governor George Romney instituted the plan and offered the health care reform as an example of his progressive credentials.

State participation under Kerr-Mills was voluntary, which resulted in some of the poorest states rejecting participation in order to preserve the political patronage power of numerous "county-rings." If a poor citizen wanted access to the county hospital, they remained obedient to the ring. Even in Michigan, county health departments administered the allocation of services, which then received a 90% reimbursement of expenses from the state drawing on the federal funds.

When the Medicare bill arrived at the Ways and Means Committee, Chairman Mills attached the amendment that became the Medicaid program to the bill with little or no consultation with the Johnson White House. If the administration wanted funding for universal medical care for the elderly, Mills made sure that they got a program for the poor. It appears that the drafters of the Medicaid program followed a pattern very similar to the Romney Plan in Michigan—just as the Obama administration used the Massachusetts "Romney-care" plan to shape the Affordable Care Act.

Barriers

The June 22, 1962, edition of the Toledo Blade carries a story on the Michigan gubernatorial race, where George Romney faced criticism for putting his great plan behind a relatively high barrier for use through the use of a "means-test." The access to nursing home care and dental coverage attracted individuals to the program.

Hospitals lobbied for strict adherence to the means test, according to the Blade story. If a hospital in Michigan could assure that a patient was not eligible for the Kerr-Mills benefits, the institution could seek full reimbursement of the patient's medical costs, even if that meant going to court. Due to the state administration of the Kerr-Mills funds, which did not require counties to kick in funds above the 90% reimbursement from the state, hospitals claimed reimbursement rates as low as 75%.

Senator Coburn's request to the GAO focuses upon the application of means testing in the states as a barrier to drawing benefits. In particular, Senator Coburn wanted to know whether the states complied with changes to guidelines contained in the Deficit Reduction Act of 2005 (DRA).

In order to prohibit individuals from shedding assets at the last minute in order to qualify for Medicaid long-term care coverage, federal guidelines establish a 60-month "look-back" period. Under that guideline, state administrators must confirm whether a Medicaid applicant owned and dispersed disqualifying assets for admission in the previous five years.

Prior to DRA, the look-back standard stood at 30 months.

The GAO published a report of its findings from the investigation entitled "'Medicaid Long-Term Care: Information Obtained by States about Applicants' Assets Varies and May Be Insufficient."

According to the report, "GAO examined the extent to which states (1) require documentation of assets from applicants, (2) obtain information from third parties to verify applicants' assets, and (3) obtain information about applicants' assets that could be used to implement eligibility-related DRA provisions."

The GAO questioned the effectiveness of the states' screening activities based on the policy aims expressed by the congressional requesters of the study, and the provisions of the DRA: "The results of GAO's survey raise questions about states' implementation of the DRA, but are not conclusive." Furthermore, the investigators found:

"On the basis of states' responses to questions about the extent of documentation required from applicants and information obtained from third parties, it is unclear whether some states obtain sufficient information to implement certain provisions of the Deficit Reduction Act of 2005. For example, 31 states reported requiring less than 60 months of documentation from applicants and financial institutions."

While Senator Coburn and others who favor higher barriers to participation in the Medicaid program for long-term care financing should be pleased with the findings of the GAO report, this is not the final word on the subject.

The GAO reminded the congressional requestors that the admission guidelines are not always subject to binary decisions. At times, there is a question of balance required of the admission process consistent with federal enabling acts that create other federal programs.

"GAO has additional work planned related to Medicaid long-term care financial eligibility. States must balance the costs of eligibility determination efforts with the need to ensure that those efforts provide sufficient information to implement federal requirements, according to the report."

The complete 214-page GAO Report is available in electronic format from the office's Web site (www.gao.gov).

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide Insurance Cos. and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.