Critics argue that states want to see savings right now, not sometime in the future. | REUTERS Obama cost-cut plan: Aid sickest

As governors have been sounding the alarm about a collective $175 billion shortfall in state Medicaid budgets in the coming fiscal year, the Obama administration is looking to reduce the gap by improving the treatment of just 2.9 million of Medicaid’s 58 million enrollees.

How could the treatment of just 5 percent of beneficiaries make a dent in such a huge funding gap?


Because, President Barack Obama told the National Governors Association in February, “we know that over half of all Medicaid costs come from just 5 percent of enrollees.”

Many of these patients are known as “dual eligibles,” poor elderly or disabled individuals who qualify for Medicare as well as Medicaid.

They are among the patients with the severest need for care and the fewest resources to get it. According to the Kaiser Family Foundation, 66 percent of dual eligibles have three or more chronic conditions, 61 percent are cognitively or mentally impaired and 22 percent require assistance with two or more daily tasks, such as getting dressed and bathing. Almost nine out of 10 live below 150 percent of the federal poverty level.

Caring for these individuals is complicated by the fact that Medicare and Medicaid don’t always interact well with one another. Medicare — the federally funded program for seniors and some younger people with disabilities — is the primary insurer for dual eligibles. Medicaid — the joint federal/state program that covers many low-income Americans with disabilities — fills in its gaps in coverage.

The two programs, said Barbara Lyons, director of the Kaiser Commission for Medicaid and the Uninsured, “have different policies, and those policies don’t line up very well.”

To illustrate her point, she suggested imagining you’re a patient with multiple chronic conditions who lands in the hospital. Medicare will pick up the tab once you’re admitted. But after you’re discharged, neither program covers the intensive follow-up care required to keep you healthy. So you deteriorate, and after another Medicare-financed hospital stay, you wind up in a nursing home, which is covered for a limited period by Medicare and then indefinitely by Medicaid.

This fractured financing is obviously a tragedy for the beneficiary’s health. Gaps in care can result in an individual who could have had many more years at home being confined to an institution for life. But it also is a disaster for the health care financing system. Public programs are paying for an extra hospitalization plus nursing home care that could have been avoided through better care after the initial discharge.

“If you could better coordinate care,” Lyons said, “you could decrease some unnecessary hospitalization and potentially some long-term-care costs.”

Melanie Bella, director of the Federal Coordinated Health Care Office, a new office created by the Affordable Care Act to synchronize the two programs, said in an interview, “It’s a little bit early to put a number out there” estimating an amount of potential savings. “I think from the states’ perspective or the federal government perspective, we don’t have that long” to bring down costs.

The administration has solicited proposals from states for competitive grants for innovations in caring for dual eligibles and will announce 15 selectees in early April. But Bella’s office is also encouraging states to quickly produce savings by adopting programs that better coordinate care and avoid hospital readmissions.

The ACA also created a program under which the federal government will pick up 90 percent of the Medicaid costs of beneficiaries cared for in clinics with comprehensive case management services known as medical homes.

But Matt Salo, executive director of the National Association of State Medicaid Directors, said that although it’s possible to find savings from dual eligibles “in theory,” it is “not as easy to do as it looks.”

Not only are there decades of conflicting federal regulations for the administration to untangle, but states are facing an immediate budget crisis, and it could take years for savings to materialize from improved care.

“States are in a cutting mode right now, not investing in the hope of future savings,” he said.

Patricia Nemore of the Medicare Advocacy Center also cautions that, although there are savings to be found, the underlying reason for dual eligibles’ high use of health care services will not go away.

“We can do better, and we might save money is a reasonable way to proceed,” she said, “but one reason they cost a lot of money is that they’re sick.”

The heavy emphasis on costs in the current discussion, plus the pressure from states and the federal government to implement change quickly, has her worried. “That’s a lot of change for a very vulnerable population in a very short time,” she said.

The American Enterprise Institute’s Robert Helms, who served on a Medicaid commission under President George W. Bush and co-authored a proposal for creating managed-care plans for dual eligibles, said that while improving care for dual eligibles is important for patients and taxpayers, it’s far from the solution to states’ Medicaid shortfalls.

“It’ll help the problem, but I just don’t see a big financial solution to this that anybody’s talking about,” he said.