Tucked in the end of John Holahan and Alan Weil's piece on Medicaid reform in Health Affairs (subscription required), they include this gem:
The current spend-down provisions for acute care in Medicaid require people to potentially spend a considerable amount of their income and assets before becoming eligible for Medicaid. Medicaid operates as a catastrophic plan with a potentially huge deductible, essentially requiring people to deplete virtually all of their resources. We believe that this should be reformed by requiring people to spend down to the income eligibility standard (100 or 150 percent of poverty) or to spend 15 percent of their income, whichever is less.
What a great idea. Spend-down is one of those random Medicaid policies known only by policy geeks and those cursed to work with Medicaid on daily basis. The way it works is this: The state determines the income levels people must be at in order to qualify for Medicaid. For example, in the Western region of Connecticut, if you are single, you can earn up to $574.86 a month and still qualify for Medicaid. But what about the people who earn $700 a month? Obviously they're still poor, but they're too "wealthy" to qualify for Medicaid. The spend-down program was created for those people. In spend-down, you have to accrue Medical bills up to the difference between your income and the Medicaid-eligible income level and THEN you qualify for Medicaid.
So let's look at our person making $700 a month in a six month spend-down program. We take their $700 monthly income and subtract the $574.86 poverty limit to arrive at the person's monthly "spend-down amount" of $125.14. You then multiply that $125.14 times 6 - because they've been awarded 6 months of eligibility - to arrive at the total spend-down amount of $750.84. This person, making only $700 a month has to pay for $750.84 in medical services before the state will pay a dime.
Granted, you generally don't have to pay those bills to qualify, but you do have to incur them and then you'll have those unpaid bills following you around. Spend-down works great if a person visits the hospital and uses $10,000 worth of services. The hospital will write off the first $750 of the claim and bill the remaining $9,250 to Medicaid. But what if they don't incur such high expenses? Will the hospital write off the first $750 of an $800 claim? And in some states, hospitals are required to hold patients responsible for those incurred charges and are not allowed to write them off.
For people who earn twice the poverty limit, they're being asked to accept liability on half their income before they're eligible for Medicaid. With spend-down, Medicaid is saying "sure we'll help you out, but you have to be good and poor before we do." It's almost punitive in nature, a bizarre form of torture in which the government is dangling services in front of the poor and daring them to use them, combined with the perverse incentive that if they're going to use services, they better use a lot to give the hospital incentive to write off their spend-down amount. Brilliant.
The author's suggestion to move to having a maximum spend-down amount of 15% of income is a much more just solution. In that case, a person making $1,000 a month would "only" have to pay $750 (15% of $1,000 times 6) over the six month period instead of the current $2,550.84. It's a simple, relatively cheap (the authors estimate the cost at $6 billion nationwide) solution that would improve the lives of tens of thousands of people. Which is probably why it will never seriously be considered.
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