Medicaid: Facing Accelerating Cash Flow Deficits
e Social Welfare Program — Created in 1965 to provide health insurance to low-income population (2% of Americans under coverage then and 16% now’).
e No Dedicated Funding — Federal funding comes from general revenue (all forms of tax receipts).
e Ever-Growing Expenses — $273 billion in F2010, up 2x from 10 years ago.
e Rising Healthcare Costs — Owing to aging population + unhealthy life styles + technology advances.
e Growing Beneficiary + Benefits — Covered beneficiaries expanded beyond low- income group in 1980s to include additional groups (like individuals who have high medical expenses and have spent down their assets, and some of those who lost their employer-sponsored healthcare insurance coverage in recession), while covered benefits expanded to include prescription drugs / dental services. Total expenditures on these new groups and benefits represented ~60% of Medicaid program’s spending in 2001, per Kaiser Family Foundation estimates. See slide 319-322 for more details.
e Moral Hazard — As a “free good,” Medicaid reduced demand for private long-term insurance’ while regulation loopholes + need-based benefit policies created incentives to abuse the Medicaid reimbursement system.
Note: 1) for more information, please see Jeffrey Brown and Amy Finkelstein, “The Interaction of Public and Private Insurance: Medicaid and the Long-Term
Care Insurance Market,” 2006. *Medicaid enrollment was 4MM (population 196MM) in 1966 and 50MM (population 305MM) in 2009. Source: National Center
K P for Health Statistics, Kaiser Family Foundation, World Bank, Social Security Administration. (@)E) www.kpcb.com USA Inc. | Income Statement Drilldown 95
Medicaid: Underfunded by $3.7 Trillion Over 45 Years,
With No Dedicated Funding
USA Federal Real Medicaid Expenses & NPV of Liabilities, F1966 — F2010
$0 eTTTTTTTTTTNT iL LEE Ls LL Uo LD LU $B5O) ses ~ cee mens aOR eg per © 2 cae ment mat so a ee eee cae 5 Tt + SEtitkt $100 --------------- +--+ 5 5 SS 4 tt i Seti ‘8 Real Medicaid Expenses $150 -—— RR Sail ——Net Present Value of Medicaid Liabilities
-$10
rj & _~ “” oO 2 & 2 £ % ° = 2 $15 3 4g @ @ 2 =a zo} 2 - $20 3 GO wo a = $25 & i. Se a a Ps $30 3 2 a RDI me es es ee es = aes es ts es = =e ge = = $35 2 YEG ms = os es mes es a oe 5 ee ee cs a ea SS a = ss = -$40
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Note: USA federal fiscal year ends in September; Data are inflation adjusted. Calculation of net present value of liability based on 75-year Medicaid spending projections from CBO, assuming a 3% discount rate (long-run average of real 10-yr treasury yields). Source: White House Office of Management and Budget,
KP Congressional Budget Office.
(@E) www.kpcb.com USA Inc. | Income Statement Drilldown 96
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