I want to focus on the probable consequences of a potential Zika outbreak on Medicaid as a continuation of the discussion that Anne started last night.
Zika could be a significant push to rejigger parts of the Legacy medicaid system away from state based funding to a national reinsurance model because of who has high cost persistent conditions, where Zika infections are more likely to be concentrated and who pays for a significant number of births.
Medicaid is a significant payer for maternity, labor and delivery care in the United States. In 2010, Medicaid paid for 44% of the births in the country. These births are paid for via Legacy Medicaid where the states are paying between 30% and 50% of the total cost of the service. The Southern and Southwestern states are more likely to have higher than national average percentage of births paid for by Medicaid than cooler climate states. This means that all else being equal, the impact of Zika will be borne by more Southern and Southwestern states than states that fought for the Union or in the Mountain West.
Southern states tend to have far skimpier Medicaid plans and more importantly, they are generally poorer with less public health capacity and less economic ability to absorb significant economic and medical shocks.
The most notable impact of Zika is microcephaly. Children born with too small heads are extreme medical risks. These children will have lifelong medical costs for additional surgeries, drugs, treatments and rehabilitation therarpy compared to kids. Having a child with life long medical needs is a significant constraint on earnings for parents and caregivers. I would project that Medicaid and CHIP will cover a disproportionate share of children who have Zika related birth defects.
So we would have very expensive cases concentrated on publicly provided insurance rolls in states that stingily fund their safety net. A state that has several hundred covered lives with Zika related birth defects on their Legacy Medicaid plans will be in significant financial trouble. They either can’t or won’t raise taxes enough to cover the cost of catastrophic illnesses that are outside the normal variance.
There is a viable policy tweak. It would require Congressional action. Zika related birth defects would be carved out as as a separate eligibility category with a distinct federal funding stream. We already do this with end state renal disease (dialysis) and three years of immunosuppressent payments for transplants. People who have those diseases and conditions are enrolled into Medicare and Medicare pays for them as either the primary public insurer or as a secondary insurer for people with private insurance. Carving out Zika would be fairly straightforward and it distributes the risk nationally. Alaska and Montana would pay their share for public health.
The other alternative would be to have Medicaid pay kick payments to the states on a capitation basis for individuals with Zika related birth defects. The kick payment would act to bring the total cost of treatment onto the Federal books instead of the state’s books. This would be a narrower intervention as it would only nationalize Zika treatment costs for individuals on Medicaid.