Health Affairs, 22, no. 1 (2003): 138-144 doi: 10.1377/hlthaff.22.1.138 © 2003 by Project HOPE	New Online   Pay Cuts For Medicare Docs   Access To Care Woes   Public Coverage More Efficient   Empowering Consumers

This Article Abstract Reprint (PDF) Submit a response to this article Alert me when this article is cited Alert me when eLetters are posted Alert me if a correction is posted Services E-mail this article to a friend Similar articles in this journal Alert me to new issues of the journal Add to My Personal Archive Download to Citation Manager Reprints & Permissions Citing Articles Citing Articles via HighWire Citing Articles via ISI Web of Science (6) Citing Articles via Google Scholar Google Scholar Articles by Rowland, D. Articles by Tallon, J. R. Search for Related Content PubMed Articles by Rowland, D. Articles by Tallon, J. R., Jr. Related Collections Health Reform Medicaid

Commentary

Medicaid: Lessons From A Decade

Abstract

 
Drawing on a decade of analysis and examination of the Medicaid program, this paper assesses what we have learned about Medicaid—its role, its successes, and its setbacks. In the absence of universal coverage for health and long-term care, Medicaid is a critical component of our social safety net, taking on the highest-risk, sickest, and often most expensive populations from private insurance and Medicare. Yet the substantial costs to federal and state governments incurred in filling this role, especially in lean economic times, remain its greatest challenge.

Then. The commission began in 1991 amid a national recession, with Medicaid providing health and long-term care coverage to twenty-seven million people at an annual cost of $87 billion in federal and state funds.¹ Despite its pivotal role, Medicaid was being criticized because eligibility and benefits varied widely across states, many low-income people were excluded from coverage, and federal costs were projected to grow from $52 billion in fiscal year 1991 to $72 billion in FY 1992.² Saddled with deficits exacerbated by the recession, states argued that they could not sustain the rate of growth in their Medicaid expenditures, which were expected to increase by 23 percent in 1991.³

And now. Now, a decade later, Medicaid covers forty-seven million low-income people, including twenty-four million children, eleven million adults, and more than thirteen million elderly and disabled people, at an estimated annual cost to the federal and state governments of $250 billion.⁴ Medicaid has not only grown bigger, it has also been reshaped and improved. With the robust economy of recent years, much-broadened coverage for low-income children, the delinkage of eligibility from welfare for low-income families, simplification of enrollment processes and a new emphasis on outreach, and improvements in coverage for the disabled have made health care coverage through Medicaid more accessible for millions. At the same time, reflecting broader changes in our health care delivery system, direct purchase of services on a fee-for-service (FFS) basis has largely been replaced by managed care. More than half of all beneficiaries and the bulk of children covered receive their care under managed care arrangements.

Yet despite these changes, gaps in coverage for adults, the growing cost of health services, and rising long-term care spending for the elderly and disabled continue to confound the program. In earlier times the potential of achieving savings by shifting to managed care or finding creative uses of federal matching funds helped to ease some of states’ fiscal strain. These strategies are no longer likely to fill financing gaps, as savings from the shift to managed care have been largely achieved and reforms have closed many of the financing loopholes. Thus, the old concerns about shrinking state revenues and growing program expenditures have returned to the Medicaid debate, with no easy solutions in sight.

Findings And Observations On Medicaid: 1992–2002

Top Findings And Observations On... Reflections From The... NOTES

 
Over the past decade the role of the commission has been that of a producer and conveyer of timely information and analysis to help examine Medicaid’s role and progress in providing coverage for America’s most vulnerable and lowest-income populations. Our key findings and observations on Medicaid are reviewed below.

Medicaid matters. First, coverage matters for low-income populations, and Medicaid matters for coverage of these populations.⁵ The uninsured get less and later care than the insured get and have poorer health outcomes as a result. Medicaid helps provide improved access, comparable to private insurance, for many low-income people. Public delivery systems are no substitute for insurance; Medicaid both provides access to care for its beneficiaries and is a critical revenue source for many public providers. Over the past decade more than ten million low-income people, especially children, who would otherwise be uninsured have gained coverage through Medicaid.⁶ Medicaid coverage, with comprehensive benefits, is especially important for the low-income populations who are both poorer and sicker than are those with higher incomes.⁷

Many flaws fixed. Second, many of Medicaid’s flaws can be and have been fixed. When severed from its welfare ties, Medicaid is an effective vehicle for providing health coverage to low-income people. The Medicaid and State Children’s Health Insurance Program (SCHIP) experience in enrolling children demonstrates that parents value Medicaid but want a user-friendly program.⁸ Applying for coverage need not be difficult or demeaning. Simplified enrollment, better outreach, and reduced hassle have worked to extend coverage to nearly six million additional children and adults in low-income families since 1998. However, Medicaid’s reach for adults is still limited by old rules, ties to income levels, and exclusion of childless adults left over from its welfare heritage.

High-cost populations. Third, Medicaid provides coverage to the sickest and most disadvantaged in our society, at good value. Medicaid’s spending reflects the high cost of purchasing health and long-term care services in our health system. Medicaid is not an extravagant program; its costs are high because medical care for the sickest and frailest in our society is expensive. Medicaid per capita spending for children and their parents is comparable to that of private insurance.⁹ Children and their parents constitute the majority of the program’s beneficiaries (73 percent) but only a quarter of its spending.¹⁰ The major commitment of Medicaid dollars is for care of the disabled and elderly, who have the highest per capita costs. Medicaid’s role as the primary source of long-term care assistance, the fill-in for acute and long-term care coverage gaps in Medicare, and a major source of medical coverage for the disabled drives Medicaid spending. In the absence of a Medicare drug benefit or long-term care reform, these costs will continue to dominate spending.

Medical care is expensive. Fourth, although Medicaid is a public program, it purchases private-sector health care services and is thus also a victim of rising health care costs.¹¹ Historically low payment rates for physicians demonstrate that when Medicaid payments fail to keep pace with private insurance or Medicare payments, access to care for Medicaid beneficiaries can be compromised.¹² The transition to managed care arrangements for more than half of all Medicaid beneficiaries over the past decade was partially an effort to secure a provider network to maintain access for beneficiaries while containing costs and to address limited physician participation in the program as a result of low payment rates. When Medicaid payment rates—whether for physicians or managed care plans—fail to keep pace with payments in the private sector, access to care for Medicaid beneficiaries suffers and the goal of "mainstreaming" the poor becomes more difficult to achieve.

Adaptability. Fifth, although Medicaid has a reputation for rigidity, its structure actually allows it to be a nimble program, able to respond to new and emerging health problems without the limits of private insurance. Because it is broader in scope than private insurance and is an open-ended matching program, states are able to draw down federal funds to, for example, fill in gaps in support for safety-net programs, provide coverage in the absence of private insurance for people with HIV, or underpin state mental health programs. It has allowed states the flexibility to tailor benefits and scope of coverage to local needs as well as to serve as "laboratories for innovation." This flexibility has supported the development of community-based models for long-term care, expanded access to family planning services, tested new approaches to outreach, and served as an avenue to develop ideas in health care purchasing and delivery for low-income populations.

States have a love-hate relationship with their Medicaid programs—expanding them in good times and contracting them in bad times, and relying on federal matching funds to underpin many of their new initiatives. As the coverage expansions of the 1990s so clearly demonstrate, federal matching funds both reduce the costs and provide an incentive for states to broaden coverage. Federal financing, often through Medicaid waivers, has been pivotal to most efforts to expand coverage at the state level. It also has provided states with one of their most stable sources of financing, as federal matching funds are neither capped nor subject to appropriations battles. Medicaid is now the largest source of federal assistance to states, accounting for 42 percent of all federal funds to states.¹³

Financing challenges. Sixth, the shared financing and state-based governance of Medicaid inevitably creates conflict. There are "federal rules" over who and what is eligible for federal matching funds. Some things are required; others left to state option; and yet others, such as coverage of nondisabled, childless adults, not allowed under federal law. Although states are free to use state-only funds as they choose, the structure of Medicaid financing is all about what states can do and still qualify for federal matching payments. States are always cautious of increasing Medicaid’s size relative to their state budgets or growing program costs, but they often intentionally—and sometimes creatively—make it bigger to secure federal funds for services that would otherwise be paid for by state and local governments.¹⁴

Mandates matter for national goals. Seventh, state flexibility allows states to match programs to local needs, but it inevitably means national diversity and regional variations. In the absence of federal minimums for eligibility or benefits, coverage will vary widely. The oft cited criticisms that Medicaid doesn’t cover all poor children or has uneven enrollment across the states are the natural outgrowth of leaving key elements of the program to states to design on their own within broad federal guidelines.¹⁵ For example, when the commission was launched in 1991, only sixteen states covered adolescents above 50 percent of poverty; four set their standards below 25 percent of poverty. It is the congressionally mandated requirement that all states provide Medicaid coverage to all children below poverty by 30 September 2002 that makes coverage for all children below poverty a requirement today in every state.

At risk in poor economy. Eighth, in the early 1990s and now again, as the economy slows and Medicaid most needs to grow to help unemployed workers, state revenues fall and state budgets are strained.¹⁶ Because Medicaid represents a large share of most state budgets, it is a perennial target for cuts when the economy is poor. Yet cutting Medicaid spending can be penny-wise and pound-foolish for a state. Because of the federal matching payments, saving a dollar of state money can mean losing one to three dollars in federal matching funds. A $10 million cut in state spending in a state with a 70 percent match is really a cut of $33 million in program spending because of the loss of federal matching dollars. Moreover, the poor and their health needs do not disappear when Medicaid is cut; many of these costs are just shifted to the safety-net providers or other parts of state budgets, which are equally stressed when the economy is weak.

Complex role and structure. Ninth, because Medicaid interacts with so many other aspects of government—from various state agencies to the federal administration to local governments—it gets drawn into a wide range of policy debates. The commission has been through a decade that started with Medicaid costs exploding in the midst of a recession, followed by the Clinton health reform initiative that would have folded some parts of Medicaid into universal health care, followed by the block grant debate of 1995, welfare reform, enactment of SCHIP, and an era of expanding coverage discussions. However, we have learned that calls for restructuring do not mean that Medicaid is flawed or broken. Instead, this reflects the program’s multifaceted interaction with the health care system, the cyclical nature of the economy, and the diverse and complicated role the program plays for our lowest-income populations. As Medicaid expands over time, the complexity of these relationships is likely to increase.

Filling in the gaps. Finally, it is hard to envision our health system and society without a program like Medicaid. Medicaid is the glue that helps hold our health system together and takes on the highest-risk, sickest, and most expensive populations from private insurance and Medicare.¹⁷ For low-income Medicare beneficiaries, Medicaid picks up Medicare premiums and some cost sharing as well as filling in gaps in coverage for long-term care services, prescription drugs, and vision and dental care. Medicaid coverage of the disabled and poor allows private insurers to keep their premiums lower and focus on the healthier and higher-income populations, who are more able to afford the cost sharing and premiums of private insurance. And, most notably, Medicaid provides coverage for mental health and substance abuse services, expensive drugs for the treatment of AIDS, and rehabilitation and long-term care services that fall outside the scope of private coverage. It is also the primary source of revenue that keeps our safety-net institutions and clinics afloat and the only real source of assistance to families with long-term care needs.

Reflections From The Commission’s Experience

Top Findings And Observations On... Reflections From The... NOTES

 
We have learned that while Medicaid is not the perfect solution, it remains a critical component of our social safety net. We have found that there is always a need to return to basics and explain Medicaid’s evolution, structure, and role for the multiple populations it serves. Given the high level of turnover among policy staff dealing with this complex program, "Medicaid 101" courses are an essential part of the commission’s activities.

Making information available in a timely manner and easily understood format is the commission’s primary goal. We determined early on that the commission’s strength would be in its analytic capacity and role as a source of data and information, not in issuing recommendations or blueprints for reform. Collecting and analyzing data is the single most important investment the commission has made, but also the most frustrating. For a program of $250 billion with forty-seven million beneficiaries, there are still no timely and reliable data to measure how this population is being served.

With the Urban Institute and our other analytic partners, we have had to invest in cleaning and analyzing program data from the Centers for Medicare and Medicaid Services (CMS); collecting state data directly to get current information without a three- or four-year time lag; and undertaking our own surveys to try to quantify what is happening and to assess the impact of policy changes.¹⁸ From monitoring enrollment and eligibility changes to state budget pressures to waivers, the commission has had to build its own network and capacity to gather and update key data and information on Medicaid and the populations it serves.

Keeping pace with the changing face of Medicaid and the variations across states is a major undertaking for the commission. In doing do, the commission helps to remind policymakers that Medicaid is about more than federal dollars and state financing—it is about how this society assists its most vulnerable and needy families. Assessing the problems, looking at the options, and promoting better understanding of the program and the issues remain at the core of the commission’s work. The commission’s work over the past decade has demonstrated the importance and the impact of documenting the role of Medicaid, dispelling myths and presenting facts, and serving as an independent source of data and analysis. We will continue to try to assess and address key issues, including how to broaden the scope of coverage for low-income populations; how to stabilize and maintain coverage when the economy is weak; how to balance the financing challenges between the federal and state governments; and how to shape Medicaid’s structure and policies to meet the changes in the health care system and the challenges of the twenty-first century. We hope that this work will not only continue to inform the debate, but also help to secure adequate health and long-term care coverage in the United States.

Editor's Notes

 
Diane Rowland is executive vice-president of the Henry J. Kaiser Family Foundation and executive director of the Kaiser Commission on Medicaid and the Uninsured, based in Washington, D.C. James Tallon is president of the United Hospital Fund in New York City and chairman of the Kaiser Commission.

The authors thank the Henry J. Kaiser Family Foundation for its support of the Kaiser Commission on Medicaid and the Uninsured and the commission members for their guidance and insights in analyzing the program. They are especially grateful to the commission’s current and former staff and their analytic partners who did the research and collected the data that underpin this paper. A special thanks to Rachel Garfield for her assistance in this effort.

NOTES

Top Findings And Observations On... Reflections From The... NOTES

 

1. D. Liska et al., Medicaid Expenditures and Beneficiaries: National and State Profiles and Trends, 1984–1993, Pub. no. 2045 (Washington: Kaiser Commission on Medicaid and the Uninsured, August 1995).
2. D. Rowland et al., eds., The Medicaid Financing Crisis: Balancing Responsibilities, Priorities, and Dollars (Washington: American Association for the Advancement of Science Press, 1993).
3. D. Rowland et al., Medicaid at the Crossroads, Pub. no. 2002 (Washington: Kaiser Commission, November 1992).
4. Kaiser Commission, unpublished estimate based on Congressional Budget Office, March 2002 Baseline, Medicaid and State Children’s Health Insurance Program.
5. M. Lillie-Blanton et al., Access to Health Care: Promises and Prospects for Low-Income Americans (Washington: Kaiser Commission, 1999); J. Hadley, Sicker and Poorer: The Consequences of Being Uninsured, Pub. no. 4004 (Washington: Kaiser Commission, May 2002); and C. Hoffman and A. Schlobohm, Uninsured in America: A Chart Book, Pub. no. 1407 (Washington: Kaiser Commission, May 2000).
6. Kaiser Commission, Medicaid Enrollment and Spending Trends, Pub. no. 2113b (Washington: Kaiser Commission, February 2001); and K.E. Thorpe and C.S. Florence, "Health Insurance among Children: The Role of Expanded Medicaid Coverage," Inquiry (Winter 1998/99): 369–379.
7. D. Rowland, A. Salganicoff, and P. Keenan, "The Key to the Door: Medicaid’s Role in Improving Health Care for Women and Children," Annual Review of Public Health (1999): 402–426; P. Newacheck et al., "The Role of Medicaid in Ensuring Children’s Access to Care," Journal of the American Medical Association (25 November 1998): 1789–1793; and J. Holahan, "Health Status and the Cost of Expanding Insurance Coverage," Health Affairs (Nov/Dec 2001): 279–286.
8. M. Perry et al., Medicaid and Children: Overcoming Barriers to Enrollment, Findings from a National Survey, Pub. no. 2174 (Washington: Kaiser Commission, January 2000); and C. Mann et al., Reaching Uninsured Children through Medicaid: If You Build It Right, They Will Come, Pub. no. 4040 (Washington: Kaiser Commission, June 2002).
9. G.T. Ray et al., "Comparing the Medical Expenses of Children with Medicaid and Commercial Insurance in an HMO," American Journal of Managed Care (July 2000): 753–760.
10. Kaiser Commission, TheMedicaidProgramataGlance, Pub. no. 2004b (Washington: Kaiser Commission, January 2001).
11. B. Bruen and J. Holahan, Acceleration of Medicaid Spending Reflects Mounting Pressure, Pub. no. 4056 (Washington: Kaiser Commission, May 2002).
12. S. Norton and S. Zuckerman, "Trends in Medicaid Physician Fees, 1993–1998," Health Affairs (July/Aug 2000): 222–232; A.F. Coburn, S.H. Long, and M.S. Marquis, "Effects of Changing Medicaid Fees on Physician Participation and Enrollee Access," Inquiry (Fall 1999): 265–279; J.D. Perloff, P. Kletke, and J.W. Fossett, "Which Physicians Limit Their Medicaid Participation, and Why," Health Services Research (April 1995): 7–26; and J.W. Cohen and P.J. Cunningham, "Medicaid Physician Fee Levels and Children’s Access to Care," Health Affairs (Spring 1 1995): 255–262.
13. National Association of State Budget Officers, 2000 State Expenditure Report (Washington: NASBO, June 2001).
14. T. Coughlin et al., Reforming the Medicaid Disproportionate Share Hospital Program in the 1990s (Washington: Urban Institute, January 2000); and U.S. General Accounting Office, Medicaid: State Financing Schemes Again Drive Up Federal Payments, Pub. no. GAO/T-HEHS-00-193 (Washington: U.S. GAO, September 2000).
15. K. Kronebusch, "Children’s Medicaid Enrollment: The Impact of Mandates, Welfare Reform, and Policy Delinking," Journal of Health Politics, Policy and Law (December 2001): 1223–1260.
16. V. Smith and E. Ellis, Medicaid Budgets under Stress: Survey Findings for State Fiscal Year 2000, 2001, and 2002, Pub. no. 4020 (Washington: Kaiser Commission, October 2001).
17. K. Swartz, "Let’s Not Neglect Medicaid’s Vital Role in Insurance Markets," Inquiry (Winter 1996/1997): 301–303; E.K. Adams et al., "Payment Levels, Resource Use, and Insurance Risk of Medicaid versus Private Insured in Three States," Journal of Health Care Finance (Fall 2001): 72–91; and "Survey Finds States Widen Reach of Medicaid Risk Programs," Public Sector Contracts Report (June 1998): 93–95.
18. E. Ellis, V. Smith, and D. Rousseau, Medicaid Program Enrollment Data Update: September 2001, Pub. no. 4010 (Washington: Kaiser Commission, June 2002); V. Smith and D. Rousseau, SCHIP Program Enrollment: December2001Update, Pub. no. 4057 (Washington: Kaiser Commission, June 2002); and D.C. Ross and L. Cox, Enrolling Children and Families in Health Coverage: The Promise of Doing More, Pub. no. 4046 (Washington: Kaiser Commission, June 2002).

                      What's this?

This article has been cited by other articles:

				V. Gray, D. Lowery, and E. K. Godwin The Political Management of Managed Care: Explaining Variations in State Health Maintenance Organization Regulations Journal of Health Politics Policy and Law, June 1, 2007; 32(3): 457 - 495. [Abstract] [PDF]

				J. K. Iglehart The Dilemma of Medicaid N. Engl. J. Med., May 22, 2003; 348(21): 2140 - 2148. [Full Text] [PDF]