Medicaid: Cost Versus Need

PROLOGUE: It is easy enough to pay lip service to the notionthat all of the sprawling, disparate elements of the healthsystem are intricately interconnected with each other and witha vast web of environmental influences. In practice, though,we rarely have time to stop and take stock of all of the indirectfactors that bear on specific problems rising to our attention.In the case of Medicaid, periodic crises in access or financingare usually attributed to endogenous causes—flaws in theprogram itself. Its problems are blamed on too-rich benefits,too-poor provider payments, not enough managed care, or toomuch federal oversight.

The following three papers illustrate how critical an understandingof environmental interactions is to fathoming the challengesthat the program faces. For example, the tension between fiscalconstraints and ever increasing demands on Medicaid for expansionof its services has been a constant in the program’s thirty-five-yearhistory. Is the current crunch just part of the usual ebb andflow, or is it different? Based on his work at the RockefellerInstitute of Government, Donald Boyd explains that unusual conditionsduring the boom years of the 1990s created revenue windfallsfor the states that supported both tax cuts and Medicaid expansions.In the current recession, the erosion of states’ revenuebase stands out in sharp contrast to Medicaid’s increasedneeds and raises troubling questions about its future.

No single issue in Medicaid is more controversial now than theBush administration’s Health Insurance Flexibility andAccountability (HIFA) initiative. HIFA is seen by many Medicaidofficials as an important tool for managing costs and expandingcoverage. But some advocates see the initiative as an invitationto roll back hard-won gains in coverage for the most vulnerablepopulations. If Solomon could be brought out of retirement towrite the perfect HIFA guidance, could this ambiguity be clearedup? Cindy Mann’s careful discussion shows that the HIFAcontroversy represents unresolved questions about the balanceof power between the states and the federal government thatprevent closure on coherent Medicaid policy.

Finally, Medicaid’s eventful courtship of managed carehas evolved against a backdrop of deep disappointment in thepromise of managed care in the private sector and turbulentrelationships between insurers and providers. Somehow, though,Medicaid has come to terms and built what Robert Hurley andStephen Somers describe as a relatively stable and mature partnership.Medicaid’s "peculiar affinity" for managed care, theseauthors suggest, is related to the program’s perennialstruggle for scarce resources, which has made a virtue of thenecessity to ration care. But fiscal pressures and market stresswill continue to test the partnership to the limit in the future.

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