MEDICAID

Millions of elderly people in the United States have extensive health care needs and expenses, but many have limited incomes or savings to help them cover the cost of care. Virtually all elderly Americans have Medicare, the federal health insurance program for elderly and disabled Americans, to help pay medical bills. However, limits in the scope of benefits, coupled with financial obligations for coverage, can impose a serious financial burden. Elderly persons with low incomes are particularly vulnerable to these burdens because they are more likely to have health problems than higher-income Medicare beneficiaries, yet are less able to afford care. In addition, they are less likely to be able to access or afford the supplemental coverage that many Medicare beneficiaries purchase to help fill in Medicare's gaps.

Medicaid, a means-tested entitlement program that provides health coverage to low-income Americans, serves as an important complement to Medicare by assisting low-income Medicare beneficiaries with Medicare premiums and cost-sharing, and by providing coverage for prescription drugs and long-term care services not available through Medicare. Medicaid's supplemental coverage helps many low-income elderly persons gain access to needed health services and provides financial security from the high cost of care.

The need for medical assistance

In general, elderly persons are less healthy and have greater health care needs than the general population. Nearly a third of people age sixty-five and over report that their health status is poor or fair, compared to 18 percent of people age 55 to 64 and just 6 percent of those age 25 to 44. A significant percent of elderly persons live with serious or disabling health problems, such as arthritis (56 percent), hypertension (53 percent), and heart disease (36 percent), and many live with multiple chronic conditions (69 percent). These are all conditions that require increased contact with the health care system and ongoing care, including frequent visits with a health care provider, prescription medications, and, at times, hospitalization or other inpatient medical services.

Medicare coverage

The Medicare program provides basic health coverage to most persons age 65 and older, regardless of income, assuring them access to the health system and protection from financial catastrophe when illness strikes. Medicare consists of two parts: Hospital Insurance (Part A), which covers inpatient hospital care, limited skilled nursing facility care, and home health and hospice services, and Supplementary Medical Insurance (Part B), which covers physician and outpatient hospital services, as well as some other screening, laboratory, and home health services. However, the program does not cover all medical services that elderly people need (most notably, prescription drugs and nursing home care) and requires beneficiaries to pay monthly premiums and some portion of the cost of services at the point of care. For example, in 2002 the deductible for Part A was $812 and beneficiaries had to pay some portion of the charge for extended hospital stays. Medicare also requires a monthly ($100 in 2002) premium for Part B coverage ($54 in 2002) and 20 percent co-insurance after the Part B deductible ($100 in 2002) is met.

While many Medicare recipients purchase supplemental insurance to help with these cost-sharing obligations, these requirements can impose a substantial financial burden on the more than eleven million elderly Medicare beneficiaries (36 percent) who are poor or near-poor (see Figure 1). Not only do many Medicare beneficiaries live on modest incomes, but most rely on Social Security benefits as their main source of income. Social Security benefits are often quite modest—the average in 2001 was about $800 per month. However, these benefits are the major source of income for nearly two-thirds of beneficiaries. Living on fixed incomes with little potential for additional earnings leaves these beneficiaries with minimal cushion to absorb additional medical costs.

The potential burden of medical costs is particularly important to low-income elderly people because they are more likely to need medical services than higher-income beneficiaries. Poor elderly Medicare beneficiaries are nearly twice as likely as higher-income beneficiaries to report their health status as fair or poor, and they are more likely to live with multiple chronic conditions and functional limitations than elderly people with higher incomes. Poor health status and chronic medical conditions translate into higher costs due to the increased need for medication and physician supervision, as well as the need for nonmedical support services such as transportation and personal care assistance with daily tasks such as bathing and cooking.

note: In 1999, the federal poverty level was $8,240 for individuals, $11,060 for couples.

To provide assistance in covering the cost of uncovered Medicare services and Medicare cost-sharing, many elderly persons have supplemental coverage in addition to Medicare. There are different types of supplemental coverage, and the cost and scope of benefits vary. Thirty-six percent of Medicare beneficiaries have employer-sponsored retiree coverage. This type of coverage is typically very generous, covering a wide range of benefits and limiting beneficiaries' out-of-pocket costs. Another source of supplemental coverage is individually purchased Medigap policies, which about a quarter of Medicare beneficiaries hold. Beneficiaries pay monthly premiums for Medigap coverage—on average $100 per month, though policies range in cost from about $1,400 to $4,700 per year, depending on where a person lives, the level of coverage they obtain, and their age.

Supplemental coverage of Medicare beneficiaries varies significantly by income (see Figure 2). Higher-income beneficiaries are more likely to have worked in jobs that offer retiree coverage, and higher- and moderate-income beneficiaries are also more likely to purchase Medigap policies. Lower-income beneficiaries, in contrast, are more likely to rely solely on Medicare. This difference in coverage exists because low-income elderly people are less likely to have worked in jobs that offer private supplemental coverage after retirement. In addition, though many purchase Medigap policies, the high cost of such coverage is unaffordable for some.

Ultimately, poor Medicare beneficiaries bear a disproportionate burden in out-of-pocket health care costs, spending more than a third of their income on health care, compared to 10 percent for higher-income beneficiaries. These costs may lead some elderly people into impoverishment or force them to choose between covering their health care costs and paying for other basic necessities.

Medicaid coverage for elderly persons

Medicaid, the nation's major public financing program for providing health and long-term care coverage to low-income people, fills in Medicare's gaps for millions of low-income elderly people. Medicaid is jointly funded by federal and state governments and administered by the states. Enacted as Title XIX of the Social Security Act in 1965, the program has evolved from one that primarily covered people receiving cash assistance to being an essential provider of health and long-term care coverage for over forty million low-income Americans.

Medicaid coverage is targeted to people who have low incomes, few assets, and who fall into particular categories, such as low-income children, some poor parents, pregnant women, people with disabilities, and elderly persons. In 1998, the program covered over four million elderly people, accounting for about 10 percent of total Medicaid enrollment and about 12 percent of elderly people on Medicare.

There are several pathways through which elderly people can become eligible for Medicaid assistance, and the scope of coverage varies according to which pathway is used (see Table 1). The poorest Medicare beneficiaries—those who are receiving or eligible for cash assistance through the Supplemental Security Income (SSI) program—receive assistance with all of Medicare's financial requirements and are also covered for the full range of Medicaid benefits. These benefits wrap around and supplement Medicare coverage. People who have exhausted their personal resources paying for health and long-term care services to the point that their available incomes fall below cash assistance income standards are also eligible for the same level of benefits. States also have the option to provide this level of coverage to elderly persons with slightly higher incomes or assets.

The majority of elderly people receiving Medicaid assistance fall into one of these groups and receive full Medicaid benefits. Because Medicaid supplements Medicare benefits, these beneficiaries (known as dual eligibles ) rely on Medicaid primarily for services not covered by Medicare, such as prescription drugs and long-term care, and for coverage of Medicare's premiums and cost-sharing.

Other low-income beneficiaries are eligible to receive assistance primarily limited to Medicare financial requirements (most notably, Part B premiums and cost-sharing), through four related programs, which are often referred to as the buy-in programs or "Medicare savings programs." Since the programs' inception in 1965, states have had the option to buy-in the poor to Medicare by paying their Part B premium and cost-sharing. In the late 1980s and the 1990s, the federal government expanded the Medicaid buy-in to assist low-income Medicare beneficiaries with the growing cost of Medicare premiums and cost-sharing. The first initiative was the Qualified Medicare Beneficiary (QMB) program, through which Medicaid pays the Medicare cost-sharing requirements and the Part B premium for beneficiaries with incomes below the federal poverty level (in 2000, the poverty level was $8,350 for an individual and $11,250 for couples) and limited assets. The Specified Low-Income Medicaid Beneficiary (SLMB) program pays the Part B premium for people with incomes between 100 and 120 percent of the federal poverty level and limited assets. Finally, the Qualified Individual (QI) programs provide a set amount of money to provide some assistance to Medicare beneficiaries with higher incomes (up to 175 percent of poverty) on a first come, first served basis.

note: Columns may not sum to 100 percent; employer/retiree includes both beneficiaries who have supplemental insurance from a former employer or union and those who are still working and whose current employer is their primary source of insurance.

Delivering Medicaid services to elderly persons

Because of the more extensive health care needs of elderly Medicaid beneficiaries, the elderly population accounts for a substantial share of spending under Medicaid. Of the $169 billion in total Medicaid expenditures in 1998, $46 billion (27 percent) was spent on services for the 10 percent of beneficiaries who were low-income elderly persons. Nearly three-quarters of Medicaid spending on the elderly population was for long-term care services, primarily nursing-home care; about 7 percent was for prescription drugs; and nearly 6 percent was payments to the Medicare program for premiums or cost-sharing. Largely due to the high cost of long-term care, elderly beneficiaries had the highest per capita expenditures of any Medicaid eligibility group (see Figure 3).

One of the most important roles that Medicaid plays for elderly Americans is financing long-term care. With nursing-home care averaging more than $50,000 per year and regular assistance in the community costing more than $10,000 per year in 2001, long-term care can be quite costly and can drain private resources quickly. Medicaid is the major public program that covers nursing-home care; the program finances care for over two-thirds of the nation's nursing-home residents and pays nearly half of all nursing-home costs in the nation. However, because Medicaid coverage is available only to low-income individuals, many people in nursing homes who receive Medicaid assistance must spend down, or deplete, their personal resources before Medicaid assistance is available. They must also continue to contribute any available income from Social Security or pensions toward the monthly cost of their care.

note:The first three programs are entitlements; the last two are block grants available on a first-come, first-serve basis.

In response to the high cost of nursing-home care and people's desire to remain in their community, all states also offer home health and home and community-based services (HCBS) under their Medicaid programs; some states also offer personal care services. These services provide assistance to people in the community and may target a specific mix of noninstitutional long-term care services to a distinct population or geographic area. While community-based services are crucial to enabling many elderly persons with long-term care needs to remain in their homes, they represent less than 10 percent of Medicaid spending and have not been shown to reduce nursing-home utilization. A 1999 Supreme Court decision (Olmstead v. L.C. ) has helped to promote the broader use of home care as an alternative to institutionalization for people with disabilities, and it may create pressure to increase the amount and share of Medicaid resources devoted to community-based long-term care.

Medicaid's role in covering the cost of prescription drugs to Medicare beneficiaries with low incomes is another key function of the program for elderly persons. Outpatient drug therapy has become an increasingly important part of the therapeutic regimen for millions of elderly Americans. In 1996, eight out of ten Medicare beneficiaries utilized prescription drugs on an ongoing basis as a way of managing chronic conditions, delaying or even preventing the onset of serious illness, or substituting for more invasive methods of care. Prescription drugs come at a substantial cost, however, and, on average, range from $800 to $1,400 per person, per year (as of 2001). People who do not have insurance to help with these costs are less likely to fill prescriptions, and they may pay more for some drugs because they cannot participate in pharmacy discounts negotiated by insurers. All states cover prescription drugs under their Medicaid programs, a benefit that accounted for over 8 percent of total program spending in 1998. One-quarter of Medicaid spending on drugs is on behalf of elderly beneficiaries.

note: Expenditures do not include DSH, adjustments, or administrative costs.

For both long-term and acute care services, elderly persons receiving Medicaid face particular challenges in receiving health services from both Medicare and Medicaid programs. Medicare remains the primary source of insurance for elderly people, while Medicaid covers wraparound services. Depending on how a state's Medicaid program works, dual eligibles may have to see different providers for different services— one for their acute care needs and one for their long-term care needs. This situation creates confusion among beneficiaries, is administratively difficult for providers, and may encourage the programs to try to shift the cost of care to each other. The growing use of managed care, which relies on a restricted network of providers for services, in both Medicare and Medicaid programs for the elderly population, brings yet another layer of complexity to coordination of services. However, without the services in Medicaid to complement Medicare coverage, the four million elderly dual eligibles would have their substantial health needs go unmet. Medicaid functions as a true safety net for Medicare's most vulnerable and sickest beneficiaries.

Medicaid's impact

Medicaid supplemental assistance makes a difference in the lives of the elderly people enrolled in the program. Problems in getting medical care are often tied to financial barriers: If people cannot afford to pay their share for services, they often delay or avoid seeking care, which ultimately compromises their health status and results in greater suffering and mortality. Medicaid coverage helps remove financial barriers to care and substantially improves access to health care for Medicare beneficiaries. Despite their greater health care needs, dual eligibles are much more likely than beneficiaries without any supplemental coverage (Medicare only) to have regular check-ups and to obtain care in a timely manner (see Figure 4). People who receive both Medicare and Medicaid are also more likely to have a usual source of care than are those who have no supplemental coverage, an indicator that Medicaid helps people gain entry into the primary health care system and receive basic health services.

Dual eligibles also have lower out-of-pocket spending than other beneficiaries, spending four to five times less of their income on health care than the average Medicare beneficiary (see Figure 5). While other types of supplemental insurance may also moderate Medicare beneficiaries' out-of-pocket costs, people receiving Medicaid assistance are in the lowest income group, but they also spend far less of their income on medical care.

note: *Community residents only.

Future challenges in Medicaid coverage of elderly persons

Medicaid has made great strides in assuring access to care and alleviating financial burdens for elderly Americans. The program is a critical source of assistance to four million low-income elderly people. However, despite its importance as a complement to Medicare, Medicaid still faces many challenges in serving current and future beneficiaries.

One of the biggest challenges facing Medicaid is the aging of the general population, which will increase demand for Medicaid services in the future and place a larger financial burden on the program. The elderly population in the United States is expected to double to 70 million people by 2030, and the population over age eighty-five is expected to grow more than fourfold by 2050 to over 18 million people. These demographic changes are not only likely to lead to a greater number of people relying on Medicaid, but also are likely to greatly increase expenditures, as elderly Medicaid beneficiaries are high users of some of the most costly services in the program—long-term care and prescription drugs.

Medicaid's growing role in caring for the poorest elderly Americans and filling in Medicare's gaps occurs at a time when the federal and state governments, with limited resources, are likely to be addressing other, often competing, policy issues. For example, future changes to the Medicare program that add benefits (i.e., prescription drugs) or enact changes to the structure of the program could lead to increased costs for Medicaid and strain state financing. Many state governments operate under very tight budgets and do not have additional resources to cover these costs. Responsibility for financing the care of the growing elderly population remains a major policy challenge.

Future additional burdens on Medicaid coverage of elderly Americans are especially problematic in light of the fact that the existing program still needs several improvements. Currently, Medicaid's coverage of the low-income Medicare population is limited. In 1997, the program reached only half of all poor, and 13 percent of near-poor, Medicare beneficiaries. States have the option to extend full Medicaid benefits to Medicare beneficiaries at higher income levels or use more liberal methods for determining income and assets for eligibility, but levels and allowable assets generally remain low. In addition, many Medicare beneficiaries who are eligible for Medicare premium assistance through the buyin programs, particularly the SLMB and QI programs, are not enrolled. Lack of significant outreach efforts, complex and burdensome enrollment processes, and limited benefits all contribute to limited enrollment. Simplified or automatic eligibility determination and a meaningful benefit would help expand the scope of Medicaid coverage for low-income elderly persons.

note: *Noninstitutionalized beneficiaries age sixty-five and older. **Not enrolled in Medicaid. The 1997 federal poverty level of people over age sixty-five was $7,698 for individuals and $9.712 for couples.

The Medicaid program must also work to assure access to high quality health services for this vulnerable population. With rising prescription drug costs and utilization, states are looking into various methods to control spending in this area, including restricting access to expensive brand-name drugs or limiting the number of prescriptions a beneficiary can fill. Such efforts could lead Medicaid to restrain, rather than expand, its role in providing prescription drug coverage at a time when prescription drugs' importance to maintaining health is growing.

Medicaid can also improve the provision of long-term care to elderly persons. Despite improvements in nursing-home quality following comprehensive nursing-home reforms in the late 1980s, serious problems persist in many facilities. In addition, the supply of community-based services falls far short of demand. Increases in payment levels to levels that allow facilities to properly care for elderly persons and a greater commitment to providing community-based services can enhance the quality of care and the quality of life for elderly Medicaid beneficiaries.

Medicaid is critical to making Medicare work for over four million elderly people in the United States. Despite the importance of Medicare's universal coverage, millions of elderly Americans struggle to gain access to the health care they need. To assure Medicare's adequacy for coverage of elderly persons in future years, it is important to maintain and improve the assistance with financial obligations and additional benefits that Medicaid provides today.

Rachel Garfield Diane Rowland

See also Long-Term Care; Long-Term Care Financing; Medicare Medigap; Poverty.

BIBLIOGRAPHY

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