Medicaid

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MEDICAID

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Medicare and Medicaid were created in 1965, and together they revolutionized public health insurance in the United States. Before Medicaid, healthcare insurance for the poor was not perceived as a societal or governmental responsibility.

Initial Goals and Early Challenges

Medicare and Medicaid could not be more different in their underlying philosophies and structures. Medicare was designed to be a universal entitlement program like Social Security. It was established to provide basic hospital and physician-care insurance for all elderly Americans and is financed through a special trust fund. Its benefits are controlled by the federal government and do not vary by state.

In contrast, Medicaid was designed to be a meanstested program funded by general revenue from the federal government and the states. Within federal guidelines and options states determine who will be covered, what services will be paid for, how much providers will be paid, and how the program will be administered. It was not designed to provide social insurance to the full poverty population but to cover particular recipients of public aid, mainly those receiving Aid to Families with Dependent Children (AFDC) and Supplemental Security Income (SSI). Soon after its inception Medicare was thought to be a model for the next step toward universal health insurance, whereas Medicaid was seen as a stigmatized program for the poor.

The history of the two programs, however, has shown that Medicaid has been the more important and effective vehicle for increasing access to healthcare services. Medicare has remained largely constant and rigid in its covered population and its structure. By contrast, the Medicaid program has been the structure to which policymakers have turned to repeatedly over the years to make incremental additions to the population covered by health insurance.

Growth in the Medicaid Safety Net

Medicaid began small. In 1966, there were four million enrollees and the annual cost was $400 million. Those numbers increased as persons in need of long-term care were added to the program after 1972. Although the number of recipients grew slowly between 1975 and 1990 (22 million to 26 million), total government costs for Medicaid increased dramatically, rising from $12 billion to $72 billion. By 2002 the number of enrollees had reached 47 million, making Medicaid slightly larger than Medicare, and total costs had reached $257 billion. However, not everyone who is eligible for Medicaid enrolls. Seventy-two percent of eligible children and 51 percent of eligible nonelderly adults are estimated to be enrolled. In 1999 Medicaid covered 5 percent of nonelderly adults and 15 percent of those with incomes below 200 percent of the poverty level.

The Medicaid program has grown in several important ways. Although originally it was limited to those who received cash benefits under AFDC (poor women and children) and SSI (the permanently disabled), more than half the persons Medicaid covered in the early years of the twenty-first century did not receive cash benefits from other programs. Indeed, Medicaid at that time was the principal source of funding for a vast infrastructure that served the poor and disabled, including safety-net hospitals, community and migrant health centers, mental health clinics, and school-based health programs.

Long-term care was added to the mandated benefits in 1972. Without private insurance, middle-class Americans may become impoverished because of out-of-pocket nursing home costs and "spenddown" to qualify for Medicaid. Institutional coverage also is provided for inpatient mental health services and intermediate-care facilities for the mentally retarded. Medicaid is also the largest payer for medical services for persons with AIDS.

The largest and most important expansions of the scope of Medicaid have been in the areas of prenatal care for poor women and healthcare for children. In 1989 poor women began to receive coverage for prenatal care. In 1997 the State Children's Health Insurance Program (SCHIP) was enacted to cover low-income children who did not qualify for Medicaid under the previous criteria. Together Medicaid and SCHIP account for 16 percent of the nation's healthcare spending, nearly as much as Medicare's share (18%).

Impact on the Nation's Health

Medicaid has achieved significant advances in the healthcare of the poor and previously middle-class persons who require mental health services or long-term care. With Medicaid, poor persons use health services at the same rate as nonpoor persons with a similar health status. Medicaid also provides access to a broader service package that supplements physician care, such as dental care and prescription coverage.

Medicaid has proved to be a better vehicle for incremental reform than Medicare because it is more flexible and does not have the high level of national political visibility and volatility that Medicare has. Additions to the Medicaid program typically have had three effects; they have (1) increased access to care, (2) shifted at least part of the cost to the federal government, and (3) increased the uncompensated care burden on healthcare providers. Overall, the health of the poor has improved significantly in the post-Medicaid era, with substantial declines in infant mortality, maternal mortality, and death rates for major diseases for which medical intervention is effective.

Major Criticisms of the Program

Medicaid is not a "user-friendly" program. Many persons who are eligible for the program are not enrolled. Once a person is enrolled, eligibility status is evaluated periodically, as frequently as every month in some programs. When income eligibility standards are no longer met, Medicaid coverage is suspended. This results in poor continuity of care and personal hardship.

The state-based nature of the program has resulted in variations in coverage and benefits across the states. Federal requirements ensure relatively uniform coverage for children, pregnant women, the elderly, and the disabled across the states. Childless adults are not covered by Medicaid regardless of their income level. Adults who are parents are the group for whom Medicaid eligibility varies the most widely from state to state. Half the states set eligibility below 40 percent of the federal poverty line; those whose incomes put them at the poverty level ($15,020 for a family of three in 2002) make too much to qualify for Medicaid in all but eighteen states.

Throughout its history there have been repeated cycles of cutbacks and expansions in response to fiscal pressure in the states. From the 1970s until the mid-1980s cutbacks eroded Medicaid coverage of the poor and began to reverse the progress that had been made in closing gaps in access to care across income groups. Since the mid-1980s, however, the trend has been to expand Medicaid eligibility and services. This has not been due to the increased political leverage of the poor but has occurred because from both the federal and the state point of view the cost-sharing arrangement makes it attractive to add to the program. Only in the early 2000s did the nation begin to reenter a period of fiscal crisis at the state level. As a result of a general economic downturn, state revenues declined while Medicaid costs expanded to account for a very significant portion of state governmental budgets.

The prospects for the future of Medicaid are unclear. Some states want the authority to cap enrollment levels and create waiting lists so that even those who qualify with incomes at 40 percent of less of poverty may not be enrolled. About half the Medicaid enrollees in the country are in managed-care plans, but that has not stemmed the tide of rising costs.

Issues for the Future of Medicaid

Medicaid reform is charged with moral issues that frame the fundamental policy decisions. Can public health insurance be equitable when it is targeted only to the poor, or is the inevitable outcome a lesser program? Can an equitable package of minimum benefits be determined? Will the trend toward using Medicaid to expand access to health insurance incrementally be reversed by a weakening of federal requirements and the fiscal crisis of state governments that began at the turn of the twenty-first century? How should society share the costs that a decent healthcare safety net will incur?

diane rowland

catherine hoffman (1995)

revised by bruce jennings

BIBLIOGRAPHY

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