This year, as we celebrate the 50th anniversary of the establishment of Medicaid and Medicare, it is worth reflecting on the performance and value of these critical programs. Since their inception much has been written on the evolution and roles of both programs in our health care system.
Medicare has often been the main focus of such health care discussions. However, it is important, especially now in the face of Medicaid expansion, to focus on why Medicaid matters.
Although the answer to this question could fill many pages, it is worthwhile to focus on just seven facts and the implications that these facts have for health care policymakers and leaders as we look forward to the next half-century.
Seven Facts About Medicaid
1. Medicaid is the largest health care program in the United States and has a great impact on a broad range of Americans.
Medicaid and the Children’s Health Insurance Program (CHIP) cover 70 million people, almost half of the births in the U.S. and approximately 40 percent of our nation’s children. If how children and their families fare in our society influence the country’s future, then Medicaid is critically important to the well-being of America.
Not only is Medicaid the country’s largest single source of health care coverage, but it is also a principal provider of many essential services. There is a broad recognition that providing meaningful mental health care not only helps people lead productive lives, but impacts the daily functionality and safety of society. Medicaid is critically important to achieving that goal, as it is the largest provider for mental health care, paying for 26 percent of all behavioral health spending.
Also worth noting is the interface between mental health and incarceration. Nearly 50 percent of incarcerated individuals have mental illness. Our jails have become mental health institutions by default. One study noted that incarceration costs five times that of drug treatment. The cost of incarceration in New York City is more than 10 times the cost of a year of Medicaid coverage for a person with a behavioral health diagnosis.
Despite the excess differential cost of incarceration, being in jail has little to no therapeutic effect on mental illness and likely worsens it. If we want to lower our rate of incarceration and the concomitant costs of jails and prisons while improving outcomes, Medicaid’s coverage of mental health services will need to play an increasingly central role.
2. Medicaid coverage provides access to care that enables the health and well-being of millions of Americans who otherwise would have little or no care at all.
Medicaid coverage offers a myriad of advantages and remarkable achievements since its inception. While rates in the U.S. are still far too high, infant mortality has been significantly reduced from 26 per 1,000 live births in 1960 to 12.6 in 1980 to 7.7 in 1997. Much of this progress is due to Medicaid coverage of pregnant women.
Children in Medicaid and the Children’s Health Insurance Program (CHIP) are more likely to have a usual source of care, to have had a well-child visit, and a visit with a specialist and are less likely to delay care than similarly situated uninsured children. In addition, children on Medicaid and CHIP have higher rates of well-child visits and similar rates of specialists’ visits as similarly situated children with employer-sponsored insurance.
However, Medicaid and CHIP coverage are not without challenges regarding provider availability. Physician participation is lower than for Medicare or private insurance. In many states, most dentists treat few or no Medicaid or CHIP patients. In spite of real progress in providing meaningful health care to tens of millions of lower-income Americans over five decades, our country has failed to eliminate the socio-economic disparities that children who live in poverty routinely experience.
3. Medicaid enables private insurance and Medicare to function more efficiently and affordably.
Medicaid covers people and care that private insurance would not and could not cover economically. An excellent example is coverage under Medicaid for disabled children. The program either completely covers the expensive costs for these children or wraps around private coverage that fails to do so.
In addition, Medicaid covers at least three quarters of all disabled adults on Supplemental Security Income (SSI). Patients with a disability make up 15 percent of Medicaid’s beneficiaries, but account for 40 percent of the cost. Thus, in recent years, the annual cost of care for disabled beneficiaries in the Medicaid program has exceeded 170 billion dollars — costs not transferred to private markets or Medicare.
This value can also be demonstrated in some private insurance premium support models. In these models high cost and medically frail patients can remain on Medicaid as it provides the necessary wrap around coverage for medical services that the private insurance does not provide.
Another important way that Medicaid allows the private market to function more efficiently is through its support of safety-net hospitals and community clinics with Medicaid’s special payments to these facilities, including disproportionate share and cost-based reimbursement, respectively. This enables the safety-net hospitals to provide more than $150 billion in care annually preventing enormous health care costs from being shifted to the for-profit and not-for-profit systems as well as to private insurance.
Moreover, these hospitals often provide some of the most expensive tertiary care for the entire community. In the 10 largest U.S. cities, core safety-net hospitals provide over 60 percent of the burn care and over 30 percent of the trauma care removing high cost care from private sector facilities.
Similarly, community health centers care for 22 million individuals, 76 percent of whom are on Medicaid or uninsured, again preventing cost shifting to the private sector. In addition, by caring for millions of vulnerable Americans, safety-net hospitals and community health centers are critical to expanding the capacity of our health care system.
Finally, Medicaid has also had an enormously positive effect on cost growth in Medicare. Almost 20 percent of Medicare beneficiaries receive assistance from Medicaid for their Medicaid coverage either through premium or cost-sharing assistance or by receiving full coverage.
Medicaid also makes Medicare affordable by covering 61 percent of long-term care coverage and by paying for 40 percent of the total cost of those who are dual eligible.
If the private sector and Medicare are to continue to be viable in the long term, Medicaid will need to remain a critical pillar for the entire health care system.
4. Medicaid is more cost efficient than either private insurance or Medicare despite the highly vulnerable population it covers.
The federal office of the actuary for CMS reported that from 2007 to 2013 the cumulative per capita spending in Medicaid grew by 6 percent. Meanwhile, Medicare grew by 14 percent and private insurance by 29 percent. The office projected that by 2023, private insurance cost growth will exceed 100 percent while Medicaid and Medicare growth will be less than 65 percent.
Moreover, the majority of Medicaid’s cost increases over time has been due to increases in patient numbers, not increases in per capita cost. The lower per capita cost of Medicaid coverage, despite the vulnerability of the populations it serves, may relate in part to the delivery models and innovations that Medicaid has adopted.
Medicaid has aggressively moved to managed care in most states, including risk-based and passive enrollment models. Seventy percent of Medicaid patients, including some dually eligible patients, are in some type of managed care with the majority in risk-based models. The movement of many individuals from nursing home care to home and community-based services, now accounts for more than half of Medicaid spending on long-term care and likely improved their quality of life and lowered the cost of this expensive service.
Certainly, Medicaid cost efficiency helps keep overall health care costs lower. It even offers Medicare and private insurance some relevant approaches to achieve higher value care.
5. Medicaid is exceedingly complex.
Medicare is one unified federal program. In contrast, Medicaid actually comprises 56 programs. There is a separate program for every state, territory, and the District of Columbia.
Moreover, the many wavier variations multiply by many times the functional number of programs. Medicare has essentially two straightforward criteria for entrance — age and the number of quarters of Social Security one has paid. It has two additional criteria for access through disability or renal failure.
Medicaid has approximately 50 to 60 eligibility pathways that are multiplied by state variations on many of them, making eligibility criteria extraordinarily complex. This variability creates issues for enrollment, payment, management, and transparency for patients, providers, states, and the federal government.
Some would say that state flexibility and multiplicity of programs has enabled innovation and experimentation in Medicaid to improve it. While this may be partly true, it is highly unlikely that there would be support for this level of complexity for Medicare as the price of innovation.
There is arguably no greater need for improving Medicaid than to simplify it. Reducing Medicaid’s administrative complexity could remove waste, costs, and a myriad of opportunities for errors. The savings to be achieved by reduction of duplicative costs emanating from 56 administrative and health information technology infrastructures makes considering approaches to reduce the complexities of the program worthwhile.
6. Medicaid is financed largely by the federal government.
Despite the genuine concerns of states about Medicaid’s cost, it is largely federally financed. With the recent Medicaid expansion, federal payments have risen to 62-64 percent of Medicaid financing. This figure would rise substantially higher if the additional special federal payments and the true “budget neutrality” of state Medicaid waivers were included. The array of federal financing tools both minimizes and hides the actual cost of the program to each state.
It is also often forgotten that Medicaid is the largest source of federal funds flowing to states with a significantly positive financial and budgetary impact. Moreover, during economic downturns, the federal government has provided additional assistance to states by increasing the Federal Medical Assistance Percentages (FMAP), enabling most states to live within their budgets while continuing to care for their citizens and maintain payments to health care providers.
7. Medicaid is burdened by geographic and generational disparity.
Health care is more uniform and inclusive for seniors than for other Americans. No matter how wealthy a person is, they are entitled to Medicare. But until the enactment of the Affordable Care Act, an individual under age 65 was largely excluded from health care no matter how poor they were unless they qualified for Medicaid under certain categorical programs such as pregnancy.
No matter where a Medicare beneficiary lives, coverage, benefits, and personal costs under the program are the same. A beneficiary could move from Massachusetts to Texas in retirement and Medicare coverage would remain intact. This is not the case for Medicaid. Due to variations in state policy, moving from Massachusetts to Texas would significantly impact the individual’s coverage, benefits, and personal costs. This geographic and generational disparity disproportionately affects minority communities.
Given that we are a nation that values fairness and a level playing field, this marked difference between Medicare and Medicaid simply fails to pass the fairness test.
The Future of Medicaid
Medicaid and Medicare both were born at the same time, but they have matured into quite different entities. Yet, each is an important pillar of our country’s health care infrastructure.
The critical support that Medicaid provides to the health of the nation and to the viability of Medicare as well as to the private health care sector only underscores the recognition that the program deserves over the next 50 years.
We have come a long way in addressing the health care needs of all Americans. Medicaid is one of the primary reasons why. It merits our support, but also our resolve to continue to improve it.
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