Medicaid: The Next 40 Years

To watch an online video editorial about Medicaid by Karen Davis on the ejournal Medscape General Medicine, click here. Please note that free registration is required.

As with Medicare, the 40th anniversary of the Medicaid program—the jointly funded federal–state program that helps states provide medical assistance to those who cannot afford it—has been an occasion for taking stock. There's much to applaud: our nation's safety net health insurance program now covers more than 50 million people, including one of three births, nearly two-thirds of nursing home residents, and one of five people with chronic disabilities. Medicaid has been described as a workhorse, shouldering the burden of covering low-income people with HIV/AIDS, the homeless, those with serious mental illnesses, and children with developmental disabilities.

But federal and state policymakers across the nation have been expressing concerns over the program's rising costs. Not surprisingly, Medicaid beneficiaries are far sicker and more expensive to care for than those typically covered by private insurance. Medicaid spending now surpasses that of Medicare, and it is affecting already strained state budgets. Medicaid costs have doubled in the past 15 years as a share of state budgets, from one-tenth of state spending in 1989 to more than one-fifth today.

Medicaid needs to evolve in the near future in order to meet its goals, according to the participants in the latest Commonwealth Fund Health Care Opinion Leaders survey. The survey finds widespread agreement about the need to expand coverage to more of the working poor, ease administrative burdens, and use pay-for-performance strategies to improve the quality and efficiency of care.

Closing Coverage Gaps

In recent years, the Medicaid program has proven crucial in preventing poor children and adults from slipping through the cracks in coverage that are spreading across our health care system. Without it we would have far more than 46 million uninsured people.
In fact, Medicaid and the State Children's Health Insurance Program (CHIP) have helped reduce the rate of uninsured children from 15 percent in 1998 to 11 percent in 2004.

And since the weak economy has contributed to declines in employer coverage, Medicaid has been there to cover some of the lowest-income families. The U.S. Census Bureau recently reported that while the percentage of people who received health care coverage from their employer in 2004 was down to 59.8 percent from 60.4 percent in 2003, the percent of Americans enrolled in Medicaid increased from 12.4 percent in 2003 to 12.9 percent in 2004.

But Medicaid is chronically underfunded, and during periods of economic downturn it comes under serious fiscal stress. Federal funding should be increased when unemployment is high.

To strengthen the program for the long term, Medicaid should be redesigned as a health insurance system that provides stable, accessible coverage. Nearly all—95 percent—of health care opinion leaders favor simplifying Medicaid's eligibility and reenrollment rules to improve continuity of coverage. For example, electronic insurance clearinghouses could be created to facilitate enrollment of eligible individuals.

In addition, low-income individuals should be able to stay on the program as their circumstances change, with premiums assessed as incomes rise. Eighty-five percent of opinion leaders support federal funding to expand coverage to all uninsured below 150 percent of the federal poverty level. Employers who do not offer health benefits could be required to pay into a pool to help expand Medicaid and CHIP to more low-income workers—a policy that nearly three of four (73 percent) of our opinion leaders support.

Learning from State Innovations

Following the lead of corporate purchasers, some state Medicaid agencies have begun to incorporate pay-for-performance and other incentives into their managed care plan contracts. Some Medicaid managed care plans, in turn, are offering quality incentives to their providers. Medicaid plans must also provide adequate provider payment rates to ensure participation.

In recent years, rising pharmaceutical costs have strained Medicaid budgets. But—instead of passing on costs to consumers in the form of copayments and deductibles—many states are implementing cost-saving mechanisms. For example, many states have joined together to pool their purchasing power and bargain for lower-cost pharmaceuticals. Other states have implemented evidence-based preferred drug lists.

Because more than three-quarters of current Medicaid spending is devoted to people with chronic conditions, some states are pursuing efficiencies through various "care management" strategies for high-cost individuals. For example, as of 2004, 14 states provide care management for Medicaid beneficiaries with asthma, 14 states focus on those with diabetes, and six target patients with congestive heart failure. With the number of Americans with at least one chronic condition expected to rise at least 25 percent by 2020, such programs may offer important lessons about best practices for treating specific health conditions and managing costs.

States have led the way in stretching limited health care dollars to strengthen their Medicaid programs and improve care for beneficiaries. With federal leadership and support, Medicaid, Medicare, and private employer-based coverage can make a seamless and affordable health care system for all Americans.

In addition to viewing the results of the Opinion Leaders survey on some of these issues, you can read commentaries on Medicaid and its future by three top authorities: Diane Rowland, executive vice president of the Henry J. Kaiser Family Foundation; Raymond Sheppach, executive director of the National Governor's Association; and Sandra Shewry, director of the State of California Department of Health Services. And as always, I want to know what you think. Send your comments to me at kd@cmwf.org.

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September 2005

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