Medicaid

Medicaid, which became law in 1965 as part of the Social Security Act, is a social insurance program that pays for basic medical services for the nation’s individuals and families who have the least income and resources. It is the biggest health safety net program in the United States, with more than 50 million people enrolled. It accounts for 16% of our nation’s spending on health care, at an annual cost of over $300 billion. Unlike Medicare, which was enacted into law at the same time but is federally funded and administered, Medicaid is jointly financed by the federal and state governments. It is the third largest nondefense program in the federal budget after Medicare and Social Security, with 8% of federal outlays in 2004. At the state level, Medicaid is the second largest expenditure, after K–12 education, and it accounts for 16% of state own-source spending.

Medicaid enrollees must meet various financial criteria and belong to one of the “mandatory” eligibility groups, including pregnant women,rift gold children and teenagers, parents of dependent children, seniors, and people with disabilities. Private insurance is usually unavailable to Medicaid enrollees. Low-income workers and retirees might not have access to or cannot afford insurance through their current or previous employers. Many private insurance programs also exclude people with disabilities and chronic illnesses. However, not all uninsured individuals qualify for Medicaid coverage, even if they are poor. Having assets in excess of a few thousand dollars may be enough to disqualify someone. Incidentally, although many immigrants meet various financial/asset criteria and mandatory categories, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, popularly known as “welfare reform,” prevents new immigrants from applying for Medicaid during their first 5 years in the United States.

More than 7 million Medicaid beneficiaries, or 14% of Medicaid enrollees, are low-income seniors and people with disabilities who are also enrolled in Medicare. These “dual eligibles” usually have substantial health needs, comprising 42% of total Medicaid spending. They rely on Medicare to cover basic health services such as physician and hospital care, but depend on Medicaid to pay Medicare Part B premiums for the aforementioned services and copayments to cover prescription drugs and long-term care, which are not covered by Medicare. Now prescription drug coverage for dual eligibles is covered under Medicare Part D.

Federal statutes, regulations, and policies establish broad national guidelines for Medicaid. For example, state Medicaid programs are required to cover the following basic services for the mandatory groups of beneficiaries: (1) in- and outpatient hospital services; (2) physician, midwife, and certified nurse practitioner services; (3) laboratory and X-ray services; (4) nursing home and home health care for adults; (5) early and periodic screening, diagnosis, and treatment for children; (6) family planning; and (7) rural health clinic services. However, the scope and composition of Medicaid programs varies across states. States have substantial flexibility in administering their own program and setting their own guidelines regarding eligibility standards as well as types, amount, duration, and scope of services covered. They can also offer additional services such as prescription drugs and dental care for the mandatory beneficiary groups and other populations with significant needs. The majority of “optional” spending (86%) pays for services to the elderly and people with disabilities. Medicaid is the largest payer of long-term care, public mental health services, and AIDS treatment. Funding for Medicaid is based on state spending and the statutory formula called Federal Medical Assistance Percentage. The federal government currently pays between 50% and 77% of all the state Medicaid spending with no predetermined limits, with higher matching rates for states with lower per capita incomes. The matching funds provide assistance for coverage of mandatory populations and services, as well as a wide range of optional services and broader population coverage. They also give incentives for states to invest in health care, since Medicaid is the largest source (44%) of all federal revenue to states. Reduction in state Medicaid spending will result in a substantial decrease in federal revenue. Like private health insurance, Medicaid purchases services from hospitals, physicians, health maintenance organizations (HMOs), and other providers in the private health care marketplace. Each state sets its own reimbursement rates, which have historically been lower than those paid by other insurers. Some physicians are thus unwilling to serve Medicaid beneficiaries, and some HMOs have ended their participation in Medicaid.

While each state has a Medicaid Fraud Control Unit that monitors the safety net program, some of the largest and most complex state Medicaid programs (e.g., New York) have reported cases of service providers exaggerating their billings, charging for services that never occurred, and prescribing unnecessary but expensive drugs to “patients” who sell them on the black market. Such abuse is costing the programs billions of dollars and taking away resources from patients who depend on the programs. In recent years, in addition to restricting provider payments and intensifying fraud control, many states have reduced services in response to sharp declines in state revenues and large budget shortfalls. In early 2004, the federal government, which faces an annual federal deficit of more than $400 billion,rift gold proposed to cap federal Medicaid matching payments and to enforce a state maintenance of effort requirement. Health and Human Services has also approved comprehensive waivers in the past few years that allow states to impose enrollment caps, enrollment fees, or higher copayments. Given that Medicaid is the primary source of health and long-term assistance for individuals with the most complex health care needs and the least amount of resources, some worry that any cost-cutting measure would further disadvantage the nation’s most vulnerable population.