MEDICAID

Enacted in 1965, Medicaid is the major public financing program for providing health and long-term care coverage to the low-income population of the United States. It was originally enacted as a means of providing funds to help states provide health care for welfare recipients and has evolved into a program that finances care for more than one in seven Americans. Medicaid enables millions of Americans to gain access to needed health services, helping to close the gaps in care between the poor and nonpoor, ease the financial burdens of health care, and provide a health care safety net for the nation.

Authorized under Title XIX of the Social Security Act, Medicaid is a means-tested entitlement program financed by the states and the federal government and administered by the states. Federal financial assistance is provided to states for coverage of specific groups of people, and benefits are paid for by the states and through federal matching payments based on each state's per capita income. The federal share ranges from 50 to 80 percent of Medicaid expenditures and averaged 56.5 percent in 1998. State participation in the Medicaid program is voluntary, but all states have chosen to participate.

MEDICAID COVERAGE

Although Medicaid was created to assist low-income Americans, coverage is dependent upon several other criteria in addition to income. Eligibility is primarily for those persons falling into particular categories, such as low-income children, pregnant women, elderly people, people with disabilities, and parents not exceeding specific income thresholds. Single adults are generally ineligible, no matter how poor, unless they are disabled. Within federal guidelines, states set their own income and asset eligibility criteria for Medicaid, resulting in large variations in coverage among states.

In 1998, 40.4 million people were enrolled in Medicaid. This included 20.7 million low-income children and 8.6 million low-income adults in families with children. The vast majority of adults were women. Historically, most women and children have been eligible for Medicaid because they received cash assistance through Aid to Families with Dependent Children (AFDC). Over time, eligibility was expanded to women and children not receiving welfare. The Temporary Assistance to Needy Families (TANF) welfare reforms implemented in 1996 officially severed the automatic link between Medicaid coverage and cash assistance for families.

There were 4.1 million elderly persons covered by Medicaid in 1998. Some elderly persons are eligible because they receive cash assistance through Supplemental Security Income (SSI), and others have incomes too high to qualify for cash assistance but spend-down to Medicaid by incurring high health care expenses. Many elderly Medicaid beneficiaries are "dual eligibles," or people who receive both Medicare and Medicaid. These people rely on Medicaid for assistance with Medicare's cost-sharing requirements and premiums, and sometimes for coverage of services not included in the Medicare benefits package (i.e., long-term care or prescription drugs).

Medicaid also covered 7.0 million blind and disabled persons in 1998. Most disabled persons

Figure 1

are eligible for Medicaid because they receive SSI cash assistance, though some spend-down to eligibility. Some disabled Medicaid beneficiaries are also dual eligibles.

From the perspective of whom is served, Medicaid is predominantly a program assisting low-income families, but from the perspective of how Medicaid dollars are spent, Medicaid funds primarily serve the low-income aged and low-income disabled populations. Adults and children in low-income families make up nearly three quarters (73%) of enrollees, but account for only 25 percent of spending (see Figure 1). In contrast, the elderly and disabled account for 27 percent of enrollees and the majority (67%) of spending, largely due to their intensive use of acute care services and the costliness of long-term care in institutional settings. In 1998, the average per capita cost for a child on Medicaid was __BODY__,225, almost all of which went to basic acute care, while the corresponding figures for the disabled and elderly were $9,558 and $11,235, respectively, a significant portion of which went to long-term care services.

Although Medicaid is a key source of coverage for the low-income population, in 1998 it covered

Figure 2

only about a quarter of nonelderly Americans with incomes below 200 percent of the poverty level. Limits on coverage were largely due to limits on eligibility, especially for adults, and enrollment obstacles for those who are eligible. The decoupling of Medicaid and welfare, as well as the 1997 State Children's Health Insurance Program to extend coverage additional low-income children, offers states new opportunities to extend Medicaid coverage to millions of low-income children and their parents. Many states, however, have yet to draw on this new flexibility to extend Medicaid.

COVERED SERVICES

Medicaid covers a broad range of services with nominal, if any, cost sharing by beneficiaries. Every individual entitled to Medicaid is guaranteed a minimum package of federally mandated services, including:

Inpatient and outpatient hospital care
Physician, midwife, and certified nurse practitioner services
Laboratory and X-ray services
Nursing home care and home health care

Figure 3

Early and periodic screening, diagnosis, and treatment (EPSDT) for children under twenty-one years of age
Family planning
Rural health clinic/federally qualified health center services

States also have the option to cover additional services and still receive federal matching funds. Commonly offered services include prescription drugs, clinic services, case management, hearing aids, dental care, and intermediate care facilities for the mentally retarded (ICF/MR).

Because they are so costly, long-term care services account for a significant amount of Medicaid spending. Of the $169.3 billion spent in 1998 (see Figure 2), 38 percent was spent on long-term care services, primarily nursing home care. Acutecare services were about half (53%) of total spending, with nearly half of all acute-care spending allocated for premiums to managed care organizations (MCOs). About 9 percent of Medicaid spending does not go directly to benefits for enrollees, but provides supplemental payments for hospitals with a disproportionately large population of indigent patients; these are called disproportionate share hospital payments (DSH). These additional payments are intended to enable these hospitals to

Figure 4

offset some of the costs of providing services to uninsured patients.

CARE DELIVERY

Traditionally, Medicaid services have been delivered on a fee-for-service basis. Beginning in the 1990s, however, many states began to look to managed care as a model of service delivery in an effort to decrease costs and emphasize primary care and care coordination. Medicaid managedcare models range from health maintenance organizations (HMOs) that use prepaid capitated contracts to loosely structured networks that contract with selected providers for discounted services and use gatekeeping to control utilization.

States initially targeted low-income families for managed-care enrollment, but efforts to enroll aged or disabled beneficiaries increased in the late 1990s. In 1997, states were given more latitude in using Medicaid managed care under the Balanced Budget Act (BBA) of 1997, including the authority to mandate managed-care enrollment for most Medicaid populations. AS of June 1999,17.8 million Medicaid beneficiaries—over half of all Medicaid beneficiaries—were enrolled in managed care, a sixfold increase from the 2.7 million enrolled in 1991.

States may also seek waivers of federal Medicaid rules to design new service delivery models for Medicaid beneficiaries. Home and community-based service (HCBS) waivers (also called 1915(c) waivers) are often used by states to deliver targeted community-based care for frail elderly or disabled individuals. Although all states have such waivers, the population served remains small.

TRENDS IN ENROLLEE AND EXPENDITURE GROWTH

Medicaid enrollment rose dramatically in the early 1990s, peaking at 41.7 million beneficiaries in 1995 (see Figure 3). This growth was mostly attributable to expanded coverage of low-income pregnant women and young children and increases in the number of blind and disabled beneficiaries. However, from 1995 to 1998, enrollment declined, especially for low-income adults and children eligible for Medicaid based on receipt of cash assistance under welfare programs, due in part to state and federal changes in welfare and immigration policy.

During the early 1990s, Medicaid expenditures grew nearly 30 percent annually, due to a combination of health care inflation, state use of alternative financing mechanisms, and an increase in enrollment. Only a small fraction of spending growth was due to the expansions in coverage of low-income pregnant women and children (see Figure 4). Legislation enacted to limit the states' capacity to raise funds through provider taxes and to limit DSH payments played a role in slowing Medicaid spending growth during these years. By 1995, growth in annual expenditures had dropped to under 10 percent, and it had nearly leveled off by 1998 rising less than 4 percent annually from 1995 to 1998.

MEDICAID'S IMPACT

Since the mid-1960s, Medicaid has been a major force in shaping health and long-term care services for the most vulnerable and needy Americans. In the year 2000, Medicaid covered more Americans than any other health insurer, accounted for 15 percent of the nation's spending on health care, and was the major source of federal financial assistance to the states, accounting for 40 percent of all federal grant-in-aid payments to states. It covers one-quarter of all American children, 40 percent of all births, and is the single largest source of public financing for HIV/AIDS (human immunodeficiency virus/acquired immunodeficiency syndrome) care. Medicaid is also the only significant public program providing financing for long-term care, covering 70 percent of nursing home residents and nearly half of nursing home costs nationwide. It has impacted every sector of health care in America, from hospital care to nonmedical support services.