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Revisiting Medicaid

In the American Health Care Act (AHCA), recently passed by the House of Representatives as a replacement for the Affordable Care Act (ACA), a key element is restructuring how Medicaid is financed. One effect of this legislation is focusing attention beyond how Medicaid’s financing is structured, to examine how well it has been performing as a public insurance program.

Gail Wilensky, PhD

(Image: Ted Grudzinski/AMA)

Some conservatives want to focus on Medicaid’s traditional challenges of lower physician participation compared with private insurance plans, especially for some specialty areas. Occasionally, some may even challenge whether Medicaid is better than being uninsured. Some liberals want to counter these challenges by focusing on how much less Medicaid spends covering individuals than do most other types of insurance or how much effect Medicaid has on providing a usual source of care or on lowering financial outlays of previously uninsured people.

As is frequently the case, there is some truth in most of these claims—although not for the extreme position that having Medicaid is worse than being uninsured. Documenting the positive effects on near-term improvements in health outcomes is challenging, but access to care, well-baby checkups, and other preventive measures increase with Medicaid. It is hard to image how such improvements would result in worse health outcomes.

Effects of Medicaid Expansion

The 31 states that expanded Medicaid under the ACA to cover individuals with incomes up to 138% of the poverty line have seen substantially greater reductions in the number of uninsured in their states compared with those states that did not expand Medicaid. The National Center for Health Statistics’ recent release of estimates of uninsured individuals in the United States indicated that the number of uninsured people in 2016 had stabilized at 28 million, approximately the same number reported for 2015.

The finding that the number of uninsured individuals has plateaued after several years of reductions is not surprising. Also not surprising is the dramatic difference in the number of uninsured adults reported for Medicaid expansion states vs nonexpansion states, 9.2% vs 17.9%, respectively.

A 2016 study by Benjamin Sommers, MD, PhD, of the Harvard T. H. Chan School of Public Health, and colleagues surveyed low-income individuals in 3 different states: Kentucky, which expanded Medicaid; Arkansas, which expanded private insurance to its low-income population; and Texas, which did not expand coverage to its low-income population. Their findings support the expectation that Medicaid (which, in most states, is managed care plans run by private insurers) or private insurance made available in place of Medicaid, provide for an increased use of health services accompanied by out-of-pocket costs lower than what would be expected with any insurance coverage. Compared with people in Texas, substantially more people in Kentucky and Arkansas reported having a usual source of care, spending less out of pocket, increasing their use of preventive health visits, increasing their medication adherence, and experiencing an improvement in their health.

All of these statistics are consistent with the expectation that providing low-income people with insurance coverage—through the traditional Medicaid program, with the use of private insurance arranged by the state for its low-income population, or some other means—results in the expected positive health effects for the low-income population. That is why many of us in both political parties think it is so important to expand access to coverage for low-income and other populations that have traditionally had lower rates of coverage than the working population or elderly.

But these outcomes do not constitute an argument for continuing Medicaid as the only major government program to be an open-ended entitlement program, in which federal spending automatically goes up if more people become eligible for the program, or if states decide to spend more on the covered population (by reimbursing hospitals or clinicians at higher rates or expanding the benefits that are covered). Before the ACA, Medicare was also an open-ended entitlement, but with the adoption of the Independent Payment Advisory Board (IPAB), that is no longer the case. Although this 15-member group has not yet been appointed, it was set up in the ACA as a mechanism to control Medicare spending. The IPAB is charged with developing proposals to reduce Medicare spending if and when it exceeds a projected target growth rate.

These recommendations would take effect unless Congress acted within a specified time to achieve the same savings through other means. Although the IPAB remains unpopular with many politicians as well as the clinician community, it is intended to impose a limit on Medicare spending that had not been previously available. It has not been needed to date because of the low rate of growth in all health care spending, including Medicare, through 2014.

Costs Outstripping Predictions

Despite all of Medicaid's successes, the expanded Medicaid enrollee costs were substantially more than had been anticipated. The higher-than-expected costs have been attributed in part to enrollees in the expanded program being sicker than anticipated and having a greater pent-up demand than anticipated to address untreated or inadequately treated illness. Another factor contributing to costs were payment rates set by states that were higher than the federal government expected. This was largely attributed to the federal government covering 100% of the costs of the Medicaid expansion through 2016; the federal share is now gradually being lowered to 90% for the expanded population between 2017 and 2020.

I recently described in a previous JAMA Forum how states used “creative financing” to sharply reduce their share of Medicaid costs and shift it to the federal government. Most of the new money for Medicaid comes only from the federal government. This, plus the recent experience of costs related to the Medicaid expansion, is why I support moving Medicaid from its current structure—an open-ended matching program, with match rates of 90% for the expansion population and 50% to 73% for the preexpansion baseline Medicaid population—to a grant with a per capita cap that meets certain requirements.

Because the expansion and nonexpansion states currently have different coverage rates, the baseline needs to be set in a way that provides for adjustments between the 2 groups of states. The rates of increase for the various populations covered by Medicaid also need to be set in a way that allows for expected increases in the cost of providing service to the affected populations.

In addition, the high federal match rate (currently 95%) for people who received coverage under the Medicaid expansion needs to be lowered more gradually than is proposed by the Republicans’ AHCA, and a compromise is needed between the higher Medicaid match rate and the base Medicaid match rate. Finally, information about a limited set of outcome metrics, such as vaginal birth rates, immunization rates for children, and preventive screening rates for adults should be required by the federal government.

No other program remains an open-ended entitlement. Medicaid needs to change as well.

About the author: Gail Wilensky, PhD, is an economist and Senior Fellow at Project HOPE, an international health foundation. She directed the Medicare and Medicaid programs, served as a senior adviser on health and welfare issues to President George H. W. Bush, and was the first chair of the Medicare Payment Advisory Commission.  She is an elected member of the Institute of Medicine.
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