Fifty years ago last month, President Lyndon B. Johnson signed Medicare and Medicaid into law. Press coverage of Medicare overshadowed Medicaid then, but Medicaid now provides health coverage to more Americans than any program.
More than one in five people in the U.S. are insured by Medicaid. It covers almost half of all births, one-third of children, and two-thirds of people in nursing homes. Since January 2014, when the Affordable Care Act (ACA) began, enrollment has grown to more than 70 million people (picture above is President Obama signing the ACA into law on March 23, 2010).
Unlike the Medicare, which is a social insurance program mostly funded by the federal government (and partly by a payroll tax on workers, and premiums paid by beneficiaries), Medicaid is a mean-tested and needs-based social protection program funded jointly by the states and the federal government. This means that Medicaid eligibility is determined largely by income and financial resources, which plays no role in deciding Medicare coverage.
Medicaid also covers a wider array of health care services than Medicare does. There are two basic types of Medicaid coverage: One helps low-income people with little or no health insurance; and the second is for nursing home coverage. Some citizens are eligible for both Medicare and Medicaid and are referred as “dual eligible” beneficiaries.
Within broad federal parameters, the states administer their own programs, and have flexibility to set rules for eligibility, participant benefits, and rates of payments to providers. This has led to a broad range of standards that vary considerably among the states.
The federal government pays somewhere between 50-83% (the average is 57%) of the states’ Medicaid costs, in the form of a matching grant. The matching rate for each state is determined by a federal formula based upon the per capita income of respective states. Wealthier states receive at least 50%, and poorer states more.
Even before the ACA, Medicaid had become a major budget item for most states, and spending averages 16.8% of general funds for the program among them. Because Medicaid has continued to grow as a percentage of the budget over the years, financial support for Medicaid in many states has been somewhat grudging.
The ACA (aka Obamacare) significantly expanded eligibility and funding for Medicaid. Prior to the ACA, Medicaid primarily covered low-income populations – those below the federal poverty line (FPL) – of children, pregnant women, and the disabled. When the ACA passed in 2010, it required all states to expand Medicaid coverage to all people (including adults without children) under the age of 65 with an income up to 133% of the FPL (the law also affords for a 5% “income disregard”, making the effective income eligibility limit 138% of the FPL).
To make the ACA more palatable to the states, the federal government agreed to pay 100% of the cost of Medicaid expansion in 2014, 2015 and 2016; 95% in 2017, 94% in 2018, 93% in 2019, and 90% in 2020 and all subsequent years. Despite these incentives, many states objected, and in 2012 a Supreme Court ruling made expansion in each state optional.
So far, 30 of 50 states and the District of Columbia have expanded their programs. States that have not expanded Medicaid coverage can keep pre-ACA funding levels and eligibility standards, and all but one of these 20 states still do not cover adults without children. Of the 20, 17 of them limit parent eligibility for Medicaid to less than 100% of the FPL; and of the 17, 13 of those are less than 50% of the FPL, with Alabama and Texas having the lowest threshold at 18% of the FPL.
The reasons for not expanding Medicaid by these states vary, but many governors and state legislators didn’t like Medicaid before the ACA, and some even labeled the program a burden on the nation’s hardworking, taxpaying public. This message resonates with many voters, especially those who are employed or retired, and paid taxes most or all of their working lives. This group has far more influence with lawmakers than Medicaid’s beneficiaries, most of whom aren’t politically active and largely don’t vote.
Many of the states that haven’t expanded Medicaid insist that even paying 10% of expansion costs (as federal subsidies subside) will strain their budgets. Some also claim that if the federal government eventually pulls back from paying 90%, they will have to pick up more of the tab. Several of them also argue that once Medicare is expanded it will be very difficult politically to retract the program.
Initially, many policy experts believed that the promise additional federal funding would entice more states to expand Medicaid, as that influx of money would be really significant. But many of these policy wonks now admit that they had underestimated how strong the politics around Obamacare would be. To many, it seems that ideology, rather than policy or funding, is the primary reason some states are against expansion.
Nonetheless, most experts think that all states will eventually expand Medicaid in the next 8-12 years, as the funding is too compelling. It should also be recalled that Medicaid itself was (and still is) optional, and that it took 17 years for Arizona to become the fiftieth state to adopt it in 1982.
However, significant concerns over the ACA and Medicaid expansion remain. Opponents warn that demographic trends will cause Medicaid expenditures to grow rapidly. Currently, over one-third of America’s youth are already on Medicaid, and that number is expected to reach 44% if current economic and employment trends continue. In addition, as the huge baby-boom generation continues to age, many more poor seniors will need Medicaid funding for nursing home stays.
Medicaid and the ACA are huge issues that will have enormous impact on the federal budget going forward. The total annual cost of Medicaid is more than $500 billion, with $343 billion of it federal dollars (9.3% of all federal spending). As a country we face some painful choices over how much healthcare we want to provide to our citizens, and how much we are willing to pay in taxes to support it.
In next week’s blog, I’ll write more about both of these topics. I’m in the process of studying the federal budget, and I’m asking my readers to follow along as I work toward a comprehensive and bipartisan fiscal plan. I hope to finish this process in the next several weeks.
I welcome your feedback on these topics. Feel free to leave your thoughts in the “comments“ section below. If you’d like to keep your thoughts private, please reply with an email instead.
Links to related blogs:
Options for Fixing Medicare Spending: http://www.commonsensecentrist.com/options-for-fixing-medicare-spending/
Medicare turns 50 – will it survive another 50 years? http://www.commonsensecentrist.com/medicare-turns-50-will-it-be-around-another-50-years/
Possible Solutions for Fixing Social Security: http://www.commonsensecentrist.com/possible-solutions-for-fixing-social-security/
A Fiscal Straightjacket: http://www.commonsensecentrist.com/a-fiscal-straightjacket/