Medicaid is the publicly financed health insurance program for millions of the nation’s poor and vulnerable populations. Funded by federal, state, and in many cases, county government revenues, the program finances care for about 35 million people, including families with children, persons with disabilities, individuals in nursing homes and low-income elderly.
Established in 1965, the program has as its funding foundation an intergovernmental partnership. On average, the federal government pays for 57 percent of the benefits of the program, with the states contributing 43 percent. The range of federal contributions to the program ranges from 50 percent to 78 percent, depending upon a state’s per capita income.
Within the program, there is a range of options states may choose from in designing their program. Consequently, the federal Medicaid program is, operationally, 50 different state programs. The federal government mandates states to serve a number of categories of individuals, including families on Aid to Families with Dependent Children (AFDC), low-income pregnant women and children, foster care children, aged blind and disabled individuals on Supplemental Security Income (SSI), and individuals who are eligible for Medicare but who do not have the income to afford the premiums for doctor visits.
There are also a number of individuals a state may choose to cover and draw federal support for them, including, children and families with incomes above those who receive services mandated by the federal law.
Within each of these groups, there are 13 types of services the state is mandated to provide, including hospital, physician and nursing facility services. There are 33 options a state may choose to provide, including dental services, prescription drugs, and services rendered by psychologists, chiropractors and optometrists.
States also have wide flexibility in determining payment levels to providers, which results in wide variations in the amount of Medicaid spent per eligible person in a state.
Medicaid costs increased 16 percent annually between 1988 and 1993 and totaled $158 billion in federal and non-federal dollars in 1995. The Congressional Budget Office projects spending to continue to grow 10 percent annually over the next seven years.
As one of the largest entitlements, it now consumes more than six percent of the federal budget and more than 20 percent of an average state’s total spending. With its double-digit growth, Medicaid is crowding out spending for other programs.
Finding ways to cut the program, however, is extremely difficult politically. A look at who receives assistance and the costs per individual helps put the budget quandary in perspective.
While adults and children account for nearly three-quarters of the Medicaid population, less than one-third of every Medicaid dollar is spent on them.
Non-elderly disabled persons comprise only 14.8 percent of enrollees, but account for 38 percent of spending.
And the elderly, while only 11.5 percent of the beneficiaries, account for 31 percent of the spending.
On a per-individual basis, spending on low-income children averaged about $1,200 per child in 1993, compared to $8,000 for persons with disabilities, and $9,300 for the elderly. Consequently, the biggest consumers of Medicaid are those individuals who have political power or have health needs which are not easily reduced.
While there is some evidence that managed care for children and families saves some money at least in the short-term, there is little experience with that system of health care for the much more expensive Medicaid populations.
The program has become a virtual automated teller for health care. One of three births is paid by Medicaid. Nearly half of the long-term care facility costs are funded with Medicaid dollars and more than half of the children on the program are from working families.