Medicaid Is Not an Alternative to a New Public Health Insurance Option

Medicaid is being used as an argument against the need to create a new, national public health insurance option. But Medicaid is not a good model for, nor an alternative to, the proposed new public health insurance plan. Medicaid varies too widely from state to state, its funding is unstable, its low provider payment rates lead to low provider participation, and its onerous application requirements keep many eligible people from enrolling. In addition, Medicaid has been largely handed over to private insurance companies, so it is no longer a truly public program.

First let's be clear about what Medicaid is. Many people confuse the Medicaid and Medicare programs, but they are very different.

Medicaid is the joint federal and state health insurance program for people with low incomes who meet certain criteria, such as being parents, children or older adults, or having a disability. Medicaid is different in every state.

Medicare is a federal health insurance program that covers virtually all U.S. residents age 65 or older, and younger people with long-term disabilities, regardless of income. Medicare is the same nationally.

Proponents of a new national public health insurance program often refer to it as "Medicare-like," not "Medicaid-like." As Jacob Hacker, Professor of Political Science at U.C. Berkeley, Co-Director of the Center for Health, Economic & Family Security at the U.C. Berkeley School of Law, and Fellow at the New America Foundation, explains it:

"The public plan would be similar to conventional Medicare (the "public Medicare plan," as distinguished from private plans that contract with Medicare) in that it would be managed by the federal government and pay private providers to deliver care."

It is opponents of a public health insurance option that use a comparison to Medicaid in an attempt to undermine the proposal.

The fact is Medicaid is not a good model for, nor an alternative to, the proposed new national public health insurance plan option for several reasons:

1. Medicaid varies widely from state to state. Federal law sets a minimum standard, but each state has discretion in deciding who is eligible for Medicaid and what the program will cover. For example, according to a report by the Urban Institute:

"[There is] considerable variation among states in Medicaid eligibility standards for the aged, blind, and disabled. Even within a single state, several income and resource standards may apply to these populations. In addition to Medicaid's administrative structure and piecemeal evolution, variations are due to states' choices regarding available coverage options. Many states do not take advantage of the broadest options. Financial and political considerations may limit states' choices."

Another example can be found in how states cover home and community-based services (HCBS). According to the Judge David L. Bazelon Center for Mental Health Law, states can vary in where and how the HCBS services are covered, as well as in who can get them:

"Services do not have to be offered statewide, but can be limited to a specified geographic area... Not all individuals who qualify need to be served. Instead, states may place caps on the numbers of people enrolled... States may establish waiting lists for services... There are eight different services that can be covered as part of a HCBS state plan option."

2. Medicaid funding is unstable. Medicaid is partially funded by the states, making it susceptible to state budget pressures. Those pressures are increased by the fact that, unlike the federal government, most states must balance their budgets. For example, a Families USA report found that:

"Another unfortunate effect of the economic crisis is the decline in state revenues and the resulting growth in state budget deficits across the country. As of November 2008, at least 43 states have faced or are facing budget deficits for the current 2009 fiscal year and/or the coming 2010 fiscal year that, taken together, total $140 billion. In response to this extreme fiscal pressure, states are forced to cut their Medicaid and CHIP budgets...

"Nineteen states have enacted or proposed Medicaid or CHIP cuts for fiscal year (FY) 2009 or FY 2010... Six of the 19 states are already considering a second round of cuts in their FY 2009 or 2010 budgets. The cuts include 1) actions that will make it harder for new families to get coverage and for those currently enrolled to keep their coverage (cuts in eligibility and enrollment), and 2) actions that will prevent currently enrolled families from getting health care (cuts in provider reimbursement, cuts in benefits, and increases in cost-sharing)."

In addition, how much each state spends on people with Medicaid varies widely. According to a report by the Urban Institute:

"Variation in the amounts states spend out of their own funds per beneficiary or per low-income individual is vastly greater than variation in total Medicaid spending. Connecticut is at the top of the range, spending over $2,400 per low-income individual in 1994-the same as the federal share since Connecticut receives the minimum 50 percent match. This is about 9 times as much per low-income person as is spent by states at the bottom of the range, such as Arkansas, Idaho, Mississippi, and Oklahoma. Total Medicaid spending per low-income person, in contrast, varies from a low of just under $1,000 in Oklahoma to a high of over $4,800 in Connecticut, about 5 times as much as Oklahoma spends. Lower levels of spending occur in low-income states despite the fact that one dollar of state spending brings in about three dollars of federal funds in those states, compared with only one dollar in high-income states."

3. Medicaid provider payment rates are often well below Medicare's so many providers do not participate in the program. On average, in 2008 Medicaid programs across the country paid 72 percent of the Medicare fee for all medical services. Medicaid provider reimbursement rates were as low as 37 percent of the Medicare rate in New Jersey. These low reimbursement rates lead to fewer physicians accepting patients with Medicaid:

"Since the beginning of the Medicaid program in the late 1960s, there has been concern about securing enough program participation from office-based primary care physicians to create viable and accessible provider networks for use by Medicaid enrollees. In general, prior research suggests that relatively low reimbursement levels in Medicaid, relatively strong demand for services from private paying patients, and the geographic separation of physicians and Medicaid enrollees all contribute to limited Medicaid participation by office-based physicians."

4. Medicaid has onerous application requirements that keep many eligible people from applying and cause a lot of gaps in coverage through renewal requirements. According to a report by the National Academy for State Health Policy:

"Research and state experiences support the idea that simplifying enrollment and renewal processes can promote enrollment of eligible children, reduce unnecessary loss of coverage and promote continuous coverage for children. Key enrollment strategies that have shown some promise according to research and expert opinion include simplifying the application process, reducing income and eligibility documentation, eliminating asset tests, adopting presumptive eligibility and coordinating Medicaid and SCHIP eligibility processes...

"Experts also described simplifying the renewal process as being critical to efforts to promote enrollment of eligible people in public programs."

5. Medicaid has been largely privatized. Most people with Medicaid in the U.S.—over 64 percent in 2007—get their Medicaid benefits through a private managed care plan that contracts with the state. In 21 states, between 71 and 100 percent of residents with Medicaid get their benefits through a private plan (see map below). Medicaid, therefore, can no longer be considered a truly government-administered public health insurance program.

So don't let anyone convince you it is OK to rip the heart out of Obama's health care plan! Learn more about why a public health insurance option is vital if want to provide quality, affordable health care for everyone.

And then stand with President Obama and Dr. Howard Dean to demand the choice of public health insurance by signing the petition today!

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future