An Introduction to the Current Issues in Medicaid

Last week, the Bipartisan Policy Center joined with the Kaiser Family Foundation to hold a private, off the record meeting to discuss flexibility in the management of state Medicaid programs. During the meeting, there was a very thoughtful and productive conversation between administration officials, state Medicaid Directors, Congressional staff, providers and other key stakeholders. Be sure to check out this excellent paper by the Kaiser Family Foundation (KFF), Federal Core Requirements And State Options In Medicaid: Current Policies And Key Issues, which provides a clear and comprehensive picture of the current issues facing the Medicaid program.

Medicaid plays a more significant role in caring for our nation’s health than many people realize; in 2003, the program provided coverage to one-fifth of all American children and paid for one-third of all childbirths. In some states, such as Texas, Medicaid pays for over half of all births. Whether or not Medicaid dramatically expands over the next decade, the program is a vital part of our nation’s safety net that must be reformed and improved if it is going to remain tenable.

More so than ever, Medicaid is dual federal-state program to administer health benefits to low-income Americans. Because states are responsible for administering the Medicaid program, Medicaid is more accurately described as 50 different programs. While the federal government sets the policy, so long as they meet minimum federal requirements, states are permitted to manage the program in their own way. For example, according to KFF, all states must provide physician and hospital benefits, but can chose to provide prescription drug, dental, or home health services. This has led to a great deal of variation in the management of Medicaid across state lines, with different benefit packages, eligibility levels, and provider payments influenced by diverse state needs and budgetary concerns.

Though Medicaid is an essential health safety net for many Americans, it imposes a significant and growing strain on all state budgets. In some states, Medicaid is the largest line item in the budget. The Medicaid program is jointly funded by the states and the federal government, with the federal government matching dollars spent by states at a slightly higher rate. According to KFF, on average, the federal government pays 57% of a state’s Medicaid program costs, but that number can be as high as 75% in some poorer states.

In 2009, state revenues dropped by one-third, the largest single decrease in 60 years, according to the US Census Bureau. Many states are concerned that they cannot sustain the Medicaid program at its current levels and are cutting services to make ends meet. Twenty states implemented benefit restrictions in the past year. In fiscal year 2010, 39 states implemented Medicaid provider rate cuts or freezes (up from 33 in fiscal year 2009), and 37 states have provider rate restrictions planned for the next fiscal year.

The new health care law, the Patient Protection and Affordable Care Act (PPACA), requires that states maintain their current income eligibility levels between now and the end of December 2013. PPACA calls for a significant expansion of Medicaid income eligibility – starting in 2014, all Americans up to 133% of the federal poverty level will be eligible for Medicaid. If a state violates the requirement to maintain eligibility levels (called “maintenance of effort” or “MOE”), that state will lose all federal matching funding for its entire Medicaid program until the violation is corrected. Though the federal government will cover 95% of the cost of the newly eligible Medicaid population between 2014 and 2019, KFF estimates that expansion will cost already cash-strapped states about $21 billion in total, an average change in baseline spending of 1.4% for states during that 5 year period. Another estimate found that states could pay up to $90 billion over a 14 year period for the expansion.

On June 30, 2011, states will lose critical funding to run Medicaid. Starting with the American Recovery and Reinvestment Act of 2009, the federal government offered states enhanced federal matching funds for Medicaid. The extra funding helped states cope with Medicaid enrollment increases during the recession (in 2009, Medicaid enrollment rose by 3.69 million people, the largest single year increase since the program started in 1966). When the enhanced Federal Medical Assistance Percentage (FMAP) ends, MOE will remain in place. Organizations such as the National Governors Association (NGA) and the Republican Governors Association (RGA) have written letters to federal leaders calling for flexibility in MOE requirements.

We’ll do a deeper dive into some of the issues facing Medicaid, including long-term care financing and care for dual eligibles, in subsequent posts. For more information, please see the KFF paper here.