Medicaid: Health Care on the Front Lines

Since its enactment in 1965, Medicaid has been a core element of the nation's health care safety net. From its welfare-based roots as the medical assistance program for the aged and disabled and for families with dependent children receiving care assistance, Medicaid has evolved into a major source of health insurance coverage for low-income families, a vital complement to Medicare for many of that program's poorest and sickest beneficiaries, and the nation's primary support for those with chronic care and long-term care needs.

As Medicaid's role has expanded over the years, so have its costs. These have contributed to rising concerns about the program's structure and future sustainability, making Medicaid a target for reforms that could fundamentally reshape its role.

An Expanding Safety Net
New health insurance coverage estimates for 2004, issued by the Census Bureau on August 30, once again highlight Medicaid's critical role in offsetting growth in our uninsured population. In 2004, the number of uninsured Americans increased by 860,000, to 45.8 million people—but this was moderated by additional Medicaid coverage of 1.9 million. Today, without Medicaid, 28 million low-income children and 15 million parents, as well as 9 million people with disabilities, would potentially be without any health coverage and added to the uninsured total.

Medicaid provides health coverage to many who have nowhere else to turn—those too poor to afford private coverage; those impoverished by nursing home costs; those with physical, mental, or developmental disabilities for whom private coverage is inadequate or unavailable; and those Medicare beneficiaries who are the poorest and sickest but lack supplemental coverage or the means to pay Medicare's premiums and cost-sharing. The 55 million low-income individuals who count on Medicaid for assistance include one in four American children, two-thirds of nursing home residents, and 18 percent of Medicare beneficiaries.

Cost Analysis in Context
Costing nearly $300 billion this year to the federal government and the states, Medicaid is often criticized as a costly and overly expansive public program. The program's costs, however, reflect the many gaps in our health care system, as well as the high cost of caring for very sick and chronically ill people in a nation that spends more on health care per capita than any other country. When Medicaid is providing care to relatively healthy low-income children, its costs are below those of private insurance. What dominates Medicaid spending is coverage of the health and long-term care needs of the aged and disabled: while children make up half of all enrollees, more than 70 percent of Medicaid's dollars are spent on one-quarter of enrollees who are elderly and disabled.

Over the last few decades, Medicaid has shown that health coverage matters for low-income populations. Access to and utilization of care among those with Medicaid coverage is comparable to the privately insured and substantially better than that of the uninsured. Medicaid's role in helping the elderly and disabled has eased the financial burden of chronic care and provided support for more community-based and home care as an alternative to nursing homes. But Medicaid's capacity to respond to our growing uninsured population and our aging society is increasingly strained by rising health costs and limits on the program's fiscal resources.

Care Coordination
As the states and federal government discuss how to curb Medicaid spending and reshape the program, it is increasingly clear that effective solutions must address more than Medicaid alone. Greater flexibility to impose cost-sharing or scale back benefits could reduce program costs by reducing utilization or shifting more costs onto the poor and their providers. Such strategies, however, will not achieve significant savings. Nor will they facilitate Medicaid's ability to adequately pay its providers and provide quality care to needy beneficiaries. While limiting the federal government's financial commitment in return for broader state discretion over program design may ease the financial strain on the federal treasury, doing so leaves states with few new tools to restrain spending and less assistance in meeting the needs of an aging population and the growing ranks of uninsured. Investing in new approaches to coordinate care between Medicare and Medicaid, making quality improvements to deliver care more effectively to the program's low-income beneficiaries, and implementing more effective purchasing policies to improve performance and reduce costs all offer opportunities for containing costs and improving care.

The primary problem with Medicaid is that we ask it to fill the many holes in our health care system—our lack of universal coverage, our lack of assistance with the high cost of long-term care, and Medicare's limited coverage of the health care needs of its elderly and disabled beneficiaries. As these gaps grow, Medicaid's role, and costs, grow as well. The solution to Medicaid's rising costs and expanding role is really to make the program less necessary by addressing the broader reforms needed in our health care system. If the nation had universal health insurance coverage and provided long-term care coverage as part of Medicare's assistance to the elderly and disabled, Medicaid's future sustainability would not be in question.

But, in the absence of these broader solutions, we need to find ways to maintain and shore up, not dismantle or further fray, Medicaid's safety net. Medicaid keeps millions of Americans from being uninsured and enables many of our poorest and sickest citizens to obtain or afford the care they need. It provides our community clinics and safety net hospitals with a critical source of support for the care they provide to the indigent and uninsured people they serve. And, in times of disaster—such as what we now see in the aftermath of Hurricane Katrina—states and the federal government have the ability through Medicaid to respond rapidly to the health coverage needs of displaced and needy victims. Thus, as we work for broader solutions, it is important to provide adequate and stable funding for Medicaid to support its ability to maintain coverage for its 55 million beneficiaries, extend coverage to the millions of low-income adults who are uninsured, and help needy Americans who are chronically ill or have disabilities obtain the care they need.

Diane Rowland is the executive vice president of the Henry J. Kaiser Family Foundation and the executive director of the Kaiser Commission on Medicaid and the Uninsured.

The views presented in this commentary are those of the author and should not be attributed to The Commonwealth Fund or its directors, officers, or staff.

To read a New England Journal of Medicine commentary about Medicaid by Diane Rowland, click here.