Correcting Five Myths About Medicaid
September 24, 2013
As states consider whether to adopt health reform’s Medicaid expansion and some federal policymakers promote radical structural changes in the program (such as converting it to a block grant or establishing a per capita cap), critics have circulated a number of myths about Medicaid. This brief report corrects five of these myths by providing the corresponding reality for each.
Reality: Medicaid Is Efficient
Some claim that Medicaid is an inefficient program whose costs are growing out of control. That’s a myth. Medicaid’s per-beneficiary costs are lower than for private insurance, and its costs have been growing more slowly than employer coverage.
Medicaid provides more comprehensive benefits than private insurance at significantly lower out-of-pocket cost to beneficiaries, but its lower payment rates to health care providers and lower administrative costs make the program very efficient. It costs Medicaid much less than private insurance to cover people of similar health status (see Figure 1).
Over the past 30 years, Medicaid costs per beneficiary have essentially tracked costs in the health care system as a whole, public and private. And over the past decade, costs per beneficiary grew much more slowly for Medicaid than for employer-sponsored insurance. Over the next decade, Medicaid is expected to grow no more rapidly through 2021 than spending per beneficiary with private insurance.
In fact, the Congressional Budget Office (CBO) now projects that Medicaid spending between 2011 and 2020 will be $311 billion — or 9.2 percent — lower than it projected in August 2010, largely due to slower expected growth in per-beneficiary costs. (These CBO projections exclude health reform’s Medicaid expansion and the effects of the Supreme Court decision upholding health reform.)
Reality: States Have Considerable Freedom to Design Their Own Programs
Some claim that Medicaid is a rigid, “one-size-fits-all” program and that policymakers need to block-grant it and make other radical changes to give states meaningful control over their Medicaid programs. But, in reality, Medicaid already provides states with significant flexibility to design their own programs — whom they cover, what benefits they provide, and how they deliver health care services.
The federal government sets minimum standards — certain “mandatory” populations that every state must cover and benefits it must provide — but beyond that, states are free to set their own rules. For example, states have broad flexibility to decide which “optional” populations they will cover and at what income levels. As a result, Medicaid eligibility varies significantly from state to state.
Medicaid benefit packages vary significantly from state to state as well, since states have flexibility to determine whether they cover services like dental and vision care for adults and can define the amount, duration, and scope of the services they provide.
States also have flexibility over whether Medicaid delivers health care services through managed care, fee-for-service, or other types of delivery systems and how much they pay providers and plans that serve Medicaid beneficiaries.
Reality: Medicaid Beneficiaries Have Much Better Access to Health Care Than the Uninsured
Contrary to the implausible claim that Medicaid coverage is worse than no coverage at all, numerous studies show that Medicaid has helped make millions of Americans healthier by improving access to preventive and primary care and by protecting against (and providing care for) serious diseases.
Notably, a landmark study of Oregon’s Medicaid program found that, compared to similar people without coverage, people with Medicaid were 40 percent less likely to have suffered a decline in their health in the previous six months. They were also more likely to use preventive care (such as mammograms for women), to have a regular office or clinic where they could receive primary care, and to receive diagnosis of and treatment for depression and diabetes. In addition, research published in the New England Journal of Medicine reported that expansions of Medicaid coverage for low-income adults in Arizona, Maine, and New York reduced mortality by 6.1 percent.
Moreover, people with Medicaid in Oregon were 40 percent less likely than those without insurance to go into medical debt or leave other bills unpaid in order to cover medical expenses. In fact, the latest research from Oregon found that Medicaid coverage “almost completely eliminated catastrophic out-of-pocket medical expenditures.”
Urban Institute researchers also found that Medicaid provides beneficiaries with access to health care services that is comparable to what they would receive through employer-sponsored insurance but at lower cost. If these beneficiaries were uninsured, they would be significantly less likely to have a usual source of care and more likely to forgo needed health care services.
Reality: Health Reform’s Medicaid Expansion Is a Very Good Deal for States
Health reform calls for states to expand Medicaid to all non-elderly near-poor individuals (though the 2012 Supreme Court ruling upholding health reform made this expansion optional for states).
While some have claimed that the Medicaid expansion will cripple state budgets, in reality it will cover millions of low-income people at a very modest cost to states — and savings in state-funded services for the uninsured will offset part (and possibly all) of that cost.
- The federal government will pick up nearly 92 percent of the cost of the Medicaid expansion over its first ten years (2014-2023), according to the CBO.
- States will spend just 2.3 percent more on Medicaid with the expansion than they would have without health reform, CBO finds (see Figure 2).
- This 2.3 percent figure overstates the net impact on state budgets because it doesn’t reflect the large savings that states and localities will realize in health care spending for the uninsured. The Urban Institute estimates that states will save between $26 and $52 billion in this area from 2014 through 2019. The Lewin Group estimates the state and local savings at $101 billion.
Reality: Medicaid Beneficiaries Generally Don’t Have Access to Private Coverage
Another myth regarding health reform’s Medicaid expansion is that it will force large numbers of people out of private coverage. That’s not true, either. The overwhelming majority of people who would get coverage under the expansion are low-income and uninsured, and they generally can’t afford private health care. Many of them work in low-wage jobs for small firms or service industries that typically don’t offer health insurance benefits. In addition, unsubsidized coverage in the individual insurance market would be unaffordable for most of those who would be eligible for the Medicaid expansion.
- 81 percent of workers earning less than 138 percent of the poverty line — the threshold for qualifying for Medicaid under health reform — don’t get coverage through their employer (see Figure 3).
- The median annual cost of single coverage in the pre-health reform individual market, including premiums and out-of-pocket costs, would have consumed more than one-third of the total income of a family of three at the poverty line.
States that expanded Medicaid in the past by raising income eligibility levels for adults reduced the ranks of the uninsured without undermining private coverage. In states that expanded Medicaid, about the same proportion of Medicaid-eligible adults had private coverage as in states that didn’t expand, but the expansion states had a much lower proportion of uninsured low-income residents.
 Paul Van de Water, “Projected Medicare and Medicaid Spending Has Fallen by $900 Billion,” Off the Charts Blog, May 25, 2013, http://www.offthechartsblog.org/projected-medicare-and-medicaid-spending-has-fallen-by-900-billion/.
 Amy Finkelstein, Sarah Taubman, et al., “The Oregon Health Insurance Experiment: Evidence from the First Year,” National Bureau of Economic Research Working Paper No. 17190, July 2011, http://www.nber.org/papers/w17190. See also Judy Solomon, “Does Medicaid Matter? New Study Shows How Much,” Off the Charts blog, July 7, 2011, http://www.offthechartsblog.org/does-medicaid-matter-new-study-shows-how-much/.
 Katherine Baicker, Sarah Taubman et al., “The Oregon Experiment — Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine; May 2, 2013, 368:1713-1722.
 Benjamin Sommers, Katherine Baicker, and Arnold Epstein, “Mortality and Access to Care among Adults after State Medicaid Expansions,” New England Journal of Medicine; September 13, 2012, 367:1025-1034.
 Teresa Coughlin et al., “What Difference Does Medicaid Make?” Kaiser Commission on Medicaid and the Uninsured, May 2013, http://kaiserfamilyfoundation.files.wordpress.com/2013/05/8440-what-difference-does-medicaid-make2.pdf.
 Matt Broaddus and January Angeles, “Medicaid Expansion in Health Reform Not Likely to ‘Crowd Out’ Private Insurance,” Center on Budget and Policy Priorities, June 22, 2010, http://www.cbpp.org/cms/?fa=view&id=3218.