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Frequently Asked Questions About Medicaid

UPDATED
June 29, 2015

Debates over health reform's Medicaid expansion and proposals to radically restructure Medicaid, such as by converting it to a block grant or imposing a per capita cap on federal funding, have raised a number of questions about the program. This report addresses some of the most important.[1]

Figure 1
Medicaid Costs 27% Less for Children, 20% Less for Adults Than Private Insurance

How Efficient Is Medicaid?

Medicaid's costs per beneficiary are substantially lower than for private insurance and have been growing more slowly than per- beneficiary costs under private 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 slower for Medicaid than for employer-sponsored insurance. Medicaid also is expected to grow no more rapidly through 2023 than spending per beneficiary for people with private insurance.

Moreover, the Congressional Budget Office (CBO) now projects that Medicaid spending between 2011 and 2020 will be $335 billion -- or 10.0 percent -- lower than it projected in August 2010, largely due to slower expected growth in per-beneficiary costs.[2] (These projections exclude health reform's Medicaid expansion.)

How Much Flexibility Do States Have to Design Their Own Programs?

Medicaid gives states 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, including specifying certain categories of people that all states must cover and certain health coverage they must provide. Beyond that, states are free to set their own rules. For example, states have broad flexibility to decide which "optional" categories of low-income people to cover, and up to what income levels. As a result, Medicaid eligibility varies substantially from state to state.

Medicaid benefit packages vary significantly from state to state as well. States have flexibility to determine whether to cover services like dental and vision care for adults and can determine 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 to pay providers and plans that serve Medicaid beneficiaries.

In addition, states have taken advantage of Medicaid's existing flexibility to improve beneficiary health outcomes while lowering costs.[3] Many of these states have employed strategies to improve the delivery of care, particularly for beneficiaries with chronic conditions who use the most care.[4] Wisconsin, for example, adopted an initiative to reduce inappropriate emergency room (ER) use among Medicaid beneficiaries. A provider organization primarily serving a Medicaid patient population identified frequent ER users, educated them on proper ER use, and made primary care appointments for them. In 2012, the provider organization reduced ER visits by 44 percent among those who kept their scheduled primary care appointments.[5]

Similarly, Vermont implemented a program in 2011 that provides care coordination and case management services to Medicaid beneficiaries with one or more chronic conditions, such as asthma and diabetes. Within a year, ER use dropped 10 percent among program participants.[6]

States like Missouri have also instituted innovative delivery system models in Medicaid, such as establishing "health homes" to coordinate care for certain categories of beneficiaries. Approved in 2011, Missouri's initiative targets beneficiaries with a mental illness and a chronic condition, such as asthma or diabetes. Health homes enrollees' blood pressure dropped by six points and LDL (bad cholesterol) fell by 10 percent over two years and one of the state's health homes saved the state $15.7 million in its first 18 months.[7]

Do Beneficiaries Have Adequate Access to Health Care?

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 with 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.[8] They were also more likely to use preventive care (such as cholesterol screenings), to have a regular office or clinic where they could receive primary care, and to receive diagnosis of and treatment for depression and diabetes.[9] 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.[10]

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 "nearly eliminated catastrophic out-of-pocket medical expenditures."[11]

Urban Institute researchers also have found that Medicaid provides beneficiaries with access to health care services that is comparable to -- but less costly than -- what they would receive through employer-sponsored insurance. 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.[12]

The Medicaid and CHIP Payment Access Commission (MACPAC) also finds access to health care to be significantly better among non-elderly adult Medicaid beneficiaries than among the uninsured. Some 88 percent of non-elderly adult Medicaid beneficiaries have a regular source of care, well more than twice the figure for non-elderly adults without coverage. Similarly, Medicaid beneficiaries are much more likely to visit a primary care physician, to visit a specialist, and to have a routine check-up.[13]

Finally, obtaining access to health care through Medicaid offers long-term benefits. For example, African Americans eligible for Medicaid for more of their childhood have fewer hospitalizations and ER visits as adults. Also, children eligible for Medicaid for more of their childhood earn more as adults and are more likely to attend and complete college.[14]

How Does Health Reform's Medicaid Expansion Affect Work Incentives?

Health reform's Medicaid expansion significantly reduces work disincentives among working-poor parents. In states that have adopted the expansion, poor parents can earn substantially more and still retain Medicaid.

Before the expansion took effect in 2014, Medicaid eligibility for working parents cut off at just 61 percent of the poverty line in the typical state, or roughly $14,550 for a family of four.[15] As a result, a poor parent would lose Medicaid if she worked more hours or took a higher-paying job, though her children would still be eligible for Medicaid or the Children's Health Insurance Program (CHIP). She could receive transitional Medicaid for a limited time but would likely end up uninsured if her employer didn't offer job-based coverage (very low-wage jobs mostly don't come with health coverage) or she couldn't afford it.

Now, in the 28 states and the District of Columbia that have expanded Medicaid under health reform, the Medicaid eligibility limit for working parents is 138 percent of the poverty line, or about $33,465 for a family of four. If a family's income rises above $33,465, the working parent can get subsidized coverage through the health insurance marketplaces.

Thus, the Medicaid expansion enables tens of millions of working parents to seek higher wages or to work more hours without forgoing health coverage. As CBO states, "some people who would have been eligible for Medicaid under prior law -- in particular, working parents with very low income -- will work more as a result of the [health reform] provisions."[16]

Expanding coverage to non-disabled, low-income adults without children, most of whom have never been eligible for Medicaid, will likely have little effect on work incentives. Using data from the Oregon Health Study, researchers found no statistically significant difference between a group of low-income adults selected for Medicaid and a control group that remained on a waiting list and uninsured, either in the share with earnings or in the amount of earnings.[17] The evidence does not support claims that enrolling in Medicaid will discourage these people from working.[18]

Some 60 percent[19] of Medicaid beneficiaries live in a family with at least one full- or part-time worker.[20] States can further encourage work among Medicaid beneficiaries by offering supportive employment services. For example, in 2007, Iowa became the first state to amend its Medicaid state plan to include a supportive employment program. The state receives federal Medicaid dollars to help those with a mental illness find and maintain employment by offering skills assessment, assistance with job search and completing job applications, job training, and negotiation with prospective employers. Other states have since followed Iowa's lead, including California, Delaware, Mississippi, and Wisconsin.

It's worth noting that some who inaccurately claim the Medicaid expansion discourages work call for repealing health reform and block-granting Medicaid, which would increase work disincentives, particularly among poor parents with serious medical conditions and other ongoing health care needs. Medicaid income limits for working parents would likely be even lower under a block grant (or a per-capita cap with reduced federal funding) than they were before health reform.[21] Working parents thus would have an incentive to cut their hours and earnings in order to retain Medicaid as states cut back their Medicaid programs to fit within their shrunken block-grant funding.

How Does the Medicaid Expansion Affect State Budgets?

Figure 2
Medicaid Expansion Raises State Medicaid and CHIP Spending by Only 1.6 Percent

Increasing evidence shows that the Medicaid expansion has not only helped millions of low-income people gain health coverage but also produced state savings.

The health reform law calls for the federal government to pick up 100 percent of the expansion's cost through 2016 and at least 90 percent thereafter. The federal share will average roughly 95 percent from 2016 to 2025, according to CBO.[22] CBO also estimates that states will spend just 1.6 percent more on Medicaid and CHIP with the expansion than they would have without health reform, under an assumption that most states adopt the expansion (see Figure 2).

Many states that have taken up the Medicaid expansion have found that it has produced net budgetary savings. As more of their low-income uninsured residents gained coverage, demand for entirely state-funded services that serve the uninsured has declined, yielding state savings.[23]

While some critics argue that the federal government will someday renege on its commitment to finance nearly all of the expansion's costs, history shows no evidence that this is likely. Congress has only modified Medicaid's overall matching rate three times over the last three and a half decades. While President Reagan and Congress enacted a temporary cut in 1981, the most recent changes involved temporary increases to aid states during the last two economic downturns.[24]

Does Medicaid Primarily Cover People Who Otherwise Would Have Private Coverage?

The overwhelming majority of people who would get coverage under health reform's Medicaid expansion are low-income and uninsured individuals who 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. And unsubsidized coverage in the individual insurance market would be unaffordable for most of those who are eligible for the Medicaid expansion.

  • Figure 3
    Fewer Than 1 in 4 Low-Income Workers Get Health Insurance Through Their Jobs

    77 percent of workers earning less than 138 percent of the poverty line -- the threshold for qualifying for Medicaid under health reform -- do not 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, making such coverage essentially unaffordable.

States that expanded Medicaid before health reform by raising income eligibility levels for adults reduced the ranks of the uninsured without undermining private coverage.[25] Compared to states that did not expand, expansion states had about the same proportion of Medicaid-eligible adults with private coverage but a much lower proportion of uninsured low-income residents.

What Share of Eligible People Participate in Medicaid?

Medicaid participation is quite high, particularly among children in states that have made concerted efforts to simplify and streamline their enrollment processes. Some 65.6 percent of low-income adults with children who are eligible for Medicaid are enrolled, according to the Urban Institute,[26] a relatively strong participation rate compared to some other programs.[27] And evidence so far among states adopting the Medicaid expansion shows substantial increases in overall Medicaid enrollment, which indicates robust participation among expansion-eligible individuals.[28]

In addition, 87.2 percent of eligible children participate in Medicaid or CHIP, according to the Urban Institute.[29] That is an exceedingly high rate for a means-tested program; in a number of states, children's Medicaid participation approaches the participation rates for universal social insurance programs like Medicare Part B.[30] Since CHIP's enactment in 1997, states have taken a number of steps to boost Medicaid and CHIP enrollment among eligible children, such as streamlining application procedures. Health reform requires states to take additional steps to increase the percentage of eligible children enrolling.

Focus groups with low-income, uninsured adults that the Kaiser Family Foundation conducted also bear on this issue. They found no evidence that Medicaid carries a "stigma" that discourages eligible people from enrolling. To the contrary, adults in Nevada, Texas, Florida, and Ohio -- all states with very limited Medicaid eligibility before health reform -- said they were eager to enroll in Medicaid. While they wished their financial circumstances were better, they wanted affordable coverage and often couldn't get it from their employers. Furthermore, focus group members with previous experience with Medicaid (often because their children were eligible) spoke favorably of it as affordable and covering a broad set of services and medications.[31]

End Notes

[1] See also Matt Broaddus and Edwin Park, "Ryan Poverty Report's Criticism of Medicaid Misrepresents Research Literature," Center on Budget and Policy Priorities, March 31, 2014, http://www.cbpp.org/cms/index.cfm?fa=view&id=4114.

[2] CBPP analysis comparing CBO's August 2010 and March 2015 Medicaid and Affordable Care Act baselines.

[3] Jessica Schubel and Judith Solomon, "States Can Improve Health Outcomes and Lower Costs Using Existing Medicaid Flexibility," Center on Budget and Policy Priorities, April 9, 2015, http://www.cbpp.org/research/health/states-can-improve-health-outcomes-and-lower-costs-in-medicaid-using-existing.

[4] Centers for Medicare & Medicaid Services, "Targeting Medicaid Super-Utilizers to Decrease Costs and Improve Quality," CMCS Information Bulletin, July 24, 2013, http://www.medicaid.gov/federal-policy-guidance/downloads/CIB-07-24-2013.pdf.

[5] Michael Ollove, "States Strive to Keep Medicaid Patients Out of the Emergency Department," Stateline, Pew Charitable Trusts, February 24, 2015, http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2015/2/24/states-strive-to-keep-medicaid-patients-out-of-the-emergency-department.

[6] Centers for Medicare & Medicaid Services, "Targeting Medicaid Super-Utilizers to Decrease Costs and Improve Quality."

[7] Joe Parks, "Realizing Behavioral Health Integration in Medicaid," presentation at National Association of Medicaid Directors' fall 2014 conference, http://medicaiddirectors.org/sites/medicaiddirectors.org/files/public/realizing_behavioral_health_integration_in_medicaid_parks.pdf.

[8] Amy Finkelstein 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 Judith Solomon, "Does Medicaid Matter? New Study Shows How Much," Center on Budget and Policy Priorities, July 7, 2011, http://www.cbpp.org/blog/does-medicaid-matter-new-study-shows-how-much.

[9] Katherine Baicker, et al., "The Oregon Experiment -- Effects of Medicaid on Clinical Outcomes," New England Journal of Medicine; May 2, 2013, 368:1713-1722.

[10] 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.

[11] Baicker et al.

[12] 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.

[13] Sharon Long et al., "National Findings on Access to Health Care and Service Use for Non-elderly Adults Enrolled in Medicaid," Medicaid and CHIP Payment and Access Commission, June 2012, https://docs.google.com/viewer?a=v&pid=sites&srcid=bWFjcGFjLmdvdnxtYWNwYWN8Z3g6ZGI1YmY1ZTZmYzA0NmQx. See also David Blumenthal et al., "Does Medicaid Make a Difference? Findings from the Commonwealth Fund Biennial Health Insurance Survey, 2014," The Commonwealth Fund, June 2015, http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2015/jun/1825_blumenthal_does_medicaid_make_a_difference_ib_v2.pdf.

[14] Matt Broaddus, "Medicaid's Long-term Earnings and Health Benefits," Center on Budget and Policy Priorities, May 12, 2015, http://www.cbpp.org/blog/medicaids-long-term-earnings-and-health-benefits. See also, Sarah Cohodes et al., "The Effect of Child Health Insurance Access on Schooling: Evidence from Public Insurance Expansions," National Bureau of Economic Research, May 2014, http://www.nber.org/papers/w20178.pdf.

[15] Martha Heberlein et al., "Getting Into Gear for 2014: Findings from a 50-State Survey of Eligibility, Enrollment, Renewal, and Cost-Sharing Policies in Medicaid and CHIP, 2012-2013," Kaiser Family Foundation, January 2013, http://kaiserfamilyfoundation.files.wordpress.com/2013/05/8401.pdf.

[16] Congressional Budget Office, "Labor Market Effects of the Affordable Care Act: Updated Estimates," February 2014, http://cbo.gov/sites/default/files/cbofiles/attachments/45010-breakout-AppendixC.pdf.

[17] Matt Broaddus, "Medicaid Coverage Doesn't Discourage Employment, New Study Shows," Center on Budget and Policy Priorities, October 28, 2013, http://www.cbpp.org/blog/medicaid-coverage-doesnt-discourage-employment-new-study-shows.

[18] A study of Tennessee's Medicaid program found increases in employment among some adults after losing Medicaid, which might suggest that expanding Medicaid reduces work. But Urban Institute researcher Austin Nichols points out that the study doesn't have the same unbiased experimental evidence as the Oregon study, since the comparison group used in the Tennessee study lived in neighboring states. After examining the research literature, Nichols concluded: "The best guess is that Medicaid expansions have no effect on labor supply." See Austin Nichols, "Newer Evidence is Not Always Better Evidence," Urban Institute, February 5, 2014, http://blog.metrotrends.org/2014/02/urban-institute-experts-cbos-aca-report/.

[19] CBPP analysis using the Annual Social and Economic Supplement to the Census Bureau's 2014 Current Population Survey.

[20] The Kaiser Commission on Medicaid and the Uninsured, "Are Uninsured Adults Who Could Gain Medicaid Coverage Working?" February 2015, http://files.kff.org/attachment/fact-sheet-are-uninsured-adults-who-could-gain-medicaid-coverage-working.

[21] Edwin Park and Matt Broaddus, "Ryan Block Grant Would Cut Medicaid by More than One-Quarter by 2024 and More After That," Center on Budget and Policy Priorities, April 4, 2014, http://www.cbpp.org/cms/index.cfm?fa=view&id=4117. See also, Edwin Park and Matt Broaddus, "Medicaid Per Capita Cap Would Shift Costs to States and Place Low-income Beneficiaries at Risk," Center on Budget and Policy Priorities, October 5, 2012, http://www.cbpp.org/research/medicaid-per-capita-cap-would-shift-costs-to-states-and-place-low-income-beneficiaries-at.

[22] CBPP analysis using CBO's March 2015 Medicaid and CHIP baselines.

[23] States have also been able to shift beneficiaries receiving only limited services through targeted Medicaid programs for the uninsured (which are financed at the state's regular Medicaid matching rate) into the Medicaid expansion, financed at the higher expansion matching rate. Jesse Cross-Call, "Medicaid Expansion Is Producing Large Gains in Health Coverage and Saving States Money," Center on Budget and Policy Priorities, April 28, 2015, http://www.cbpp.org/research/health/medicaid-expansion-is-producing-large-gains-in-health-coverage-and-saving-states.

[24] Edwin Park, "History Rebuts Claim That Federal Medicaid Matching Rates Are Unstable," Center on Budget and Policy Priorities, February 3, 2014, http://www.cbpp.org/blog/history-rebuts-claim-that-federal-medicaid-matching-rates-are-unstable

[25] 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.

[26] Genevieve Kenney et al., "Medicaid/CHIP Participation Among Children and Parents," Urban Institute, December 2012, http://www.urban.org/UploadedPDF/412719-Medicaid-CHIP-Participation-Among-Children-and-Parents.pdf.

[27] Government Accountability Office, "Means-Tested Programs: Information on Program Access Can Be an Important Management Tool," March 2005, http://www.gao.gov/assets/250/245577.pdf.

[28] Centers for Medicare & Medicaid Services, "Medicaid and CHIP: March 2015 Monthly Applications, Eligibility Determinations and Enrollment Report," June 4, 2015, http://medicaid.gov/medicaid-chip-program-information/program-information/downloads/2015-march-enrollment-report.pdf.

[29] Genevieve Kenney, Nathaniel Anderson, and Victoria Lynch, "Medicaid/CHIP Participation Rates Among Children: An Update," Urban Institute, September 2013, http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2013/rwjf407769.

[30] Dahlia Remler and Sherry Glied, "What Other Programs Can Teach Us: Improving Participation in Health Insurance Programs," American Journal of Public Health, January 2003, http://ajph.aphapublications.org/doi/pdf/10.2105/AJPH.93.1.67.

[31] Kaiser Family Foundation, "Faces of the Medicaid Expansion: Experiences of Uninsured Adults who Could Gain Coverage," November 2012, http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8385.pdf.