Revised August 17, 2005

MEDICAID:
Improving Health, Saving Lives
By Leighton Ku

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This paper provides a brief review of research on the effects of the Medicaid program, which turns 40 this month,[1] and its smaller counterpart, the State Children’s Health Insurance Program (SCHIP).  Extensive evidence demonstrates that Medicaid and SCHIP have greatly reduced the number of people without health insurance, substantially facilitated access to medical care and long-term care, and improved health for large numbers of low-income people.  Medicaid also has helped support health care providers, particularly those in low-income and medically underserved areas, and reduced the amount of uncompensated care.  Also of note, while Medicaid costs are rising significantly, recent studies have shown both that Medicaid provides health care at a lower cost per person than private health insurance does and that Medicaid costs have been rising less rapidly in recent years than private insurance costs.

Prior to Medicaid’s creation in 1965, poor uninsured Americans depended on a patchwork system of care and relied primarily on the charity of public and nonprofit hospitals, clinics, nursing homes, and certain physicians.  Although the poor were typically sicker than those with higher incomes, they received much less medical care because they lacked insurance coverage.  Furthermore, the care they did receive was much more fragmented than the care received by people who were better off.[2]

Today, Medicaid and SCHIP (which began in 1998) provide more than 50 million economically vulnerable children, senior citizens, people with disabilities, and other adults with access to life-saving and life-preserving health care.  (See the Appendix for state data on Medicaid caseloads.)  In the past several years, as the nation’s economy weakened and employer-sponsored health insurance eroded, enrollment in Medicaid and SCHIP expanded in response.  This enabled many low-income people who lost employer-sponsored coverage to maintain health insurance.  Had Medicaid and SCHIP not grown in response in recent years, the number of Americans joining the ranks of the uninsured would have been considerably higher.

KEY FEDERAL HEALTH PROGRAMS

Medicaid provides health and long- term care to low-income families and individuals, including children, parents, the elderly, and people with disabilities.  Medicaid is funded jointly by states and the federal government. 

SCHIP supplements Medicaid by providing funding to states to provide health care to children with family incomes modestly above the Medicaid limits. 

Other federal programs also provide or subsidize health insurance for tens of millions of people.  These other programs are not targeted on people with low incomes.  The federal government spends substantially more on the other programs than on Medicaid and SCHIP.  The other programs include:

  • Medicare, the universal health insurance program for older Americans and people with permanent disabilities.  Medicare provides coverage regardless of income. 
  • The health care programs for federal employees, current and retired military personnel, veterans and many of their dependents.
  • The health insurance subsidies provided through the federal tax code to the majority of Americans.  These subsidies are provided primarily through tax deductions for the costs of private health insurance.  The deductions are of greatest value to people with the highest incomes.

Medicaid provides health care to more than 50 million Americans.  Medicaid provides preventive care, primary care, acute care, long-term care, and prescription drugs to millions of low-income Americans.  Most Medicaid beneficiaries have incomes below the poverty line ($16,090 for a family of three in 2005).  The program’s beneficiaries include children, parents, pregnant women, senior citizens, and people with permanent disabilities. SCHIP complements Medicaid by providing health care coverage to more than five million low-income children, who typically have family incomes between 100 percent and 200 percent of the poverty line.  Because of their low incomes, people eligible for Medicaid or SCHIP are at greater risk of poor health than more affluent Americans.  In many cases, their health problems have contributed to their low-income status.

Medicaid covers people during periods of growing need.  Medicaid is designed to cover more low-income people when need increases, such as during the recent economic downturn when many Americans lost employment-based coverage.  Like certain other entitlement programs such as Food Stamps, Medicaid provides a measure of countercyclical protection during downturns that both assists vulnerable people and boosts the weakened economy.   Had Medicaid and SCHIP enrollment not grown in response to the erosion of employer coverage between 2000 and 2003, the ranks of the uninsured would have grown more rapidly.

Figure 1

Medicaid improves access to doctors and preventive care.  Medicaid and SCHIP have enabled millions of low-income Americans to obtain access to health care services.[4]  Those whom the programs cover have access to care that is substantially superior to the care that uninsured people generally receive:

Figure 2

Medicaid improves the health of low-income Americans
.  By making preventive and primary care more readily available, and by protecting against and providing care for serious diseases, Medicaid has improved the health of millions of Americans.  Research has found that:

The improvements in health status that Medicaid and SCHIP have brought about have broader social consequences.  For example, children with Medicaid coverage have been found to miss fewer school days due to sickness and have fewer restricted activity days than comparable children who lack health care coverage. [15]  A study of children in California’s SCHIP program found that the school performance of high-risk children improved after being insured for a year.[16]  In this manner, Medicaid and SCHIP coverage may improve educational opportunities for disadvantaged children.

Medicaid provides medical care at a lower cost than private insurance.  In light of concerns about the rising costs of health care, it is noteworthy that Medicaid provides health care at a lower per-person cost than private health insurance and that the per capita costs of Medicaid have been rising more slowly in recent years than the per capita costs of private insurance. 

A recent study by economists Jack Hadley and John Holahan of the Urban Institute found that after adjusting for differences in health status and other characteristics, medical expenditures for adults in Medicaid were 30 percent lower than these adults’ medical costs would be under private health insurance.  Expenditures for children enrolled in Medicaid were 10 percent lower than such costs would be under private health insurance (Figure 2).[17]  In addition, administrative costs for Medicaid (at 6.9 percent of total costs) are about half as large as administrative costs under private health insurance (which average 13.6 percent of costs), according to estimates by the Centers for Medicare and Medicaid Services.[18]

The key factors that are causing Medicaid costs to rise are affecting all sectors of health care, including private health insurance and Medicare.  Health care costs are being driven up in substantial part by advances in medical technology and increases in health care usage, both of which can improve health status and prolong life but which also increase health care costs.  The aging of the population also is pushing us down the path of higher health care costs, since health care needs and costs are greater, on average, for older people than for younger ones.  These factors are not caused by Medicaid’s design but by broader economic and demographic forces.

Indeed, Medicaid costs have risen less in recent years than the costs of private insurance.  Another Urban Institute analysis has found that Medicaid acute care costs per enrollee rose an average of 6.9 percent per year between 2000 and 2003 (Figure 3), or a little more than half of the 12.6 percent annual growth during this period in private health insurance premiums.[19] (If costs for long-term care are included, overall Medicaid costs rose at an annual 6.1 percent rate.)

Figure 3

Medicaid provides essential health care services for low-income senior citizens and people with disabilities.
  About 70 percent of Medicaid
spending goes toward care for low-income senior citizens and people with disabilities.  For senior citizens, Medicaid fills gaps in coverage left by Medicare, such as the lack of long-term care.  Medicaid is the nation’s largest funding source for nursing home care.  In recent years, some state Medicaid programs have pioneered innovative approaches to improving and diversifying long-term care and caring for frail seniors in their own homes rather than in nursing homes.[20]  In addition, Medicaid helps make medical care more affordable and accessible for millions of low-income seniors by paying the premiums, deductibles, and coinsurance charged under Medicare.  Low-income senior citizens covered by both Medicaid and Medicare are more likely to see a physician than low-income seniors with Medicare alone.[21]

Medicaid covers people who can’t get private coverage at any price.  Millions of people who have permanent disabilities are unable to work and are therefore unable to secure employer-sponsored health insurance.  Their severe health conditions also render them unable to obtain individual health insurance.  Since they are effectively shut out of the private health insurance market, Medicaid can be their only health insurance option.  For these individuals, Medicaid coverage provides access to critical health care, including new medical technologies that can improve their health and well-being.[22] 

Similarly, for those with HIV/AIDS, Medicaid provides access to anti-retroviral therapies, saving lives and reducing related illness,[23] while for people with severe mental illness, Medicaid provides access to medications that help them function in the community and stay out of mental institutions or prisons.  As private health insurance coverage for mental health care has faded over the past decade, Medicaid financing has helped fill the resulting gap.[24]

Medicaid and SCHIP support health care providers.  Medicaid and SCHIP provide about one-sixth of all of the health care funding in the United States and have become an important source of financial support for hospitals, physicians, pharmacists, nursing homes, and other components of the American health system.[25]  Medicaid has become a particularly critical source of support for various safety net health care providers that serve low-income and vulnerable patients, such as community health centers, public and charity hospitals, mental health centers, and nursing homes.  Medicaid funding often helps these providers keep their doors open and provide services to broad segments of their communities. 

The coverage provided by Medicaid and SCHIP provides particular help to hospitals and other facilities by reducing the uncompensated care costs that result when uninsured patients are treated.  For example, one study found that expansion of public health insurance programs in Minnesota led to a large reduction in hospitals’ uncompensated care expenses.[26]  This suggests that substantial reductions in Medicaid funding could have serious financial consequences for hospitals and could trigger significant staff layoffs, since cutbacks in Medicaid coverage cause hospitals to lose Medicaid revenue even as newly uninsured patients start to seek medical care on an uncompensated basis.[27]

 

Health Coverage Gaps Remain

Although Medicaid and SCHIP have resulted in substantial progress in the provision of health care and long-term care coverage, large numbers of low-income Americans remain uninsured.  The most recent Census data indicate that about 24 million people with incomes below 200 percent of the poverty line were uninsured in 2003.  This includes approximately 18 million adults under the age of 65, as well as six million children. 

Most of the low-income adults who are uninsured are not eligible for Medicaid.[28]  Unless they are elderly or disabled, adults without dependent children are typically ineligible for Medicaid regardless of how poor they are.  Medicaid does cover low-income parents, but the income limits for parents are typically set far below the poverty line.  In the median state, a parent is eligible for Medicaid only if her income is less than 69 percent of the poverty line ($11,100 for a family of three).[29] 

Most children with family incomes up to 200 percent of the poverty line are eligible for Medicaid or SCHIP.  Many eligible children do not participate and remain uninsured, however, either because they are unaware of the programs (or unaware that their children are eligible) or because the enrollment and retention processes are too complicated. 

Exacerbating this problem, the number of uninsured Americans is likely to rise in the years ahead.  Economists at the University of California at San Diego project that the number of uninsured people could rise from 45 million in 2003 to 56 million by 2013, primarily because of continued increases in health insurance premiums and the continuing erosion of employer-based coverage.[30]

State and federal policymakers are understandably concerned about the rising costs of Medicaid.  It is important to remember, however, that Medicaid has proven to be a highly effective mechanism for providing health care coverage to low-income families and individuals and that, contrary to the impression of some policymakers, Medicaid tends to cost less than private insurance.  Deep cuts in the Medicaid program could close the doors to health care for large numbers of less fortunate Americans at a time when the ranks of the uninsured already are rising.

APPENDIX A
MEDICAID ENROLLMENT  IN FISCAL YEAR 2002

 

 

Aged

Blind & Disabled

Child[a]

Adult

Total

 

U.S. Total

    4,760,000

          8,060,000

     25,490,000

       13,250,000

51,550,000

 

 

 

 

 

 

 

 

Alabama

         99,000

             191,000

          418,000

            137,000

     845,000

 

Alaska

           7,000

               12,000

            76,000

              27,000

     121,000

 

Arizona

         44,000

             110,000

          514,000

            386,000

  1,054,000

 

Arkansas

         51,000

             109,000

          311,000

            138,000

     608,000

 

California

       664,000

             990,000

       3,621,000

         4,062,000

  9,336,000

 

Colorado

         48,000

               66,000

          237,000

              88,000

     439,000

 

Connecticut

         62,000

               61,000

          263,000

            103,000

     488,000

 

Delaware

         11,000

               18,000

            66,000

              53,000

     147,000

 

Dist Columbia

         14,000

               44,000

            95,000

              52,000

     205,000

 

Florida

       256,000

             522,000

       1,375,000

            539,000

  2,692,000

 

Georgia

       109,000

             233,000

          865,000

            254,000

  1,460,000

 

Hawaii

         17,000

               24,000

            92,000

              63,000

     196,000

 

Idaho

         13,000

               27,000

          127,000

              30,000

     196,000

 

Illinois

       279,000

             300,000

       1,101,000

            396,000

  2,076,000

 

Indiana

         78,000

             117,000

          534,000

            153,000

     882,000

 

Iowa

         42,000

               61,000

          186,000

              71,000

     359,000

 

Kansas

         31,000

               53,000

          174,000

              48,000

     305,000

 

Kentucky

         72,000

             208,000

          379,000

            110,000

     770,000

 

Louisiana

       105,000

             177,000

          598,000

            110,000

     990,000

 

Maine

         72,000

             119,000

          100,000

              55,000

     346,000

 

Maryland

         55,000

             122,000

          433,000

            142,000

     752,000

 

Massachusetts

       116,000

             243,000

          483,000

            362,000

  1,204,000

 

Michigan

       100,000

             297,000

          845,000

            286,000

  1,528,000

 

Minnesota

         70,000

               94,000

          343,000

            174,000

     681,000

 

Mississippi

         74,000

             161,000

          388,000

              85,000

     708,000

 

Missouri

         99,000

             150,000

          591,000

            258,000

  1,099,000

 

Montana

         10,000

               18,000

            56,000

              22,000

     106,000

 

Nebraska

         24,000

               30,000

          161,000

              52,000

     266,000

 

Nevada

         20,000

               33,000

          104,000

              47,000

     203,000

 

New Hampshire

         13,000

               15,000

            72,000

              17,000

     116,000

 

New Jersey

       112,000

             179,000

          485,000

            207,000

     983,000

 

New Mexico

         23,000

               55,000

          294,000

              90,000

     463,000

 

New York

       398,000

             688,000

       1,812,000

         1,241,000

  4,140,000

 

North Carolina

       178,000

             236,000

          716,000

            259,000

  1,389,000

 

North Dakota

         10,000

               10,000

            34,000

              18,000

       72,000

 

Ohio

       145,000

             280,000

          959,000

            372,000

  1,754,000

 

Oklahoma

         64,000

               81,000

          439,000

              94,000

     678,000

 

Oregon

         44,000

               68,000

          263,000

            262,000

     637,000

 

Pennsylvania

       212,000

             386,000

          829,000

            284,000

  1,711,000

 

Rhode Island

         20,000

               38,000

            94,000

              52,000

     205,000

 

South Carolina

         78,000

             123,000

          472,000

            223,000

     896,000

 

South Dakota

         10,000

               16,000

            69,000

              18,000

     114,000

 

Tennessee

         90,000

             340,000

          738,000

            532,000

  1,700,000

 

Texas

       383,000

             380,000

       1,905,000

            535,000

  3,202,000

 

Utah

         12,000

               28,000

          137,000

              56,000

     233,000

 

Vermont

         20,000

               19,000

            69,000

              49,000

     157,000

 

Virginia

         98,000

             139,000

          393,000

              97,000

     728,000

 

Washington

         79,000

             146,000

          596,000

            283,000

  1,105,000

 

West Virginia

         30,000

               90,000

          183,000

              60,000

     362,000

 

Wisconsin

         96,000

             139,000

          353,000

            189,000

     777,000

 

Wyoming

           5,000

                 9,000

            42,000

              14,000

       70,000

 

Source:  Based on data reported to HHS in the Medicaid Statistical Information System, as of Feb. 17, 2005.  Counts are based on the unduplicated number of people enrolled at any time during the year. More recent data may be available from individual states.  Such state data may not correspond with these national data because state counts are generally based on the number enrolled in a given month.  Because of entries and exits of enrollees over the course of a year, the number enrolled in a month is inherently lower than the unduplicated number enrolled at any time during a year.  These counts include people getting full and partial Medicaid benefits.  The national total does not include the territories.


End Notes:

[1] Both Medicaid and Medicare were signed into law by President Lyndon Johnson on July 30, 1965.

[2] Diane Rowland and Rachel Garfield, “Health Care for the Poor: Medicaid at 35,” Health Care Financing Review, 22(1) (2000): 23-34.

[3] Center on Budget and Policy Priorities analysis of March 2001 and 2004 Current Populations Surveys.

[4] See Ellen O’Brien and Cindy Mann, “Maintaining the Gains: The Importance of Preserving Coverage in Medicaid and SCHIP” (Washington: Health Policy Institute, 2003) or Leighton Ku and Sashi Nimalendran, “Improving Children’s Health: A Chartbook about the Roles of Medicaid and SCHIP” (Washington: Center on Budget and Policy Priorities, 2004).

[5] Lisa Dubay and Genevieve M. Kenney, "Health Care Access and Use Among Low-income Children: Who Fares Best?" Health Affairs 20(1)(2001): 112-21.  These are based on analyses of the National Survey of America's Families.

[6] National Center for Health Statistics, Centers for Disease Control, Summary Health Statistics for U.S. Adults: National Health Interview Survey, 2002, DHHS Publ. (PHS) 204-1550, July 2004, Tables 33 and 35, age-adjusted distributions.

[7] Teresa Coughlin, Sharon Long and Yu-Chu Shen, “Assessing Access to Care Under Medicaid: Evidence for the Nation and Thirteen States,” Health Affairs, 24(4):1073-1083, July/August 2005.

[8] Thomas Rice and others, “The Impact of Private and Public Health Insurance on Medication use for Adults with Chronic Disease,” Medical Care Research and Review 62(2) (2005): 231-249.

[9] K.M. Nelson and others, “The Association between Health Insurance Coverage and Diabetes Care: Data from the 2000 Behavioral Risk Factor Surveillance System,” Health Services Research, 40(2) (2005): 361-72.

[10] Janet Currie and Jonathan Gruber, “Health Insurance Eligibility, Utilization of Medical Care and Child Health” Quarterly Journal of Economics 11 (1996): 431-66.

[11] Janet Currie and Jonathan Gruber, “Saving Babies: The Efficacy and Cost of Recent Changes in the Medicaid Eligibility of Pregnant Women” Journal of Political Economy 104(6) (1996): 1263-96.  Jonathan Gruber, "Health Insurance for Poor Women and Children in the U.S.: Lessons from the Past Decade." In James M. Poterba, ed., Tax Policy and the Economy, vol. 11 (Cambridge, MA: MIT Press, 1997).

[12] John Billings and Robin Weinick, Monitoring the Health Care Safety Net.  Book I. A Data Book for Metropolitan Areas. Chapter 7 (Rockville, MD: Agency for Healthcare Research and Quality, 2003).

[13] See Nicole Lurie and others, “Termination from Medi-Cal: Does it Affect Health?” New England  Journal of Medicine. 311(1984):480-84; Nicole Lurie and others, “Termination from Medi-Cal Benefits: A Follow-up Study One Year Later,” New England Journal of Medicine 314 (1986): 1266-8; Judith Kasper and others, “Gaining and Losing Health Insurance: Strengthening the Evidence for Effects on Access to Care and Health Outcomes,” Medical Care Research and Review 57(3)(2000): 298-318.

[14] G. Gandelman, W.S. Aronow and R. Varma, “Prevention of Adequate Blood Pressure in Self-Pay or Medicare Patients Versus Medicaid or Private Insurance Patients with Systemic Hypertension Followed in a University Cardiology or General Medicine Clinic,” American Journal of Cardiology, 15:94(6) (2004):815-6.

[15] Kristine Lykens and Paul Jargowsky, “Medicaid Matters: Children’s Health and the Medicaid Eligibility Expansions, 1986-91,” Working Paper 00-01 (University of Texas at Dallas, 2000).

[16] California Managed Risk Medical Insurance Board, “The Healthy Families Program Health Status Assessment (PedQL) Final Report,” revised Sept. 2004.

[17] Jack Hadley and John Holahan, “Is Health Care Spending Higher under Medicaid or Private Insurance?” Inquiry, 40 (2003/2004): 323-42.  Similar findings were reached by federal researchers, see Edward Miller, Jessica Banthin, and John Moeller, “Covering the Uninsured: Estimates of the Impact on Total Health Expenditures for 2002” Working Paper No. 04407 (Agency for Healthcare Research and Quality, 2004).  These differences primarily reflect the lower payment rates that Medicaid makes to health care providers.

[18] Cynthia Smith, et al. “Health Spending Growth Slows in 2003,” Health Affairs, 24(1): 185-194, Jan./Feb. 2005.  Medicaid administrative costs include both state administrative expenses and the administrative costs of Medicaid managed care organizations. 

[19] John Holahan and Arunabh Ghosh, “Understanding the Recent Growth in Medicaid Spending, 2000-2003,” Health Affairs web exclusive, January 26, 2005; Kaiser Commission on Medicaid and the Uninsured news release, “A Sharp Rise in Enrollment During the Economic Downturn Triggered Medicaid Spending to Increase by One-Third from FY 2000-03,” January 26, 2005.

[20] Joy Cameron, “Changing State Long Term Care Systems to Support Community Living,” National Governors Association, available at http://www.nga.org/center/divisions/1,1188,C_ISSUE_BRIEF%5ED_2264,00.html.

[21] National Center for Health Statistics, Centers for Disease Control, op cit.

[22] Bruce Vladeck, “Where the Action Really Is: Medicaid and the Disabled,” Health Affairs, 22(1) (2003): 90-100.

[23] Dana Goldman and others. “Effect of Insurance on Mortality in an HIV-Positive Population in Care,” Journal of the American Statistical Association 96 (2001): 883-94.

[24] Tami Mark and others, “U.S. Spending for Mental Health and Substance Abuse Treatment,” Health Affairs web exclusive, March 29, 2005.

[25] Cynthia Smith, op cit.

[26] Lynn Blewett and Gestur Davidson, “Hospital Provision of Uncompensated Care and Public Program Enrollment,”  Medical Care Research and Review,  60(4): 509-527 (2003).

[27] See, for example, WVLT news report, “University of Tennessee Medical Center cutting jobs in response to TennCare changes,” Knoxville, TN, June 8, 2005.

[28] Some of the low-income uninsured adults are eligible but not enrolled in Medicaid.

[29] Donna Cohen Ross and Laura Cox, Beneath the Surface: Barriers Threaten to Slow Progress on Expanding Health Coverage of Children and Families (Washington, DC: Kaiser Commission on Medicaid and the Uninsured, 2004).

[30] Todd Gilmer and Richard Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured Through 2013”, Health Affairs web exclusive, April 5, 2005.

[a] These data include children in states whose SCHIP programs are implemented through Medicaid expansions.  They do not include children in states that have separate SCHIP programs.