Medicaid’s New Role in the Health Care System

Over the past 50 years, Medicaid has evolved from an adjunct to state welfare programs to the nation’s largest health insurer. The Affordable Care Act (ACA) affirmed Medicaid’s insurance credentials as 1 of 3 “insurance affordability programs”—along with subsidized coverage through a state-based or Federally Facilitated Marketplace and the Children’s Health Insurance Program (CHIP)—that make up the new coverage continuum for people who do not have access to affordable workplace coverage. Medicaid now insures more than 71.1 million people (an increase of 12.3 million since the first Marketplace open enrollment began)¹ and in 2015 is projected to account for $343 billion in total spending.²

As the foundation of the coverage continuum, Medicaid was slated to cover adults who earn up to 138% of the federal poverty level (FPL) and children at least to that income level. The Supreme Court’s 2012 ruling in National Federation of Independent Business v Sebelius, however, made the adult coverage voluntary for states. Currently, 21 states have yet to expand their Medicaid programs, creating disparities between the “expansion” and “nonexpansion” states. In expansion states, adults with incomes from 0% to 400% of the FPL can qualify for subsidized coverage through Medicaid or the Marketplace, but in the median nonexpansion state, a parent of 2 children with earnings equivalent to 45% of the FPL ($9040/year for a family of 3) has income that is too high to qualify for Medicaid and too low to qualify for Marketplace tax credits. An adult with no children living at home is not able to access either Medicaid or Marketplace subsidies if his or her earnings are less than 100% of the FPL ($11 770/year for an individual).

Other ACA Medicaid reforms that were not affected by the Supreme Court’s ruling apply in all states. Among the most significant is that the ACA overhauled Medicaid’s eligibility rules and enrollment procedures to achieve a simple, seamless enrollment experience across the 3 insurance affordability programs. Complex rules and practices that were remnants of Medicaid’s historic association with welfare programs and often discouraged enrollment were replaced by ones that promote enrollment and align with the Marketplace. In every state, people younger than 65 years can now enroll in Marketplace subsidies, Medicaid, or CHIP, as appropriate, through 1 online application, and—to varying degrees depending largely on the status of information technology (IT) progress—have their eligibility determined through a coordinated and largely automated review process. While work at both the federal and state levels remains, the transformation of the eligibility and enrollment process has been extraordinary.

Given Medicaid’s role and size, program costs remain an issue, as they are in the health care system more broadly. Although the costs of newly eligible adults and new IT infrastructure that underpins the enrollment simplifications are largely borne by the federal government, the program still represents a significant share of state spending. Looking at nonfederal sources of spending, on average, Medicaid accounts for 15% of state budgets. In contrast to Medicare and private insurance, however, growth in Medicaid spending in recent years has been driven largely by enrollment, not per-enrollee costs.

Cost concerns and a desire to improve care have prompted both state and federal Medicaid agencies to focus on delivery and payment reforms. As Medicaid strengthens its own value-based purchasing, alignment with the commercial market is a priority. Families with incomes below 400% of the FPL experience changes in circumstances that will lead as many as 40% to move between Medicaid and Marketplace coverage (in both directions) within a year of enrollment.³ Health plans are increasingly operating in both markets. Coordination with Medicare is also important, given that approximately 61% of Medicaid’s highest-needs beneficiaries are enrolled in both programs.⁴ To date, 18 states have embarked on or have proposed demonstrations aligning care and financing for these dual-eligible individuals.⁵

Looking forward, the most pressing question for Medicaid and the goal of near universal coverage is what will happen in states that have not expanded their Medicaid programs and in states that did expand Medicaid but have new leadership that may put the state’s expansion into question. The case for expansion is very strong, and the pragmatism that typically characterizes state government would suggest that states will close the gap over the next few years. Medicaid is voluntary for states, and when it was first introduced, state acceptance was not assured. Ultimately, the ability to cover residents with the benefit of federal financial support was compelling to state leaders from both major political parties, particularly as Medicaid programs relieved state and local government of fiscal burdens they incurred because of lack of health coverage.

The choice facing states today is no less compelling. Some 4.3 million adults who could be covered by Medicaid remain uninsured in nonexpansion states.⁶ First-year results in expansion states have shown robust take-up and steep declines in rates of uninsurance and uncompensated care.⁷ In all states, to varying degrees, expansion replaces current state spending and brings in new revenues; many objective analyses projected that expansion would improve the fiscal health of states. These projections have proven accurate. According to 1 postimplementation study, savings and revenues across 8 expansion states are expected to exceed $1.8 billion by the end of 2015; Arkansas and Kentucky expect savings and revenues will offset costs at least through 2021.⁸

However, the disparities in coverage and financial rewards have yet to compel all states to expand Medicaid. Resistance is driven largely by a philosophy favoring less government and opposition to any association with “Obamacare.” Some also object to covering “the able-bodied” poor, harkening back to distinctions that characterize welfare, not health care, initiatives. The public sees things differently; Medicaid expansion generally has broad support. A recent poll in Florida, for example—where expansion was fiercely debated and defeated—showed 68% in favor.⁹

As states continue to debate expansion, waivers will play a key role. Most states expanded without a waiver, but waivers allow states to put their unique stamp on expansion. Under waivers, Arkansas’s and Iowa’s Medicaid programs contract with health plans in the Marketplace to provide care to some or all of the expansion population, and Medicaid-financed health savings accounts are at the centerpiece of Indiana’s expansion. The contours of federalism will no doubt continue to be tested. The challenge is to support states’ ability to test new ways to provide coverage without undermining the program’s ability to coordinate closely with the Marketplace and CHIP and to function effectively as a value-based purchaser and a source of insurance for the nation’s poorest citizens.

Delivery and payment reform are ultimately as important to Medicaid’s future as its coverage responsibilities. Medicaid’s role in the Marketplace is increasing, and it is particularly strong with respect to certain populations; for example, it covers more than 1 of 3 children in the nation. Overall, success will depend on the same issues that are affecting the rest of the health care system, along with some Medicaid-specific challenges. For example, states have increasingly relied on financing from counties and public hospital systems, matched by the federal government, to supplement low Medicaid base payment rates to hospitals. So-called “intergovernmental transfers” are a legitimate funding source, and hospital payment levels may in fact need to be addressed, but special payments directed to certain hospitals based on the source of nonfederal financing can undermine efforts to drive value and ensure access.

It is impossible to contemplate Medicaid’s future without noting the cost pressures associated with new treatments and an aging population. The 22% of Medicaid enrollees who qualify based on age or disability account for more than half (56%) of Medicaid expenditures.² Much of the attention to delivery and payment reform is focused on these high-need individuals; increased cost pressures add to the imperative to improve care and avoid preventable and inefficient costs.

Medicaid has regularly been reinvented to meet the needs of a new time, a new population, or a new health care crisis. Reinvention is under way yet again, and if past is prologue, the path will not be easy, but the program will continue to move forward.

read more at JAMA