Even before the Patient Protection and Affordable Care Act (the "Act") was signed into law, lawmakers and health policy analysts in every state began trying to figure out what reform would mean for their state - the benefits and the costs. While the Act includes many different types of reform that would need to be considered carefully in order to really answer this question, the Medicaid reforms are generating a lot of attention because of the potential cost to states responsible for implementation. Specifically, the Act does several things to expand, improve and preserve existing Medicaid coverage. It redefines certain federal standards and criteria that states must implement.
This post gives a brief overview of the key reforms and then review some of the benefits and costs to states.
Key Medicaid Reforms
Medicaid is a program that is jointly funded by the federal and state government. The federal government establishes certain minimal standards with which states must comply, such as eligibility criteria, coverage mandates, and methods and criteria in setting provider reimbursement. States adminster the Medicaid program, and they have a great deal of discretion and authority to regulate all aspects of the program within these limits. States decide who can be covered, what services must be provided, and how much providers (physicians, hospitals, etc.) will be paid; however certain reforms limit states' discretion in these areas.
First, the Act expands Medicaid eligibility. With limited exceptions, states have only been required to cover people with disabilities, children, and pregnant women. States have always had the option to expand coverage voluntarily, subject to certain limits, but this was within their discretion. Beginning in 2014, however, states will be required to cover all individuals under age 65 with incomes no greater than 133% of the federal poverty level, guaranteeing coverage for "essential health benefits." This will help cover many people who are currently left out of the system - particularly nondisabled and childless adults. Second, the Act requires states to maintain current income eligiblity levels for children in Medicaid and the Children's Health Insurance Program (CHIP) until 2019.
Third, the Act increases Medicaid payments for primary care services provided by primary care doctors (physicians with a primary specialty designation of family medicine, general internal medicine, or pediatric medicine) to 100% of the Medicare payment rates. This is important because many providers and patients have complained of inadequate reimbursement under Medicaid, and many physicians refuse to see Medicaid patients as a result. Medicaid coverage is not very useful, if there aren't enough physicians willing to treat Medicaid patients.
Notably, the federal government is also financing this expansion - more on this in the benefits discussion below.
The Benefits
First, it's important to note that Medicaid is voluntary for states; they are not required to participate in this program, but every state has chosen to do so. Presumably this is because of the federal matching funds that enable states to provide insurance to more people and support the health care infrastructure (especially hospitals) in underserved areas. I think it's fair to say that the federal funding of this expansion is very substantial: The federal government will pay 100% of the cost for covering newly eligble individuals for the first couple of years of the expansion, and then gradually reduce its share over time. It will also fully finance the increased payment rates for physicians for two years.
Medicaid expansion is viewed as an important part of the larger health reform bill, which many predict will bring significant financial benefits to states and improve overall health for its residents. States like California stand to benefit the most under these reforms because of the large numbers of uninsured, especially those with chronic conditions.
Finally, many states have already expanded Medicaid eligibility categories using provisions in federal law that encourage experimentation and allow some deviation from federal standards. These latest reforms simply reflect an approach already embraced by many states in theory and in practice, and provide greater funding to expand even further.
The Costs
State officials are understandably concerned about the price tag on these new coverage obligations, especially in light of the current budget crises many states are facing in this troubled economy. Indeed, many states, like California, have either enacted or tried to pass severe cuts to Medicaid and other public programs in response to these crises. In fact, Arizona just became the first state to completely eliminate its CHIP program to help close its deficit. Arizona did this despite the fact that the program costs Arizona $18 million annually, while federal matching funds cover $56 million, according to the Bureau of National Affairs. It's also unclear what effect this will have on future federal funding in light of the Act's requirement to maintain current income eligilibity levels for children.
Ironically, the increased cost that states fear immediately is not from Medicaid expansion, but rather from the new individual mandate to purchase insurance. States are worried that the mandate will cause an influx of new Medicaid beneficiaries who were eligible for Medicaid coverage under the old system, but who never signed up. The cost of these new patients will be significant because the federal government is only fully subsidizing the newly eligible; for new Medicaid beneficiaries who were eligible under the prior system, the federal government will only pay the usual amount of matching funds. In other words, states are worried that they cannot afford to cover patients that they already had a legal duty to cover.
The Fallout
Politically, some of these concerns are being used by Republicans to continue the fight they lost in Congress - they are looking for ways to avoid complying with Medicaid and other health care reforms - either through state legislation or litigation challenging the reforms in court. In my next post, I'll explain why these Medicaid reforms are clearly constitutional.
Whle the budget crises that many states are facing should not be underestimated, too often states and local governments respond in ways that are penny-wise and pound-foolish -- making cuts that look significant on paper, but actually cost much more in the long term. As noted in my prior post, limiting public benefits costs money and lives: the uninsured are much less likely to get regular care that could prevent more costly and serious illness or disability. And they are more likely to rely on emergency rooms for chronic illness that could be managed more cheaply. Local governments, hospitals, and other patients bear this cost. As states try to weigh the costs of their new Medicaid obligations against the benefits of greater coverage, they should consider these benefits carefully.
Unfortunately, the Medicaid program has always reflected a tension between the legal promises of health care and the reality of access limited by dwindling resources. The debate about the new Medicaid reforms simply highlights this tension.
