Ideas for reforming Medicaid and protecting patients

Medicaid is a joint federal and state-controlled health care insurance entitlement. It is not financially sustainable in its current form unless the federal debt or taxes are significantly increased. Our new study explores ways that states can reduce the financial burden for their taxpayers, while ensuring that their most vulnerable citizens continue to have access to health care.

Medicaid eligibility was initially defined as:

      1. All children in families with incomes of less than 133% of the federal poverty level (FPL);

      2. All adult caretakers of eligible children;

      3. Elderly people not receiving supplemental social security benefits;

      4. The legally blind; and

      5. The disabled.

The Affordable Care Act of 2010, aka Obamacare, greatly expanded Medicaid to any low-income, able-bodied American between the ages of 18 to 64. The original ACA bill forced states to participate in the expansion. The U.S. Supreme Court ruled this provision to be unconstitutional and left it up to individual states to decide on expanding their programs. Forty states, plus D.C., have chosen to expand their programs. The enticement in Obamacare for states was an increased federal payment match of 90 percent.

Medicaid is now one of the largest budget items for every state and is the largest entitlement program for the federal government. For this expensive taxpayer investment, does having Medicaid health insurance actually save lives or improve health more than being uninsured? Except in very specific cases, the answer is no.

A lottery-based expansion of Medicaid in Oregon in 2008 provided the opportunity to compare health outcomes. The two-year results of the subsequent health comparison study were published in The New England Journal of Medicine. The conclusion is surprising. It turns out that having Medicaid health insurance does not improve health outcomes, nor does it improve mortality statistics, compared to having no insurance coverage at all. 

Another tragedy for Medicaid patients is limited access to care in some areas because of poor provider payments. States have the leeway to set reimbursement rates for doctors and medical facilities, but traditionally, these payments have been very low. Depending on the medical specialty, Medicaid pays physicians 30 to 50 percent of what private insurance pays.

Hospital payments are likewise less than Medicare payments and considerably less than private insurance. No doctor or hospital could pay their overhead and keep their doors open with only Medicaid’s poor reimbursements. The reality is that not every provider can afford to see Medicaid patients, which limits recipients’ access to care.

It is very clear that simply having health insurance does not guarantee timely access to health care. Rather than keep Medicaid spending increases on autopilot, state lawmakers can consider several reforms. These policy updates could include waivers, eligibility checks, block grants, and more patient control of health care dollars. We detail the various options in our new study 

For example, the Idaho legislature recently passed a Medicaid reform bill into law. The legislation establishes a 20-hour-a-week work or community service requirement for able-bodied enrollees in Medicaid. The law also asks the federal government for waivers to place the state’s Medicaid program in a comprehensive managed care plan, as well as a waiver to establish cost-sharing in the program. In addition, the law includes an increase in provider payments to better align with Medicare reimbursements.

The fiscal note estimates a savings of $15.9 million in 2026 and $27.2 million in 2027 and beyond. Although Idaho voters passed the Obamacare Medicaid expansion in 2018, the new legislation is potentially an excellent start at meaningful Medicaid reform.

The massive expansion of Medicaid is completely understandable. Elected state officials have looked at the program as a federal piggy bank. They can feel good about providing health insurance to the poor, with the federal government paying over half the costs. In a sense, Medicaid could be considered the first step to a single-payer health care system in the United States. Although it appears that the federal money for Medicaid is “free” money for states, elected officials need to remember that federal taxpayers are also their state taxpayers.

For meaningful reform and to ensure that the most vulnerable patients can still access the program, state officials must be willing to make the necessary changes to the entitlement. They should be willing to go to the federal government and push for sensible reforms. They must be willing to confront criticism and do what is necessary to guarantee Medicaid’s viability for those truly in need and for whom the program was originally designed to assist.