Medicaid turns 40, fails to age gracefully

At 40 years old, Medicaid, the nation’s public health entitlement program for low-income, elderly and disabled Americans, is entering middle age, but states are not celebrating the milestone. Instead, some are making sweeping and innovative changes to their programs, which are experiencing a bout of fiscal unhealth as medical inflation increases, the population ages and employer-sponsored health care erodes.

Under Medicaid, the federal government matches 50 percent to 83 percent of each state’s expenditures. The federal government’s share is recalculated annually and is based on a state’s per capita income. Although each state, territory and Washington, D.C., is responsible for creating and administering its own Medicaid program, policies are controlled by broad and complex federal regulations. Increasingly, states are negotiating with the federal government to allow them to waive federal Medicaid law.

Policymakers are keeping an eye on Florida, where a groundbreaking plan essentially shifts Medicaid from a defined benefit to a defined contribution plan, meaning that the state will establish a maximum per year benefit limit for its Medicaid recipients. Florida also will pay private health maintenance organizations (HMOs) for each resident enrolled in the program. While states typically determine who and what services are covered by Medicaid, Florida will transfer that authority to private HMOs. The premise is to drive down costs by fostering healthy competition between private providers and to bring predictability to spending.

Joan Alker, senior researcher for Washington, D.C.-based Health Policy Institute at Georgetown University and co-author of policy briefs on Florida’s plan, fears that private insurers may cut services to the state’s most vulnerable residents. Additionally, if Medicaid is not adequately funded, the state may have to shift Medicaid costs to other parts of Florida’s health care system.

Vermont’s plan is equally ambitious. Gov. James Douglas’s Global Commitment to Health Plan is a pilot program that allows the federal Centers for Medicaid and Medicare Services to cap its contribution to the Office of Vermont Health Access at $4.7 billion over five years in exchange for greater flexibility in Medicaid spending decisions.

“Part of the challenge is that the federal share of Medicaid for Vermont is declining,” says Senator Jim Leddy, Chair of the Senate Health and Welfare Committee in Vermont. Once the recipient of a 64 percent federal contribution, Vermont received a substantially lower 58.49 percent in fiscal year 2006. “Every time there is a change of 1 percent, it costs the state $10 million of its own monies,” Leddy says. “We’ve had to pick up an additional $60 million just to maintain the status quo.”

Caught in a fiscal stranglehold, Leddy sees Vermont being pushed into a disproportionate partnership with the federal government. He says Vermont would be the first state in the country to receive a waiver that transforms Medicaid from an insurance benefit to a block grant program.

While the strategies are diverse, the single common denominator for states is the need to control costs. Faced with a $1 billion budget deficit, Missouri created a three-pronged strategy that reduces eligibility, creates service choices and institutes cost-sharing implements. “Medicaid was a program that continued to escalate out of control,” says Deborah Scott, spokesperson for the Missouri Department of Social Services. “We were truly facing a significant budget crisis.”
— Annie Gentile is a Vernon, Conn.-based freelance writer.

Federal and state share of Florida’s Medicaid expenditures (in billions)