On July 30, 1965, President Lyndon B. Johnson signed the Medicaid program into law. In a new article for the Journal of the American Medical Association (JAMA), summarized below, Manatt Health takes a look at Medicaid's evolution over the past 50 years from an adjunct to state welfare programs to the nation's largest health insurer. To download a free PDF of the full article, click here.

The Affordable Care Act (ACA) affirmed Medicaid's insurance credentials as one of three "insurance affordability" programs—along with subsidized coverage through a state-based 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. As the foundation of the new 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.

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 and enrollment procedures to achieve a simple, seamless enrollment experience across all three 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 can now enroll in Marketplace subsidies, Medicaid or CHIP through one online application—and, to varying degrees, depending on the IT status—have their eligibility determined through a coordinated and largely automated review process.

Given Medicaid's Role and Size, Program Costs Remain an Issue

Given Medicaid's role and size, program costs remain an issue, as they are in the healthcare system more broadly. Although the costs of newly-eligible adults and the new IT infrastructure are largely borne by the federal government, Medicaid still accounts for, on average, 15% of state budgets, looking at nonfederal sources of spending. Unlike Medicare and private insurance, Medicaid spending growth in recent years has been driven mostly by enrollment, not per-enrollee costs. Medicaid is now covering more than 70 million people.

As is true across the healthcare system, cost concerns and a desire to improve care are prompting state and federal Medicaid agencies to focus on delivery and payment reforms. Among others, aligning Medicaid with the commercial market is a priority. Approximately 40% of families with incomes below 400% FPL will experience a change in circumstances within a year of enrollment that will lead them to move between Medicaid and Marketplace coverage (in both directions). Health plans increasingly operate in both markets. Coordinating with Medicare is also important, given that about 61% of Medicaid's highest-needs beneficiaries are enrolled in both programs.

Looking Ahead

Looking forward, the most pressing question for Medicaid and the goal for near universal coverage is whether and when the states that have not yet expanded their Medicaid programs will expand. About 4.3 million adults who could be covered by Medicaid remain uninsured in nonexpansion states. The case for expansion is compelling:

  • First-year results in expansion states show robust take-up and steep declines in uninsurance and uncompensated care costs.
  • Expansion is largely funded by federal dollars (100% through 2016 and never less than 90% thereafter), and in all states expansion brings significant economic benefits by relieving current state spending and bringing in new healthcare-related revenues. A post-implementation study Manatt prepared for the Robert Wood Johnson Foundation's State Health Reform Assistance Network shows savings and revenues across eight expansion states are projected to top $1.8 billion by the end of 2015.

Opposition to expansion persists in some states, however, driven largely by a philosophy favoring less government, opposition to any association with "Obamacare," and objections to covering the "able-bodied poor." In contrast, hospitals, other healthcare providers, many business groups and the public widely support Medicaid expansion. Waivers, which allow states to put their unique stamp on expansion, will play a key role in this debate. As the contours of federalism continue to be tested, the challenge is to support states' ability to test new ways to provide coverage while maintaining or even strengthening the program's ability to coordinate closely with the Marketplace and CHIP, as well as to function effectively as a value-based purchaser and source of insurance for low-income residents.

Delivery and payment reform are ultimately as important to Medicaid's future as its coverage responsibilities. Medicaid can both drive delivery system reform and partner with others moving reform forward. Overall, Medicaid's success will depend on the same issues that are affecting the rest of the healthcare system, along with some Medicaid-specific challenges.

Finally, 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 56% of Medicaid expenditures. 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 prevent cost inefficiencies.

Conclusion

Medicaid has regularly been reinvented to meet the needs of a new time, population or healthcare crisis. Reinvention is under way again, and while the path may not be easy, Medicaid will continue to move forward.