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Think Tank

What Has Half a Century of Medicaid Meant for U.S.?

On July 30, 1965, President Lyndon Johnson signed controversial legislation creating two ambitious national health programs. Fifty years later, Medicare and Medicaid are still controversial, but for different reasons.

The idea of national health care first surfaced at a high level in 1945 when President Harry Truman proposed a national health insurance fund to be administered by the federal government. The American Medical Association and most of Congress opposed the idea of “socialized medicine” and it went on the back burner for 20 years. After Johnson signed the 1965 legislation, the first Medicare card was issued to Truman.

Several assessments of the programs’ effects over the first half century have been published this year, including “Medicaid at 50” from the Kaiser Family Foundation and “Medicare’s 50th Anniversary” from the Center for Medicare Advocacy.

Medicare, aimed at seniors and people with disabilities, is a federal program and involves little participation from states.

Medicaid, aimed at low-income people of all ages, is a partnership between states and the federal government, and programs vary from state to state.

Medicaid has grown significantly in recent years, especially in California, which operates the country’s largest program. Medi-Cal covers more than 12 million Californians — almost one third of the state’s population. Among children the percentage is even higher:  About half of California kids under 20 are Medi-Cal beneficiaries.

We asked experts and stakeholders to respond to two questions:

  • What has the first 50 years of Medicaid meant for the country?
  • What’s in store for Medicaid in the future?

We received responses from:

Changes Needed To Ensure Success of Reform Efforts

Medicaid, the nation’s health care safety-net program providing health coverage for more than 70 million Americans, is on track to spend $560 billion this year. It is jointly funded by federal and state governments, but administered by states under broad federal standards.

Medicaid funds close to 50% of all births and is the primary payer of long-term care in this country. Medicaid also provides most of the nation’s funding for HIV/AIDS-related treatments and mental health services, among other forms of health care. More than 40% of Medicaid spending is aimed at addressing the shortfalls of the Medicare program for individuals dually eligible for both.

To believe its critics, Medicaid must be either broken or overrun with fraud, waste and abuse. These charges are short sighted, lack context and fail to understand that it is in fact the broader U.S. health care system that needs significant improvement. The U.S. health care system faces many challenges: cost inflation, sub-optimal health care outcomes, and — due to decades of both proactive as well as passive policies — a tectonic shift of responsibility for the sickest, frailest and most complex patients directly to Medicaid.

The good news is that Medicaid is taking this challenge head-on. There is a widespread desire amongst Medicaid directors to reorient the health care system to achieve better care, better health and lower costs. To successfully achieve this vision, because it is responsible for the oldest, sickest, frailest and most complex and costly patients in the country, Medicaid programs must serve as a platform for innovation and system-wide care improvement.

The challenge, however, is that the underlying Medicaid statute is not structured to meet this need. The statute is now 50 years old, and often reflects a health care reality that no longer exists. States must seek federal approval to waive portions of the statute that would otherwise prevent such mainstream approaches as managed care or home- and community-based alternatives to nursing home care. Every single state operates multiple waivers, representing a growing majority of the entire program under a variety of poorly aligned authorities.

While states, in partnership with the federal government, have used these waiver authorities to drive transformational improvement in the health care system, it remains a sub-optimal way to administer the program, and changes are necessary to ensure the continued success of state reform efforts.

States have for decades successfully leveraged the flexibility associated with the 1115 research and demonstration waiver process to achieve many different and critical goals for Medicaid. This authority allowed the state of Arizona to initially adopt Medicaid in 1982 with a revolutionary approach of managed care for the majority of its beneficiaries, a process made complete when it expanded managed care to elderly and disabled populations later that decade.

This authority allowed numerous states in the 1990s to both expand coverage while at the same time expanding the use of private managed-care organizations to improve beneficiary health care. Tennessee, Oregon, Hawaii, Massachusetts and many other states blazed new trails in these areas.

More recently, several states have utilized the 1115 waiver approach to craft alternative approaches to the Medicaid expansion envisioned in the Affordable Care Act.

Still other states have pursued the 1115 waiver model to craft Delivery System Reform Incentive Payment models. States as varied politically and geographically as Texas, California and New York are all hard at work transforming the health care culture through these approaches right now.

While all states are different, politically, geographically and culturally, they are all working towards a shared goal of providing better health care to the populations they serve, and doing so in a cost-effective way that is responsive to their role as the stewards of taxpayer dollars.

Medicaid Instrumental in Making America Healthier

In 1960, 26 of every 1,000 children born in the U.S. died before their first birthday. In 2010, it was 6.1. In that same period, death rates from heart disease fell by more than 50%; life expectancy increased from 69.7 to 78.7 years. These are huge health improvements for our nation, and Medicaid has helped make them possible.

There’s no question that there have been significant medical advances since the 1960s, but medical advances don’t mean much if people can’t afford to take advantage of them. Since President Johnson signed Medicaid and Medicare into law in 1965 — 50 years ago this month — more people have been able to access the health care they need.

Medicaid — Medi-Cal in California — a state and federally funded program for low-income people, originally focused on covering pregnant women, infants, children and filling gaps in Medicare coverage for low-income seniors and people with disabilities. In its 50-year history, Medicaid has proven its ability to improve the lives of those it covers.

Medicaid can take much of the credit for improvements in maternal health, infant survival and childhood health. And its benefits continue after people have left Medicaid coverage. Healthier children often do better later in life, and recent studies link children’s Medicaid coverage with higher adult earnings. It has greatly improved options for low-income seniors and people with disabilities who need long-term care by providing coverage for home-based and nursing home care — services Medicare doesn’t cover. It has made it possible for people with conditions like heart disease and cancer to get life-saving care.

By providing significant federal funding for states to extend Medicaid coverage to more low-income parents and adults without dependent children, the Affordable Care Act has given states an opportunity to fill what has been a gap in Medicaid’s coverage for adults. California is among the 30 states (including the District of Columbia) that have taken advantage of this opportunity. Extending Medi-Cal means more parents and low-wage workers are able to afford insurance. It has been a huge part of what’s made it possible for California to cut in half the number of uninsured residents since the ACA became operational. 

In its 50 years, Medicaid has become a basic part of the fabric of our health care system. It covers half of all births, is the major payer for long-term care, and, as of April 2015, it is covering 71 million Americans, 12 million in California. 

Moving forward, Medicaid will continue to deliver improvements to Americans’ health. States that have expanded Medicaid coverage can expect economic benefits: federal Medicaid funding will displace state and locally funded programs for the uninsured, freeing up state dollars for other priorities; health care providers will have less uncompensated care, improving their bottom-line; and a healthier population and workforce will bring numerous economic benefits, as well as greater quality of life for residents.

But its success is one of its challenges. States will need to manage costs. Medicaid’s rate of growth has been below that of private insurance, but an aging population will pose challenges for delivering long-term care. States have always had flexibility in how they manage their Medicaid programs, and the ACA gives states even greater latitude to innovate through delivery system changes. We anticipate that many states will take advantage of those options.

Medicaid has played a large role helping to reduce racial and ethnic disparities in access to health care, but more work needs to be done. One of the greatest steps that can be taken in this regard is for the remaining states to extend Medicaid coverage under the ACA.

We anticipate that will happen. To help make that happen, it’s up to states that have taken that step already, like California, to show the benefit of improving residents’ access to health coverage.

Powerful Tool for Innovation

The Medicaid program’s very nature as a voluntary state-federal partnership has defined the character of the program over its first half century. During this period, Medicaid has proven itself to be a powerful tool for health care coverage innovation with states as the laboratories. This innovation has spanned the full range of activities from service delivery models to new program options. Over the years the program has expanded in size and scope and today covers more than 70 million people.

The voluntary nature of the program did mean that it took 17 years for all states and the District of Columbia to participate and states have proven to be very uneven and in some cases unacceptably stingy about income eligibility levels. The general low level of reimbursement to providers has also been a barrier to fuller participation by health care providers and access to care for patients. The good news is health insurance coverage matters and Medicaid makes a difference in both the health of populations and in their overall economic well-being.

The Affordable Care Act in its original form was designed to fundamentally change the nature of the program by requiring all states to expand their participation to a basic level of coverage for all low-income people, with the federal government picking up most of the additional costs. This transformed the health program from a benefit for primarily low-income women, children and the disabled to a low-income program for all low-income people, including single adults.

The U.S. Supreme Court in its June 2012 opinion in NFIB vs Sebelius maintained the voluntary nature of the program by deciding that the law as constructed unduly coerced states into accepting the Medicaid expansion. The effect of that decision has meant that to date, 21 states have chosen not to expand their Medicaid programs despite the clear financial benefits of doing so. This resistance has persisted despite the plethora of data demonstrating the profound unmet health needs of their citizens.

Recently there have been some cracks in this resistance and one can anticipate states will continue to look for ways to take advantage of the opportunity to expand their programs. One such opportunity will present in 2017 under the ACA 1332 wavier program. This little known provision will allow states to apply for a waiver to experiment with other health care financing models. This is an enormously flexible option that will allow states to experiment in ways that may break the political gridlock of today.

As Medicaid turns 50 it has a bright future; one where all states will eventually expand their programs achieving the universality initially conceived by the ACA for low-income people.

Next Challenge: Long-Term Care

One of the greatest challenges Medicare and Medicaid will face in their next 50 years is long-term care. This challenge is equal parts fiscal and conceptual. Without minimizing the fiscal challenge, I want to take the opportunity of the 50th anniversary of Medicare and Medicaid to reflect on the conceptual one — how we think about the role of social insurance for long-term care.

To put it bluntly, long-term care is a social insurance afterthought. Medicaid has emerged, largely by default, as the primary payer for long-term care. In this role, it is criticized for failing to meet the needs of people with disabilities or serious illness. These critiques are valid, but incomplete.

Over the past several decades, Medicaid’s bias toward institutional care has been yielding to “home and community-based services” — in effect home-based care. More long-term care occurring at home has undeniable benefits; people with illness and disability can live as independently as possible. But this trend has intensified a second type of insecurity for Americans. This insecurity arises when someone becomes responsible for another’s long-term care. I call this insecurity “next-friend risk” and have made the case elsewhere that it poses one of the greatest unaddressed threats to the security of American families.

Current long-term care social policy ensures heavy reliance on family and friends. Because Medicaid is means tested, all but the poorest Americans have no social insurance for long-term care. Few can afford private long-term care insurance. Family and friends often step in to fill this gap.

Moreover, Medicaid’s home and community-based services programs are underfunded and extremely vulnerable to budgetary cuts, as evinced in California in recent years. In many states, programs have long waiting lists for services. Even those people eligible for Medicaid benefits increasingly rely on friends and family for supplemental help.

This de facto reliance on next friends is untenable. The number of single-parent families and two wage-earner households has increased significantly. Families have dispersed geographically. And the ratio of people needing care to those who might provide it is increasing, as people live longer and have fewer kids.

As a result, the average baby boomer who leaves the workforce to care for an aging parent faces estimated losses — forgone income, pensions, benefits and retirement savings, including Social Security — between $200,000 and $300,000. Considering that the median household net worth in the U.S. was just under $70,000 in 2011, loss at this level is devastating for all but the wealthiest households. Family caregivers also face significant non-economic costs. Studies show, for example, that rates of depression among informal caregivers far outpace the rates among the general population. These costs are, in effect, the invisible copayment of current long-term care policy.

These costs threaten Americans’ financial, emotional and physical well-being as seriously as any of the other phenomena that have motivated the creation of social insurance benefits, such as unemployment or financial insecurity in retirement.

In the next 50 years, we must consider next-friend risk as co-equal to the risk of needing long-term care oneself. While complicating the problem of long-term care, this conception offers a more realistic picture of the way long-term care needs affect American families. In the next 50 years, Medicaid must grapple with this reality or its policies will, even if creating security for some, undermine it for others.

Medicaid Leads Way in Behavioral Health Services

Over the past 50 years Medicaid has evolved from a small welfare program to a major health insurer, providing coverage and care to more than 70 million Americans. With the passage of the Affordable Care Act, Medicaid becomes the foundation of a new coverage paradigm. As such, Medicaid is positioned to play a central role in system-wide efforts to improve health and lower costs. Nowhere is this more true than with respect to the delivery of behavioral health services.

Medicaid has long played an important role in the financing and delivery of behavioral health services. When Medicaid was first enacted in 1965, states were able to tap into federal dollars to finance the delivery of behavioral health services for those with the most serious mental illness. Because Medicaid was not generally available for services provided in “institutions of mental disease” states looked for ways to transition Medicaid-eligible patients into more community-based settings. Medicaid’s role, however, was somewhat limited: first, early on Medicaid covered relatively small numbers of adults outside of those with the most severe mental disorders; and second, mental health and substance abuse services were optional benefits and state coverage varied widely.

Nonetheless, as a result of expansions in some states and a growing recognition of the importance of covering behavioral health services, at the time the ACA passed, Medicaid was the largest payer of mental health services in the U.S., accounting for 26% of all spending.

The ACA solidified Medicaid’s role in the behavioral health system.  It authorized the expansion of Medicaid to all low-income adults and required that expansion adults receive both mental health and substance abuse services and that these services be provided in parity with physical health services. The ACA also encouraged new models of care coordination, offered new opportunities for home and community based services and funded health homes for beneficiaries with comorbid physical and behavioral health conditions. These policies and programs position, indeed compel, Medicaid to tackle the intractable problem of siloed behavioral and physical health care delivery systems that grew out of fragmented administrative structures — with different state agencies having responsibility for physical health, mental health and substance abuse services — and siloed funding streams.

Today, Medicaid is the dominant payer for behavioral health services and Medicaid beneficiaries with behavioral health conditions are among Medicaid’s most costly. Going forward, expect Medicaid to lead the way in developing care models to more effectively and efficiently serve individuals burdened with mental health and substance use disorders.

Standard Bearers for Coverage, Quality, Innovation

It’s easy to forget that before 1966, roughly half of all American seniors were uninsured, living in fear that the high cost of health care could plunge not only them, but their families, into poverty.  Few of us remember that not long ago, far too many disabled people, families with children, pregnant women, and low-income working Americans were unable to afford the medical care they needed to stay healthy and productive.

Fifty years ago, on July 30, 1965, the landscape of health care in America changed forever when President Lyndon B. Johnson signed the landmark amendment to the Social Security Act that gave life to the Medicare and Medicaid programs.

Medicare and Medicaid save lives, help people live longer and provide the peace of mind that comes with affordable health care that’s there when you need it. Medicare and Medicaid cover nearly one out of every three Americans — more than 100 million people. 

Marking the 50th anniversary of these lifesaving programs this summer gives us an important opportunity to recognize and remember the ways these programs transformed the delivery of health care in the United States.

Fifty years later, no other program has changed the lives of Americans more than Medicare and Medicaid.

Medicaid provides comprehensive coverage to more than 70 million eligible children, pregnant women, low-income adults and people living with disabilities. It covers essential services like annual check-ups, care for new and expecting mothers, and dental care for kids from low-income families.

Over the course of five decades, Medicare and Medicaid have become the standard bearers for coverage, quality and innovation in American health care.

Innovative and dedicated teams are combating fraud and working to continually improve the quality of life and care delivered under these programs. Medicare and Medicaid are among the most efficient and well-managed health insurance programs in the world. They will continue to transform to create a health care system that delivers better care, spends health care dollars more wisely and results in healthier people.

President Johnson would be heartened to know that the hard-fought efforts to improve our health care system have not only succeeded, but that America is on track to give even better access, higher quality care, and improved health for the next 50 years and beyond.