Published in the Fall 2007 issue of SSA Magazine

On Call

57 million: Americans covered by Medicaid, making it the largest health insurance program in the U.S.

How Medicaid has moved far beyond its role as a last-resort health care program for the poor

Medicaid is often described as America's health care program for the poor. Yet it has 12 million more participants than Medicare, our universal program for the elderly and disabled. Medicaid covers one out of five of the nation's children, pays for more than one in every three childbirths, covers two-thirds of the elderly residing in nursing homes, and pays for half of all states' mental health services, according to federal statistics from 2003.

The U.S., which has repeatedly favored private-sector health insurance approaches, has such a large publicly funded health care program for three interrelated reasons. Understanding how they work gives a glimpse into how Medicaid can become a rallying point for middle-class participants—and lead to universal health care coverage for all citizens.

Expensive Needs

Relatively few Americans have been able or willing to purchase private insurance to provide long-term custodial nursing home care (LTC), which is enormously expensive (an average cost of approximately $70,000 per year). Even after adjusting for inflation, LTC costs have increased 149 percent for the aged and an astounding 522 percent for the disabled since 1975. However, since Medicare does not cover this type of care, the disabled and elderly rely on Medicaid. Between 27 percent to 45 percent of elderly nursing home residents become eligible for Medicaid after spending down their resources. Although the elderly and disabled make up only a third of Medicaid enrollments, they consume two-thirds of expenditures. With an aging population and no other LTC proposals seriously on the table, Medicaid will remain America's de facto LTC program.

Lack of Health Care Reform

America relies on private employer-sponsored health insurance for the majority of its citizens (61%) and yet has never mandated that employers offer this coverage. Starting in 1965, with the passage of legislation that created Medicare and Medicaid, the assumption has been that workers and dependents had private insurance, the elderly and disabled had Medicare, and the poor and unemployed could fall back on Medicaid.

The number of uninsured has continued to grow, however, and now includes 47 million Americans, many of whom do have a job. Private insurance is affordable if your employer subsidizes the cost of the premium, which is the case for most middle- and upper-income Americans. Health insurance is not offered, though, as an employment benefit for many middle- and low-income people. Buying health insurance without support from an employer is very expensive, or essentially unobtainable if there are preexisting medical conditions or risk of poor health. These uninsured end up knocking on state government's door, and the states have turned to Medicaid to fund these costs.

Federal Financial Incentives to Expand

Since 1965, the federal government has mandated that state Medicaid programs cover specific types of poor persons. Today the mandatory coverage groups represent a very restricted group of people with very low income levels, such as children up to age 6 and pregnant women who live in households under 133 percent of the federal poverty level (FPL). Medicaid legislation, however, also specifies "optional groups" that states may cover, such as the same populations but at higher income levels, and includes groups such as working parents up to 250 percent of the FPL. States have expanded health insurance coverage through Medicaid's optional groups in the last decade, which now consume two-thirds of Medicaid expenditures.

States also expand coverage to save money through various Medicaid maximization schemes. The most common example is mental health care services. Although the federal government clearly limits which mental health diagnoses can be defined as a disability for Medicaid eligibility, states realized that many low-income clients were eligible, shifting programs and services that were paid for under state-only dollars on to Medicaid to take advantage of the federal matching rate.

What's Next

Put these factors together and the result is that Medicaid has become our health care safety-net for a wide range of people across various illnesses, age groups, and income levels. Indeed, Medicaid has become an important element of health care security for middle-class families.

Considering how many people are now covered or protected by Medicaid, it is not unreasonable to think that the program could be America's unexpected, but potentially sturdy stepping stone to universal coverage. Once citizens feel entitled to support from a program, like the elderly do with Medicare, they can then advocate for the type of program they want. With middle-class political mobilization for the program, Medicaid can become the country's way to ensure everyone has decent medical coverage.

Colleen Grogan is an associate professor at SSA, the faculty chair of the Graduate Program in Health Administration and Policy, and a research associate at the Center for Health Administration Studies.