Health Care Reform will Add to Medicaid's Importance; Help Maryland

Medicaid, the little health program that could, has already grown to be the single largest provider of health coverage in the nation. Over 60 million Americans, mostly children, receive their health coverage through Medicaid. Though it covers more people, Medicaid is often overshadowed by the more well known and more popular Medicare. Part of that lack of recognition stems from the fact that Medicaid is a state/federal partnership. The federal government establishes program regulations and provides at least half of the funding, but states are required to administer the program and have a certain degree of freedom to tailor it to their needs. In that regard Medicaid is actually 50 different programs.


If health reform is enacted (including Senate passage of the reconciliation bill), Medicaid will likely eclipse Medicare in name recognition. The legislation pending in Congress seeks to insure an additional 32 million Americans - and half of them would receive coverage via Medicaid. As currently structured, federal regulations limit the program's availability to childless adults - no matter how poor. But health reform would expand Medicaid to every American with income at or below 133% of the federal poverty line. This change will bring millions of new people into the program. Many states were concerned that the influx of new recipients would overwhelm already strapped budgets – remember, states share in the funding.

The legislation that would reconcile House and Senate differences addresses that concern. According to the proposed bill federal Medicaid matching payments for the costs of services to newly eligible individuals will be provided at the following rates: 100% in 2014, 2015, and 2016; 95% in 2017; 94% in 2018; 93% in 2019; and 90% thereafter. So states only absorb 10% of the cost. Some states have chosen to cover these adults, largely at state expense, and the bill will help them as well by reducing the state share of the costs by 50% in 2014, 60% in 2015, 70% in 2016, 80% in 2017, 90% in 2018. In 2019 and thereafter, these states would bear the same state share of the costs of all other states.

This could help reduce current Medicaid costs for states like Maryland and Massachusetts. In 2007, Maryland expanded coverage to childless adults with incomes up to 116% of poverty. An analysis conducted by the state's Department of Legislative Services (DLS) in January estimated the Medicaid expansion and enhanced funding in the Senate version of health reform would save Maryland roughly $135 million per year between 2014 and 2016 (due to the extra federal money). State costs would then begin to rise to around $200 million per year between 2017 and 2019 - owing to increased enrollment. Based on DLS estimates the expansion would impact 133,000 Marylanders - $200 million in costs would mean the state would be covering these folks for the bargain price of $1,500 each. The state would incur additional savings as well, the state maintains an uncompensated care fund for hospitals to offset the cost of covering the uninsured. Those costs topped $1 billion in fiscal 2009. The increased coverage would reduce those costs.  The state also manages a high-risk pools called the Maryland Health Insurance Plan (MHIP) - MHIP cost $111 million. MHIP would no longer be needed and those funds would be freed.

It is no secret that Medicaid saves money by paying providers less money than they would receive from Medicare or private insurance. In many states providers may earn as little as 35-45% of the usual rate for Medicaid patients. In the past year, 38 states (Maryland included) cut provider payments to try and squeeze savings out of Medicaid. This caused many to worry that the expansion of Medicaid would accomplish little as the newly insured would not be able to find participating doctors.

The reconciliation language requires that Medicaid payment rates to primary care physicians be no less than 100% of Medicare payment rates in 2013 and 2014 (an presumably thereafter). Given that many states could not afford such an increase, the federal government would provide 100% federal funding for the costs to States of meeting the requirement.

In short, the proposed health reform holds the potential of transforming Medicaid into a true national health insurance model. The expansion of the program to new, higher income individuals, and the provision of dramatically improved federal funding, holds the promise that Medicaid may soon become a federal responsibility – freeing states form the tremendous cost burden and freeing Americans from a situation where their access to health care depends on their state of residence.

Full text of the bill is here - Part C. Sections 1201 and 1202 directly address Medicaid.