Medicaid and the U.S. Path to National Health Insurance

The following appeared in the New England Journal of Medicine. 

Great Expectations – The Obama Administration and Health Care Reform
Health Care 2009: Medicaid and the U.S. Path to National Health Insurance
Michael Sparer, Ph.D., J.D.

The 2008 presidential election has rekindled long-simmering hopes for comprehensive health care reform. The policy debate includes references to new government programs (perhaps a federal program for the uninsured to buy into) and vague formulas for cost containment (usually involving overly optimistic assessments of savings to be generated by using health information technology). Ironically, however, the debate generally ignores what I see as the most plausible path toward universal coverage: first, expanding Medicaid to cover the largest portion of the uninsured, Americans with incomes below 350% of the federal poverty level (around $62,000 for a family of three); and second, requiring everyone to carry health insurance and allowing people whose incomes are too high for automatic coverage to buy into Medicaid. Previous efforts to enact universal coverage have failed in part because opposition from interest groups such as the business community and the insurance industry is far more influential than is organized support for uninsured low wage workers. Reform opponents also take advantage of the anti-big-government ethos that pervades our political culture. Finally, our political institutions are designed to make it hard to enact comprehensive legislation, since our system of checks and balances provides opponents with numerous opportunities to block legislation.

Meanwhile, Medicaid, the federal-state program designed to provide health insurance for the poor, has been quietly becoming the most successful program in U.S. history for aiding the uninsured. Since the Reagan administration, program enrollment has more than doubled (surpassing 59 million), softening the impact of the continuing decline in the number of Americans with employer-sponsored coverage. Surprisingly, the very factors that defeated President Bill Clinton’s proposal for universal coverage have actually encouraged expansions of Medicaid. Business leaders support Medicaid expansions because they relieve the pressure on employers to cover low wage employees. Private insurers support such initiatives because they leave intact the core of the current system and because many states use commercial health plans to serve Medicaid beneficiaries. Institutional providers (hospitals and nursing homes) are supportive, since they rely on Medicaid dollars. Medicaid is also administered in very different ways by different states, which minimizes complaints about a monolithic national program. Perhaps most important, Medicaid’s intergovernmental structure encourages expansion: since the program is financed primarily with federal dollars, states can increase coverage while shifting much of the cost to the federal treasury.

The 2007 battle over Medicaid’s sister program, the State Children’s Health Insurance Program (SCHIP), illustrates this broad acceptability. The congressional proposal to increase SCHIP funding emerged from a bipartisan process and was supported by both Senator Edward Kennedy (D-MA) and Senator Orrin
Hatch (R-UT). Even President George W. Bush hoped to increase funding, though by less than Congress had proposed. The bone of contention was the income ceiling for eligibility. New Jersey, at the high end, covers children from families with incomes up to 350% of the federal poverty level. That’s about as high as moderate Republicans (and the business community) might plausibly be willing to go.

This history points us to an obvious path toward national health insurance: combine a Medicaid expansion and buy-in with an individual mandate. Most Americans would find it fair to require those who can afford insurance to buy it, especially when they can pay into an affordable public insurance plan rather than being forced to buy private policies. I believe that this is the only universal coverage plan with a decent chance of succeeding politically. Employer mandates face treacherous politics: big business doesn’t want government telling it what sort of coverage to provide, and small business argues persuasively that many “mom and pop” shops simply cannot afford the bill. Even less likely to fly are Medicare-expansion proposals, given both the cultural opposition to anything that could be labeled a single-payer program and the fierce opposition of the private insurance industry. But the same interest groups that would oppose these alternatives would probably support the Medicaid strategy.

Relying on Medicaid is also good policy. Medicaid provides decent health insurance to more than 59 million Americans (including more than 25% of U.S.children). Some people complain about interstate variation in eligibility, benefits, and reimbursement, but if eligibility were standardized and minimum benefits defined, variation in other areas could result in learning and innovation. Medicaid encourages state-based experimentation in responding to local health care needs. For example, most states deliver benefits through managed care, but some rely on commercial insurers and some on nonprofit health plans, whereas others act as the plan themselves. And Medicaid offers such flexibility within an overarching federal structure. Similarly, interstate diversity in cost-containment strategies, programs for the chronically ill, and outreach and education is a good thing. Moreover, states are already experimenting with Medicaid buy-in programs, and one state (New Jersey) has even enacted an initiative combining a Medicaid buy-in with an individual mandate for parents to cover children. Letting the laboratory of federalism work is a better idea than using Medicare or the congressional health plan as the basis for a reformed system – and a much better idea than creating a brand-new administrative infrastructure.

However, the road to any type of national health insurance is littered with obstacles, and the “Medicaid for More” model certainly faces barriers. First is the stigma attached to the name. Many middle-class workers would be reluctant to buy into a “welfare medicine” program. One solution is to give the program a new name and thus a new identity as a middle-class entitlement. States tried this strategy with some success when implementing SCHIP (hence the “Dr. Dynasaur” program in Vermont). More difficult would be convincing physicians to support a Medicaid expansion and participate in the program. Although Medicaid participation is high in some states, it is more typical for office-based physicians to refuse
to treat Medicaid patients, citing low reimbursement rates and long administrative delays.5 Medicaid
agencies (or the managed-care plans they rely on) will need to pay higher rates, though increases
that are substantial enough to attract physician participation would undermine cost-containment efforts.
Medicaid agencies could also rely more heavily on nurse practitioners and physician assistants,
but any effort to simply bypass the physician community will fail. Here again, however, the laboratory
of federalism could help, since there are states that effectively partner with office-based physicians
and have lessons to share. Finally, there is the question of paying the bill, especially in the midst of an economic crisis. Here, too, there are no easy solutions, especially for a society disinclined to limit the diffusion of new health care technology or to regulate the prices and salaries paid by the private
health care sector. One lesson of the recent Medicaid expansions, however, is that intergovernmental
financing programs are the most plausible fiscal route to health insurance expansions.

States will complain about having to pay their share, though Congress could tie increased federal funding to innovative case management for chronic diseases (or other performance measures). Federal budget officials will also be skeptical, but any national health insurance system is going to cost money, and at least in this scenario the cost would be divided among the federal treasury, the states, and the businesses or individual consumers who buy in. Proposals for national health insurance have a long history of failure in this country. But expanding Medicaid in combination with an individual mandate offers a good policy solution that might have enough political appeal to succeed. And if the recession and other priorities discourage President Obama from seeking universal coverage in one fell swoop, the model could be phased in, starting with a more modest Medicaid expansion, a buy-in program, and an individual mandate covering only children. Ultimately, I see the Medicaid model as providing the most likely path to solving the crisis of the uninsured.




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