(October 2004) Medicaid is the nation’s largest funding source providing health services to low-income people – totaling about $270 billion nationally and serving roughly 52 million people in 2003. As Medicaid costs rise faster than state revenues and faster than most other state spending programs, all states – not just Pennsylvania – have been struggling to maintain or even expand services to low-income individuals and families, while reining in costs. IssuesPA examined Medicaid and how Pennsylvania compares. 

A federal-state partnership, Medicaid finances and provides health care to low-income individuals and families (versus the federally-funded Medicare program that provides similar protections primarily to the nation’s older population). The federal government provides a significant amount of funding for state Medicaid programs – from 50% to as much as 80%, depending on a state’s overall wealth. In Pennsylvania, federal funds account for 57.7% of Medicaid funding for 2004. 

Medicaid participation is optional for states, and they must abide by certain guidelines. However, the guaranteed minimum of 50% federal funding creates a huge incentive to participate. Medicaid has three primary service components: health care financing for low- income women and children, for individuals with disabilities, and long-term care financing for low-income elderly people.

Can states use Medicaid to expand services?

Yes. States can expand eligibility under optional guidelines or through a waiver process. Several states have begun to use waivers to provide additional health care coverage for those without insurance and not otherwise eligible for Medicaid.

Waivers include:

• Expanding upper income limits to include more low-income individuals and families.

• Allowing low-income individuals and families who don’t otherwise qualify to participate by paying toward the premium costs and service fees, sometimes on a sliding scale.

• Creating a list of prioritized services available to Medicaid recipients.

• Limiting expanded services to primary or preventative care. 

Expanding coverage through waivers and covering additional people is an opportunity for states to leverage additional federal matching funds and to leverage existing health care programs.  But this requires states to find more revenues to pay their share of expanded programs.

The popular State Children’s Health Insurance Program (CHIP) is an example of how Medicaid can expand. A program initiated by former Governor Robert Casey, it was so successful it went national. Its goal: expand health insurance coverage for more children in low-income families.  Many states have expanded the program further to include families of children who qualify for CHIP.

What about rising Medicaid costs and efforts to control costs?

Medicaid is expensive – and getting worse. In Fiscal 2004, Medicaid grew an average of 9.5% nationally, similar to Fiscal 2003. Why?  Several factors, including increasing health care costs, higher numbers of eligible individuals due to the economic downturn, and rising prescription drug costs. 

Further, an important driver of Medicaid costs is the high-cost medical needs of low-income elderly and individuals with disabilities, including long-term care. The elderly and people with disabilities comprise roughly 25% of the Medicaid population nationwide – but account for about 70% of the medical costs. In contrast, the remaining 75% of the Medicaid clients, mostly low-income families, account for just 30% of the medical costs.

As states look to rein in Medicaid costs, there are short-term and long-term options to consider. They include cutting eligibility, rolling back program expansions, and restricting services.  These options could have negative consequences elsewhere in the health care system, including increased expenses for local government programs and for emergency or charity care for health care providers, and increased health care costs for employers and individuals.

In the past four years, 38 states took actions to cut eligibility and 34 states acted to limit benefits. Such cost cutting options may be necessary given tight budgetary conditions – but may not always be politically feasible. Pennsylvania has not cut benefits or beneficiaries to date.

States often consider long-term policy changes to impact the rising price of Medicaid programs in the long run. Among these policy options – reforming long-term care (which makes up nearly 40% of Medicaid spending), emphasizing preventive care and promoting healthier lifestyles, managing the diseases that cost the most (such as childhood asthma or diabetes), intensifying investigations of fraud and abuse, and controlling prescription drug costs.   

Bottom line?

Medicaid programs comprise a large part of state government budgets. State policymakers, including Pennsylvania’s, must balance the health and well-being of low-income families and individuals with other state priorities such as education, economic and community development, public safety, and so much more – all within the context of limited revenue sources.