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Medicaid Decision Could Further Fragment Health Care

The views expressed are those of the author and are not necessarily those of Scientific American.

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West view of  the Supreme Court Building

West view of the Supreme Court Building

If I had to sum up everything that is wrong with the US health care system in one-word sound bites, I would start with “fragmentation.” There are just too many ways for patients to fall through the cracks.* Last week’s ruling by the Supreme Court upholding the Constitutionality of the Affordable Care Act (ACA) does not directly address this problem—nor was it meant to. But by making it optional for states to participate in one piece of the ACA legislation, the Court’s decision manages nonetheless to introduce the likelihood of yet more fragmentation to the system.

I’m talking about the second part of the Supreme Court’s decision—the part that said that the U.S. government cannot penalize states that do not wish to participate in an expansion of the Medicaid system. The proposed expansion, which is slated to start in 2014, was expected to make coverage available to 16 million to 17 million Americans who currently do not have health insurance, according to a March 2012 estimate by the Congressional Budget Office. The first two years would be 100% funded by the federal government, but eventually the states would have to kick in up to 10% of the costs of the expansion.

The rationale for expanding insurance coverage was to make sure that everyone has access to health care, which is essential to sustainable financing of health care in general. It keeps insurance companies from cherry picking only the healthiest people to participate in their plans and it keeps medical centers from getting stuck with giant bills for the treatment of uninsured patients in emergency rooms and on hospital floors.

The idea behind expanding Medicaid in particular is to increase coverage of the working poor—specifically people who make 133% of the federal poverty level, or about $30,000 a year for a family of four.

Currently, the Medicaid program is funded by states and the federal government to provide health care coverage primarily to extremely poor families with children and people whose disabilities keep them from earning much money, as well as paying for a significant share of all nursing home care. People who make more money can purchase their coverage through a health exchange if they don’t already get coverage through their employer. The federal government will provide subsidies to buy health insurance to folks who make between 100% and 400% of poverty level.

There is another reason, however, to turn to Medicaid in particular to expand coverage for the working poor. It turns out that the Medicaid program is better at reining in health costs than the private sector. According to an analysis by the Henry J. Kaiser Family Foundation, health care spending by the Medicaid program rose more slowly from 2000 to 2008 on a per-person basis than health spending for individuals with employer-sponsored private insurance.

Why would any state turn down free money from the federal government to expand Medicaid? Apart from any political motives—not wanting to hand Democrats a policy victory—there are some substantive reasons for proceeding cautiously. “States have a real love-hate relationship with Medicaid,” as Alan Weil, the executive director of the non-partisan National Academy for State Health Policy, told a webinar briefing of journalists sponsored by the Association of Health Care Journalism last Friday.

“Governors love to hate it because it eats up all of the dollars that they thought they were going to be able to use when they got elected for other priorities like education and transportation and economic development,” Weil noted.  ”They feel that the program is fiscally out of control. They feel that they cannot manage it. They are not confident that the federal high level of funding will remain indefinitely.”

While 26 states—including Texas and Florida—filed suit against the mandatory Medicaid expansion, several other states—including Connecticut and Minnesota—requested and received permission to start expanding their Medicaid programs ahead of the 2014 deadline. So clearly some states think expanding Medicaid coverage is a good idea.

If every one of the 26 states that file suit against the ACA opts out of the expanded Medicaid program, nearly 9 million people who would have been covered may not be. (You can do the math by comparing the names of the 26 states against the numbers in Tables 1 and 2 of this May 2010 analysis by the Urban Institute for the Kaiser Family Foundation.)

Florida’s governor has already gone on record saying that his state will opt out of as much of the ACA as it legally can because it believes its medical costs would otherwise rise uncontrollably and it is satisfied with the health coverage it already provides many poor families. The governor of South Carolina has made a similar statement.

So now we’re going to have a situation in which nearly all the residents of Connecticut and Minnesota and other states with expanded Medicaid programs and health exchanges will have insurance—and presumably the access to care that goes along with coverage. But states that refuse to expand Medicaid will create a strange new gap in their coverage (similar to the donut hole that famously existed in President Bush’s prescription drug benefits). As Kevin Outterson, an associate professor at Boston University’s Schools of Law and Public Health, explains in a blog post for The Incidental Economist:

“in opt out states, citizens under 100% [of the Federal Poverty Level or FPL] can’t qualify for refundable tax credits for coverage under a qualified health plan in the exchanges. So a new donut hole is created: desperately poor parents are covered (in Texas, up to 26% of FPL), then the ever so slightly less poor are not covered (in Texas, 26% – 99% FPL), then tax credits in the exchanges can kick in above 100%.”

So if you divide poor people into the desperately poor, the slightly less poor and the almost-not poor, then the desperately poor and the almost-not poor are covered by either Medicaid or subsidies to buy insurance but the average poor—who are in between the other two groups—get nothing.

In other words, the Supreme Court decision has created yet another level of fragmentation that the U.S. health care system—not to mention its patients—could really live without.

*Two big examples of fragmentation: no single health professional is typically responsible for a patient’s care and health insurance coverage (and the rules that govern it) keeps changing based on, among other things, when a person moves, changes jobs or simply gets older.

About the Author: Christine Gorman is the editor in charge of health and medicine features for SCIENTIFIC AMERICAN. Follow on Twitter @cgorman.

The views expressed are those of the author and are not necessarily those of Scientific American.

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  1. 1. Soccerdad 1:14 pm 07/3/2012

    You neglected the most important reason for states to opt out. It is not “free money” as you state – at least not after 2020. After that the states will have to pick up 10% of a very large cost. Some governors (unlike our current President) have a longer term view, i.e. past the next election.

    Link to this
  2. 2. Christine Gorman 1:55 pm 07/3/2012

    Soccerdad: Did you post before reading the whole story? I spelled out the costs to states in the second paragraph of the article as one reason states might consider opting out.

    “The first two years would be 100% funded by the federal government, but eventually the states would have to kick in up to 10% of the costs of the expansion.”

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  3. 3. Soccerdad 2:19 pm 07/3/2012

    Well, now I see it.

    It’s the obvious answer to your question in the later paragraph, and definitely not free money.

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  4. 4. drafter 2:25 pm 07/3/2012

    The only reason Medicaide was able to reduce the pace of cost increase is because they actually had a higher rate of denying service and denial of payments when service was rendered (documented in other articles) which forced hospitals to charge private insurance to make up for the loss this led the insurers to increase their rates at a higher rate. In other words the government did it on purpose to make insurance look worse than it was so people would scream for the government to take over the hole thing.

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  5. 5. Christine Gorman 2:29 pm 07/3/2012

    If it is so clearly disadvantageous (as you imply), rather than a decision with multiple factors involved, why did states like Connecticut and Minnesota ask to expand Medicaid early?

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  6. 6. hanmeng 2:35 pm 07/3/2012

    The reason that health care spending by the Medicaid program may have risen more slowly than health spending by employer-sponsored private insurance owes something to the fact that employer-sponsored health insurance is not taxed and is in many cases a benefit whose cost is not even revealed to the employee. I only recently discovered that my insurance cost my employer over $10,000 a year. If I had chosen my own insurance, I could have chosen something less expensive with higher deductibles. Then if I needed a test like a CT scan, I would have had the incentive to compare costs at different facilities, helping drive costs down.

    Medicaid is not only hugely expensive, it also encourages dependence and imposes costs that stem from overuse of medical care, increasing costs for private payers, and giving patients poorer quality care than they could obtain with private coverage.

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  7. 7. Christine Gorman 2:56 pm 07/3/2012

    Drafter: Would appreciate any links you have to back up your statement.

    In the meantime, you might take a look at the research showing that 40% to 50% of annual cost increases in health care are driven less by cost-shifting and more by

    1. increasing reliance on technology (often inappropriately) . . .


    2. the increasing prevalence of chronic diseases as we live longer and grow bigger and less active

    Link to this
  8. 8. MARCHER 2:56 pm 07/3/2012


    Providing people with a safety net does not encourage dependence. It just makes people safer.

    Link to this
  9. 9. rshoff 3:29 pm 07/3/2012

    This article is right on point. The wheels of politics roll right over poor Americans. Again. While those people spend for their pet’s facelifts (sarcasm), real American humans are going without healthcare. Those states that refuse to accept Medicaid expansion should not be tolerated. Medicaid itself can be reformulated to address equal access to Medicaid across the nation. Medicaid should no longer be administered by states. How to transfer the Medicaid ‘tagged’ revenue from the state level to the federal level is more problematic.

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  10. 10. SpoonmanWoS 3:45 pm 07/3/2012

    @hanmeng: “I would have had the incentive to compare costs at different facilities, helping drive costs down.”

    Why aren’t you doing that now? You’d still be driving costs down, but you’d be doing so for not only yourself but others. And, really, how much do you think you’re going to save?

    “it also encourages dependence”

    Dependence on what? Being healthy? Having access to health care? I have no idea what that means.

    “overuse of medical care”

    Define, please. I have no idea what that means.

    “poorer quality care than they could obtain with private coverage.”

    Implying, of course, they have access to private coverage. Those who would be covered under Medicaid generally don’t. That’s why they go the Medicaid route.

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  11. 11. rshoff 4:18 pm 07/3/2012

    @hanmeng, I have a very high deductible employer sponsored HSA plan. I am desperately trying to make sense out of medical charges, insurance coverages, and provider network ‘discounts’. None of it makes sense to the ‘consumer’. Furthermore, none of the costs are available to consumers prior to services. Only after services, and after claims processing, can I discover what the costs are. Therefore, the supply/demand cost argument does not work when it comes to purchasing healthcare. Period.

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  12. 12. alan6302 10:38 pm 07/3/2012

    All medicaid projections will be wrong.

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  13. 13. Happy Phil 12:01 am 07/4/2012

    It’s a shame that there are elected officials who insist on denying their constituents the benefits of being American. As I understand it, those same officials vote against clean air and water, too.

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  14. 14. Whammer2 4:00 am 07/4/2012

    As I’ve pointed out gefore there is still a hole in Medicaid. My situation is that I am an American citizen, retired, and eligable for Medicare/Medicaid. I currently pay a premium pf $99 mothly deducted from my Social Security benefits for Medicare Part B coverage. However since I live OUTSIDE of the U.S. then by Social Security rules I can not get Part B Medicaid benefits unless I am in the U.S. There seems to be no “opt out” provision I was involuntarily entered into Medicare/Medicaid as a “benefit” for me one my 65th birthday…even though i specifically did not sign for Medicare/Medicaid on retirement as I knew I was going to be living outside the U.S. after retirement.

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  15. 15. gmartfin 1:30 pm 07/4/2012

    As a Canadian I can’t even fathom what this argument is about. Having had our federal / provincial gov funding medical coverage for any citizen all my life it is inconceivable that anyone would oppose healthcare.

    The term medical bankruptcy is unknown in Canada. Why would anyone withold medical treatment from children or any person in distress? Or make it subject to your $$$$

    I’ve never had to choose between buying food or paying for surgery.

    I’ve never had to choose between paying rent or a mortgage or paying for cancer therapy for my child.

    I do agree the program appears fragmented. Such a program should take place as an umbrella at the national level with state participation. Above all it needs to be universal.

    Any thought that this encourages “dependency” it utter garbage.

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  16. 16. bucketofsquid 10:30 am 07/11/2012

    Interesting facts that should be kept at the top of the discussion of American healthcare:

    The USA ranks 38 in life expectancy. We are not number 1.

    The USA ranks 13 in quality of life. We are not number 1.

    The USA is number 1 in disposable income per capita.

    The Nordic countries where the life expectancy and quality of life significantly beat the USA also provide free healthcare AND free higher education at a total combined tax rate roughly equal to that paid by the average USA citizen. This includes direct federal, state and local taxes as well as price increases due to tariffs.

    Shall we all have a rousing round of “We’re number something between 13 and 38!” now?

    Link to this
  17. 17. stacyy007 4:36 pm 07/11/2012

    Can’t afford major medical coverage or have pre-existing conditions that will disqualify you? Call Now 1-866-943-1106

    Link to this

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