Major Acts of Congress | Medicaid Act (1965)

Sara Rosenbaum

Enacted in 1965 as a legislative "afterthought" to Medicare, the Medicaid program (P.L. 89-97) has grown into a central part of the American health care system. Medicaid finances health needs throughout the entire life cycle: In 1999 the program funded nearly one-third of all U.S. births and approximately one-half of all nursing home care. It is the largest single funder in the treatment of HIV/AIDS and for serious mental illness, and provides more than a third of the revenues used to support the health care "safety net" for low-income, uninsured, and medically underserved persons. Medicaid insures nearly 14 percent of the nonelderly population and 20 percent of all children. In fiscal year 2002, combined federal and state Medicaid expenditures totaled nearly $250 billion, virtually equaling Medicare spending levels. Total program enrollment that year stood at forty-four million persons, making Medicaid the nation's largest single public insurance program.

Medicaid's structural elasticity and its resulting ability to respond to national health priorities involving individuals and conditions considered uninsurable in the commercial market explain its importance to the health system. Legislators have amended Medicaid dozens of times since its original enactment to add numerous classes of eligible persons and covered services to address the range of priorities that have arisen over the nearly four decades since the law's original enactment. Examples include coverage for low-income pregnant women, uninsured women with breast and cervical cancer, community-based health care for children and adults with severe disabilities and at risk for institutionalization, workers with disabilities, and transitional insurance for families moving from welfare to work. Medicaid also has come to play a critical role in compensating for Medicare's limitations by offering premium and cost-sharing assistance to lower-income Medicare beneficiaries, as well as supplemental coverage for low income and medically needy beneficiaries for the many benefits and services that Medicare does not cover. This is particularly the case for prescription outpatient drugs and long-term care.

MEDICAID'S COMPLEXITY

The federal Medicaid statute is extremely complex, made so by two factors. The first is the program's historic ties to cash welfare payment principles. Originally Congress limited mandatory eligibility classifications to families with children and elderly and disabled persons receiving cash welfare. It significantly modified these rules over the years to either mandate or permit coverage for certain groups of low-income persons other than those who receive cash welfare assistance, but it never entirely replaced the original rules. The result is a complicated eligibility scheme that offers more than five dozen separate eligibility categories, some mandatory, others optional, encompassing pregnant women, children, families with children, and elderly and disabled adults. Poverty and low income (either outright or as the result of having incurred catastrophic medical expenses) are hallmarks of virtually all eligibility categories.

Ironically, no federal eligibility category exists for nondisabled, nonelderly, nonpregnant adults without children, even though these persons comprise a significant proportion of the nation's forty-two million uninsured persons. A number of states do extend coverage to such individuals by operating their Medicaid programs as "demonstrations" under the legal authority of Section 1115 of the Social Security Act. This provision of law, which dates back to 1963 (pre-Medicaid), permits the Secretary of the U.S. Department of Health and Human Services to waive otherwise applicable provisions of certain Social Security Act grant-in-aid programs in order to conduct welfare demonstrations that further federal objectives. Only a minority of states have expanded Medicaid eligibility standards in this fashion.

The second factor contributing to Medicaid's complexity is the program's special coverage structure. Several classes of benefits are federally required as a condition of state participation, and states must cover reasonable levels of benefits and services for their enrolled populations. Coverage is particularly comprehensive for children under twenty-one. The program either bars outright or severely curtails the use of patient cost-sharing and premiums. Unlike commercial health insurance or Medicare, Medicaid contains no pre-existing condition exclusion clauses or waiting periods. In addition, the statute bars discrimination in the provision of required services on the basis of a condition. For example, the types of hospital and medical care coverage limitations found in commercial plans for persons with HIV or mental illness would be impermissible in Medicaid.

Medicaid's legal structure accounts for its growth over the years. It is also this structure and its attendant costs that account for the deep controversy surrounding the program. Medicaid is a grant-in-aid program that provides federal assistance to states with approved plans to help defray the cost of extending covered benefits to eligible individuals when furnished by participating providers. The federal financial participation rate ranges from 50 to 77 percent of each dollar spent by a state on medical assistance under an approved state plan. Unlike other grant-in-aid programs, however, there is no aggregate upper limit on this federal contribution level: federal financing is open-ended and limited only by a state's own desires to contain the size and scope of their plans.

From a legal point of view, Medicaid is unique because unlike other grant-in-aid programs, it is an individually enforceable legal entitlement in the case of persons eligible for and receiving services under a state plan. Furthermore, enforceability is not simply an issue for beneficiaries. States have an enforceable right to payment, and participating health care providers that furnish covered services to eligible persons have a legally enforceable federal right to payment, although in recent years Congress has reduced provider protections by repealing key provider payment standards.

FUNDING CONTROVERSIES

Medicaid's controversy also relates to its sheer size and its legal entitlements; the law mandates continued funding increases, even as the number of persons and the cost and intensity of health care increase. State officials facing the worst financial crisis since the Great Depression have responded in 2003 with efforts to reduce Medicaid spending through reductions in "optional" eligibility, benefits, and provider payments. Although two-thirds of all Medicaid expenditures are attributable to "optional" benefits and services, the reality is such that these "options" are politically sensitive. For example, most nursing home expenditures are optional, as is coverage of women with breast cancer, prescription drug coverage, and residential facilities for persons with mental retardation.

Repeated calls for program reforms range from expanding existing eligibility and benefit rules in order to reduce the number of uninsured Americans or to respond to specific health problems (such as breast and cervical cancer) to eliminating much of the program and replacing it with aggregate block grants to states, as called for by the Bush administration in 2003. Most reform efforts are viewed as so politically and economically difficult that in many respects, Medicaid has remained essentially untouched since its original enactment, merely expanding in both scope and complexity over the years as needs arose. Whether this cycle of public outcry over program costs produces different results remains to be seen.

See also: MEDICARE ACT; SOCIAL SECURITY ACT OF 1935.