Most of the 34 million Americans now covered by Medicaid have low incomes and meager financial resources.^[3] Enrollment in Medicaid increased by 53 percent from 1985 to 1993 while the share of working Americans with employer-sponsored health insurance declined.^[4] The proportion of the population covered by Medicaid increased from 8 percent in the early 1970s to 13 percent today.^[5] If the growth in Medicaid over the past five years had not offset part of the decline in employer-based insurance, it is estimated that the number of uninsured Americans would have climbed from 41 million to 50 million.^[6]

Before the passage of Medicaid and Medicare (the federal health care program for the elderly) in 1965, a patchwork of programs sponsored by state and local governments, charities, and community hospitals financed and provided scattered, mostly emergency health care services to some indigent Americans. Under Medicaid, poor people who meet certain requirements are entitled to health care that the federal government and the states jointly finance. Medicaid has extended much better medical services to many more impoverished children, pregnant women, and elderly Americans.

Medicaid constitutes a relatively small portion of the federal budget. In 1994, the federal portion of Medicaid accounted for 6 percent of federal outlays. That was less than Social Security (22 percent), defense (19 percent), discretionary (nonentitlement) domestic spending (17 percent), and Medicare (11 percent).^[7] (See Figure A.)

Medicaid accounted for only 10 percent of federal entitlement spending in 1994. That compares with 40 percent for Social Security and 20 percent for Medicare.^[8] (See Figure B.)

In 1994, state Medicaid spending constituted only 13.3 percent of state "general fund" outlays (raised from taxes not earmarked for specified purposes), ranking a distant second behind the 33.8 percent directed toward elementary and secondary education.^[9] (See Figure C.)

Medicaid benefits are determined by certain federal guidelines and are further determined by individual state policies. Figures D and E show the various income eligibility standards for different categories of Medicaid recipients. (Note that the federal poverty line is $7,470 for an individual, $10,030 for a single mother with one child, and $12,590 for a family of three.)

Pregnant Women and Children

• In 1994, Medicaid provided health care for nearly 17 million poor children -- nearly one in four American youngsters. Even though more than half of Medicaid recipients were children, they accounted for only 13.5 percent of Medicaid expenditures. (See Figures F and G.) Because very few children experience severe or lasting illnesses, most of those payments went toward preventive and health maintenance services that save the medical system money over time while increasing the odds that those covered will lead healthy lives.

  Unwed mothers constitute only 22 percent of Medicaid beneficiaries and consume only 13 percent of Medicaid expenditures.^[10]

  Medicaid covers one in three births ^[11]and about three-quarters of all poor children.^[12] In 1993, Medicaid financed the delivery of about 1.5 million babies.^[13]

  

  Medicaid coverage for poor pregnant women and children has been expanded through federal legislation beginning in 1984. (See Figure H.) Today, poor children under the age of six and pregnant women qualify for Medicaid if their incomes are below 133 percent of the federal poverty threshold. (In 1995, the poverty line is $10,030 a year for a mother with one child.) Children up to age twelve can qualify for Medicaid if their family income is below the poverty line. Moreover, current law phases in further expansions of eligibility so that by 2002, all poor children under the age of nineteen will be eligible for Medicaid. Thirty-four states have expanded coverage to pregnant women and children with income limits higher than the federal government's.^[14]

Elderly Americans

• About 3.8 million Americans aged sixty-five and over are covered by Medicaid. Most are also insured by Medicare, which covers all of the elderly but does not pay for long-term nursing home care, prescription drugs, and other services that Medicaid provides for its low-income beneficiaries. The Qualified Medicare Beneficiary (QMB) program pays premiums, deductibles, hospital costs, skilled nursing facility costs, and copayments for doctor visits to Medicare beneficiaries whose incomes are below the federal poverty line ($7,470) and who have limited resources. The Specified Low-Income Medicare Beneficiary (SLMB) program pays Medicare Part B premiums ($46.10 per month) for Medicare beneficiaries whose incomes are above the poverty line, but less than 120 percent of the poverty line, and whose resources are limited.

  Many of the elderly eligible for Medicaid reside in nursing homes, which cost an average of $38,000 per year. ^[15] To qualify for Medicaid's nursing home coverage, elderly individuals must liquidate and spend most of their assets. (The income eligibility level for full Medicaid benefits is 75 percent of the poverty threshold.) Two-thirds of all Americans in nursing homes receive assistance from Medicaid,^[16] which pays for a little less than half of the nation's entire nursing home bill. (See Figure I.) Rapid increases in nursing home costs are a central reason why Medicaid expenditures have risen in recent years.^[17] States have considerable leeway in determining the income and asset criteria for eligibility for Medicaid for elderly Americans confined to nursing homes.

The Working Poor

• To help encourage impoverished adults to work, the 1988 Family Support Act extended Medicaid coverage to more low-income Americans who have jobs without health coverage. Largely as a result of those changes, the proportion of children with at least one working parent who were enrolled in Medicaid rose by 76 percent between 1988 and 1992. By 1992, half of the children covered by Medicaid lived in low- and moderate-income households in which at least one parent worked.^[18]

  Before passage of the Family Support Act, welfare recipients who took jobs risked losing their Medicaid coverage because they earned too much to qualify. The Family Support Act extended for twelve months Medicaid benefits to families losing Aid to Families With Dependent Children benefits because of increased earnings. The law also expanded coverage for two-parent families whose principal earner became unemployed.

The Disabled

• In 1994, Medicaid provided health benefits to nearly 5.4 million Americans who were disabled or blind. These individuals qualify for Medicaid due to low incomes and minimal assets, or because they have medical expenses that consume most of their incomes.

  Medicaid provides coverage for approximately 40 percent of patients with AIDS at some point during their illness. ^[19]

  Thirty-six states have elected to provide Medicaid to people who qualify as "medically needy." Even though those people may not qualify based on their incomes or assets, they are accepted because they face huge medical bills. The income levels for eligibility are determined by the states, but the average is 53 percent of the poverty level.^[20]

When Medicaid was enacted in 1965, the U.S. infant mortality rate (for children under one year old, excluding fetal deaths) was 93 per 1,000 live births.^[21] By 1992, that figure had declined to 34.^[22] (See Figure J.) A number of factors contributed to the decline, including improved medical technology, but analysts agree that Medicaid coverage played a role by helping the poor gain access to the health care system.

The direct impact of Medicaid on the health of poor Americans has not been conclusively determined. However, the expansion of Medicaid benefits has been associated with improved childhood immunization rates.^[23] Surveys of parents indicate that the rate of up-to-date immunizations for children on Medicaid is close to the level for all children. Poor children covered under AFDC and Medicaid tend to be healthier than children from families with slightly higher incomes who do not receive coverage from the government.^[24]

For every dollar Medicaid spent on prenatal health services, more than two dollars was saved on medical costs for infants under two months old.^[25]

In addition to federally mandated coverage of physician, hospital, and nursing facility services, all states have chosen to cover eye care, dental care, and prescription drugs. Almost all states also include physical therapy, hospice care, and a variety of rehabilitative services.^[26] About half of the states provide screening, prevention, and diagnostic services for adults, and chiropractic and occupational therapy.

Only 22 percent of those receiving Medicaid did not see a doctor within the past year, compared to almost half of the uninsured poor.^[27]

Among those who saw a doctor during the year, Medicaid beneficiaries averaged 6.3 visits compared to 3.8 visits per year for uninsured, impoverished Americans.^[28]

Children on Medicaid are more likely than uninsured poor children to receive routine medical treatment and dental examinations prior to kindergarten.^[29] Moreover, poor children with Medicaid are more likely to receive physical examinations at recommended intervals than other children.^[30]

Only 14 percent of Medicaid beneficiaries report dissatisfaction with the health care services they received, compared to 30 percent for the uninsured and 13 percent for those with private insurance.^[31]

Unlike Medicare and private insurance policies, Medicaid generally does not require beneficiaries to pay premiums, deductibles, copayments, or other out-of-pocket (so-called cost-sharing) fees that might discourage them from seeking treatment that they need. Because their incomes are so low, such charges would discourage many from visiting doctors or other health care providers.^[32]

Most state Medicaid programs have made progress in enrolling pregnant women in health care in their first trimester and encouraging care throughout the pregnancy.^[33]

Most states have received waivers from certain federal requirements, such as the federal mandate giving beneficiaries the freedom to choose any doctor who accepts Medicaid patients. In fact, forty-five states require some Medicaid beneficiaries to enroll in private, "managed care" programs.^[34]

The number of Medicaid beneficiaries enrolled in managed care has increased steadily from 800,000 in 1983 to 7.8 million, or about one-quarter of those covered, in 1994. Most of those enrolled in managed care plans are poor children and their parents. Health maintenance organizations, which charge Medicaid a monthly fee for each patient in exchange for providing a menu of services, cover more than half of the Medicaid beneficiaries enrolled in managed care programs.^[35]

All of the states have received federal waivers allowing them to pay for home and community care for elderly beneficiaries who otherwise would end up in nursing homes. Because nursing home care is more expensive and often less desirable than home health care, the federal government has not been reluctant to grant the waivers.^[36]

Thirteen states have received federal government approval to carry out statewide Medicaid demonstration programs (including five states with programs already implemented), allowing them to initiate ambitious managed care efforts designed primarily to expand coverage for low-income adults and their children rather than the disabled and elderly in nursing homes.^[37] The most well publicized effort is in Oregon, where Medicaid covers a wide spectrum of the poor population for services that are deemed effective. It does not cover some procedures that are covered in other states, however.

The federal government reimburses states based mainly on their per capita incomes. States with high per capita incomes such as New York, California, and Illinois receive 50 cents from the federal government for every dollar they spend on Medicaid. Poorer states receive more, ranging up to the 79 percent matching rate that Mississippi gets. The national average matching level is 57 percent.^[38] States have considerable leeway in setting eligibility, coverage, and reimbursement rates in their Medicaid programs.

Despite the complexity of Medicaid, states administer the program for about 4 percent of total costs.^[39] That compares with administrative costs of 5.5 percent for private plans that serve large companies and 25 percent for those serving smaller firms.^[40] Unlike private plans, Medicaid does not face such costs as sales, marketing, risk assessment, and insurance commissions.

According to a recent study by the Physician Payment Review Commission, Medicaid fee-for-service payments to physicians average about 47 percent of private insurance payments for comparable services. And data from the Prospective Payment Assessment Commission indicate that Medicaid payments to hospitals average only 72 percent of private payer levels.^[41]

Even though Medicaid pays doctors much less than private plans or Medicare, three-quarters of all physicians treat Medicaid patients. In 1994, the Physician Payment Review Commission found that 10 percent of Medicaid patients did not receive care when needed, compared to 8 percent of privately insured individuals. In contrast, 34 percent of the uninsured did not receive needed treatment.^[42]

Medicaid provides subsidies to public hospitals and others that serve large numbers of low-income patients through disproportionate share hospital (DSH) payments. States have wide leeway in designating which hospitals qualify for the DSH payments and in setting the formulas for determining how much is paid. Previously, cities and counties were often responsible for covering the expenses of low-income patients who could not afford to pay for their own treatment.