Medicaid provides health coverage for 36.1 million Americans -
children, pregnant women, senior citizens, individuals with
disabilities and others -- through a partnership between the
Federal government and the States that provides States with
substantial flexibility in designing their Medicaid programs.
Under the current program structure, States and the Federal
government have been working to implement more flexibility in the
Medicaid program. HCFA has used current waiver and demonstration
authority to enable States to pursue a number of innovative
approaches to provide health coverage to special populations and to
redesign provider delivery systems.
Furthermore, the President has pro posed important new reforms
that will maintain coverage of vulnerable populations, increase
control of Medicaid costs, contribute savings to the Federal
budget, and provide States with additional programmatic
In fact, Medicaid program spending has grown less rapidly than
spending in the private sector on a per person basis, except for
the period between 1989 and 1992 (Chart 1) 1 . Combined efforts
by the Executive Branch, Congress and the States have kept costs
under control while maintaining the Medicaid program as an
important source -- often the only source -- of coverage for income
Americans. This Administration's proposals to further control
spending continue the commitment to guaranteeing these individuals
access to a meaningful benefits package. The President's proposal
does not shift Federal responsibilities to the States, it is not
an unfunded mandate, and it provides significant increases in
States' flexibility to manage their Medicaid programs. 1 The
higher growth rates during this time were caused by several
factors, including a national recession, States' use of statutory
loopholes to increase Federal payments without increases in
medical services, and increased provider payments.
Medicaid is a Critical Safety Net
Medicaid is the primary source of coverage for Americans with
diverse health care needs. It covers preventive care for low-and
moderate-income pregnant women and children and long-term care for
low-income senior citizens and persons with disabilities. It also
provides a variety of rehabilitative services and adaptive
technologies for persons with disabilities, chronic care for
individuals with special needs, and supplemental coverage for low-
income Medicare beneficiaries.
Generally, Medicaid acute-care coverage mirrors the employer
based coverage available to most Americans, but for senior
citizens and individuals with disabilities Medicaid also provide
long-term care benefits that are rarely available or affordable
through other sources. Because Medicaid covers these services, the
program ultimately helps a large number of working American
families care for their chronically ill, family members. Indeed,
68 percent of all nursing home residents rely on Medicaid to help
pay for some of their care.
Many senior citizens have complex health problems or need long-
term care. In 1993, spending on services for elderly and disabled
individuals constituted almost 70 percent of all Medicaid
spending, excluding payments to disproportionate share hospitals
(DSH). Approximately half of these dollars was spent on long-term
care in nursing homes. Without Federal Medicaid funding, the
costs of caring for many of these individuals -- the elderly,
chronically ill, disabled and mentally ill -- would fall entirely
on States, local communities and families. The remaining thirty
percent of Medicaid spending pays for care -- primarily hospital
and physician services of low-income adults and children
It is important to note that States are free to cover
additional populations and services beyond those required under
Federal guidelines. A few optional benefits, such as prescription
drugs and clinic services, are covered by almost all of the States.
States can choose to offer a wide variety of other medical
services, and they can and do change their benefit packages. States
use flexibility in eligibility and coverage of services to
customize their Medicaid programs to meet their specific needs. In
1993, only 38 percent of all Medicaid benefit and disproportionate
share hospital payments was spent on mandatory services provided
to mandatorily eligible individuals. States spent nearly 50
percent of their Medicaid funds on optional services and
populations they have chosen to cover, while another 13 percent was
devoted to disproportionate share hospital payments.
Americans who qualify for Medicaid are guaranteed financing for
their essential health services. National standards for coverage
of vulnerable populations apply in all States. States provide a
full range of services to beneficiaries, from childhood
immunizations to nursing home care. Within these parameters,
Medicaid has had substantial success serving diverse low-income
Medicaid is a voluntary program designed by Congress to be
administered by States with matching Federal funding at rates that
range from 50 to 80 percent depending on State per capita income.
Today, all 50 States, the Territories, and the District of
Columbia have chosen to participate in the Medicaid program and to
enter into a financial partnership with the Federal government.
States have used the broad flexibility inherent in the Federal
State relationship to create many optional eligibility, coverage,
and financing policies that meet the diverse needs of their people
and the State's own financial circumstances.
More importantly, this relationship provides State Medicaid
programs with the financial backing of the Federal government.
The flow of Federal funds under the current Medicaid entitlement
program protects States and beneficiaries during economic
downturns and natural disasters, such as earthquakes or
hurricanes. When States increase enrollment, the Federal
government automatically shares the responsibility of additional
costs. The combination of Federal financial participation and an
individual entitlement guarantees that the Federal government will
consistently share the cost of providing medical care to
low-income children, elderly, pregnant women, and individuals with
disabilities. Federal financial assistance is provided regardless
of changes in program enrollment or in a State's economic
situation. The Federal/State partnership inherent in the Medicaid
program guarantees the commitment of Federal funds.
The Conference Agreement would curtail Federal financial
responsibility by converting Medicaid into a capped block grant
formula, throwing the current Federal/State partnership out of
balance. The new MediGrant program would end the entitlement to
a basic health care safety net for low-and middle-income
individuals and families. It would also be seriously underfunded.
The MediGrant proposal would constrain increases in Federal
Medicaid spending far below the rate of inflation and the rate of
growth in the number of elderly, disabled and low-income people
who will need help from the program. Federal Medicaid payments
would be an aggregate amount, fixed in law, totally disconnected
from State funding needs. This would underfund the Federal portion
of the Federal-State partnership and leave States with no
protection from enrollment changes. States with growing
populations would be at greater financial risk. The arbitrary
limits particularly threaten States with rapidly aging
populations, since the block grant amounts would not change to
reflect the increasing number of high-cost beneficiaries in a
Exacerbating the underfunding problem, the Republican block
grant formula creates an overwhelming incentive for States to
reduce their contributions to Medicaid. The formula would lower
amount of State expenditures required to receive Federal .funds.
State spending beyond the block grant amount would not matched at
all. The Center on Budget and Policy Priorities has estimated
total Medicaid spending reductions - Federal and State - could
exceed $400 billion over seven years.
While both Federal and State support for low-income individuals
and families would be dramatically reduced under the Conference
agreement, the medical needs of this population would not go away.
The cost of caring for the uninsured and low-income Americans
could fall to local-level public health care systems and may shift
costs to the privately insured and their employers. Worse,
millions of needy people could opt to forgo necessary care
altogether or potentially increase the use of costly emergency
The Republican plan would also eliminate the individual
entitlement to health care under Medicaid. Vestiges of statutory
language guaranteeing coverage for some people are undermined by
a lack of definitions for eligibility criteria and have no
specific set of meaningful health benefits. The set-asides in the
Republican plan offer little protection for vulnerable populations.
In addition, the Republican block grant does not provide
meaningful assurances that Federal and State tax dollars will
appropriately spent. The Conference Agreement eliminates some
Federal enforcement provisions to guard against waste or abuse
American Federal tax dollars. The taxpayers deserve appropriate
Federal standards and oversight in the Medicaid program.
The President's Proposal
The Administration opposes the Republican Medicaid proposal as
excessive, harmful and unnecessary. The President has proposed an
alternative approach that would protect health care access and
high quality of care while providing States with additional
flexibility in their programs and controlling costs and
yielding savings for deficit reduction.
The President's Medicaid per capita cap proposal would continue
the shared Federal-State financial partnership and maintain the
entitlement to a meaningful set of health benefits for low-income
children, pregnant women, seniors, and individuals with
States would receive Federal matching funds up to per person
spending limits for any current or new enrollees. This plan would
maintain the Federal financial commitment even if States have to
expand enrollment. Under a period of economic recession,
increased enrollment in a State would automatically result in
additional Federal funds for States. Under a per capita approach,
Federal dollars would be specifically linked to the number and
casemix of enrollees. The Center on Budget and Policy Priorities
estimates that a recession, depending on its severity, could
increase Medicaid costs due to increased enrollment by between $8
billion and $29 billion. Under the per capita approach, Federal
funds would automatically be available to match State spending for
each new enrollee.
Cost Shift -- Opponents of the President's plan charge that the
per capita cap would result in a cost-shift from the Federal
government to the States. That accusation is wrong. The
President's proposal provides new State flexibility under the
current partnership, not new mandates. The President's proposal
maintains the Federal/State financial partnership and the Federal
government's financial commitment to the States and to
beneficiaries -- which is the heart of the Medicaid program.
Under the per capita cap, States would continue to receive
Federal matching funds for individuals States need to enroll in
the Medicaid program. Federal matching funds would increase as
the States' population expands and enrollment grows. Federal
matching funds under the per capita cap proposal would be dynamic
and responsive to States needs.
It is the block grant that would shift costs and leave States
at risk -- particularly in the event of economic downturns. Under
a block grant, Federal matching funds do not change -- regardless
of changes in the size of the States' Medicaid populations.
Unfunded Mandate -- Opponents charge that the per capita cap
proposal is an "unfunded mandate" on the States. This accusation
is also wrong. In fact, under a per capita cap methodology,
Federal funding would expand as the States' needs expand and
enrollment grows. The per capita cap would reduce Federal
spending without putting the States at undue financial risk.
However, the Republicans' block grant proposal would underfund
the Federal/State partnership, leaving the States with no
protection from enrollment changes. States with growing
populations would be at greater financial risk. The block grant
methodology does not reflect the number of high-cost beneficiaries
in a State. Consequently, the arbitrary limits particularly
threaten States with rapidly aging populations.
Flexibility -- Opponents also charge that the per capita cap
proposal does not provide enough State flexibility. The
President's proposal enhances State flexibility -- but not to the
point of jeopardizing beneficiary access to services or their
quality of care. The President's proposal is designed to provide
States increased flexibility to manage their Medicaid programs. At
the same time it retains the beneficiary entitlement to benefits.
The President's proposal incorporates many flexibility changes
States have been advocating through the National Governors
Association, the State Medicaid Directors Association, the
American Public Welfare Association and other groups. These
changes would provide States greater flexibility to design and
operate their programs, thereby permitting them to improve program
management to help meet the Federal per capita payment limits.
These flexibility provisions could also produce savings
independent of the Federal payment limits in cases where State
spending is projected to be under the per person growth limits.
The President's proposal provides:
Greater State control over program efficiency and costs:
Eligibility simplification and expansion would provide States
the option of covering individuals with incomes up to 150 percent
of poverty, subject to a budget neutrality adjustment.
States would be able to require enrollment in managed care
- States would be able to continue innovations in provider
payment methods without Federal requirements regarding hospital and
nursing home payments.
- States would no longer have to reimburse Federally Qualified
Health Centers (FQHCs) and Rural Health Centers (RHCs) on a cost
- States would have greater control over long-term care costs
because they would be able to implement home and community- based
services programs without Federal waivers.
- Enhance flexibility for States to establish managed care
States would be able to establish provider networks
(including primary care case management (PCCM) programs) without
- States would be able to contract with capitated health plans
without regard to Federal enrollment requirements (i.e., the
current rule requiring Medicaid capitated plans to have 25 percent
commercial enrollment would be repealed).
- States would be able to restrict Medicaid beneficiaries in a
rural area to a single HMO if only one HMO were available.
State relief from administrative requirements regarding provider
qualifications and long-term care services:
- States would no longer be subject to annual reporting
requirements for obstetric and pediatric care.
- States would no longer have to conduct duplicative annual
resident assessments for mentally ill and mentally retarded
nursing home residents.
- Federal restrictions on training sites for nurse aides would
These flexibility provisions would augment current State authority
within Medicaid's Federal-State partnership. This enhanced State
flexibility, combined with a per capita cap funding mechanism,
would preserve the safety net Medicaid provides while containing
Can savings be achieved in Medicaid? of course, as long as
they are at a moderate level that protects the vulnerable
populations who depend on Medicaid. The Administration's per
capita cap proposal would do just that within the context of
continuing the entitlement to meaningful benefits and providing
substantial new flexibility to the States.