Medicaid Spending Growth Headed Upward in Coming Years

Kaiser Family Foundation Release -February 9, 2001

John Holahan, co-author of the Urban Institute study:

"Medicaid spending could grow by up to 10 percent in the near future because of rising health care costs, particularly prescription drugs, the eroding impact of Medicaid managed care, wage pressures in the health care industry, (and) the use of supplemental financing programs and enrollment increases."

Diane Rowland, Executive Director of the Kaiser Commission on Medicaid and the Uninsured:

"State efforts to improve health care coverage for the low-income population are beginning to pay off. We need to build on this success by continuing to expand coverage even if the economy cools off."

The full report is available at:

Comment by Dr. Don McCanne:

Medicaid has been praised as a program that provides health care coverage for the low-income segment of our society. Although the issues are very complex, we should step back for a broader perspective on the role of Medicaid.

Only the impoverished, and not even all of them, are granted the ticket that allows entry to the facilities of Medicaid providers. From the perspective of the provider, that ticket means only that the the individual bearing it has cleared the qualification process to
participate, and that the provider will look only to the program, and not to this impoverished individual, to be compensated for services rendered.

Although many varieties of providers are involved, for simplification we will look only at physicians and hospitals. Hospitals receive 12% of their revenues through Medicaid and physicians receive 7%. The reasons for this difference are also complex, but a few factors are evident.

Hospitals do not have much choice as to whether they will accept Medicaid patients. Most hospitals have an obligation to accept virtually all acute care patients, regardless of payment source. Hospitals, whether for-profit or nonprofit, operate on a very small
profit margin. Managed care plans have been effective in ratcheting down rates for hospitals, and so the government has had to assure that their programs, including Medicaid, have been funded at a level that assures the solvency of hospitals. Otherwise, our hospital system could collapse. The burden of cost shifting has been moved from the insurance industry to the taxpayers, especially through Medicare, but to a limited extent also through Medicaid.

On the other hand, physicians often do have a choice as to whether they will accept Medicaid patients (except for emergency room coverage). Physicians also have a much lower percentage of overhead than hospitals and are able to accept the losses on Medicaid by accepting a lower net income. Those physicians that believe that everyone should have access to care demonstrate their belief by accepting the more modest lifestyle associated with modest incomes. As a result, in physicians' offices,
the taxpayers benefit from cost shifting. This explains one factor in the physician-hospital revenue differential.

Low income Medicaid patients tend to have greater medical needs with a greater need for acute care hospitalization. Because of low compensation rates, care in physicians' offices tends to be more crisis oriented, with lower levels of preventive and maintenance care. This aggravates the need for acute care hospitalization due to neglect of
chronic disorders, thereby increasing hospital costs.

Access to care under Medicaid is impaired. Hospitals will admit acute care patients, but elective patients are often discouraged, especially by for-profit hospitals. Many physicians will not accept Medicaid patients. Those that do usually have over-booked appointment schedules, and may not be accessible geographically. Many primary care physicians have a great deal of difficulty in obtaining specialized care for their Medicaid patients. Managed care entities now provide inefficient, wasteful middleman services for many Medicaid programs. Through highly restricted provider lists, these managed care entities have further reduced access, especially by severe limits in the lists of authorized specialists.

A subtle but pernicious attitude permeates our health care system. That attitude is that, somehow, Medicaid patients are second rate citizens, not deserving of the level of care to which "working families" are entitled. It is a "welfare program" for the poor. It is a very low tier on a multi-tiered system of health care, surpassing only the tier of the uninsured.

We have the resources to provide comprehensive care for everyone. There is no reason to continue to support the flawed health policies and humiliation of the Medicaid program. Everyone in this nation could have free choice of quality care if only we would establish a publicly administered, universal risk pool.