Published 6/1/2008
Samir Mehta MD; Ryan Nunley, MD; the Washington Health Policy Fellows

Issues facing America: Medicaid

Perhaps no governmental healthcare programs have helped as many people as Medicare and Medicaid. The Medicaid program is the third largest source of health insurance in the United States—after employer-based coverage and Medicare. But, just as the Medicare program is facing overload, with millions of “baby boomers” soon to qualify, the Medicaid program—a joint venture between federal and state governments—is also under stress. Indeed, many of the problems faced by patients and physicians in the Medicare program are exacerbated in the Medicaid population.

How we got here
Medicaid and Medicare both result from Title XIX of the Social Security Act passed by Congress in 1965. Medicaid was established as an entitlement program that provided federal matching grants to states for the purpose of financing medical care for certain underprivileged groups. Initially, Medicaid was aimed at indigent care. Although some federally mandated provisions for healthcare services were built into the Medicaid program, each state also had the option to broaden coverage.

Later federal mandates enhanced coverage under Medicaid. In 1972, Supplemental Security Income (SSI) was enacted and coverage was expanded to include the disabled and elderly. In 1981, the home- and community-based services waiver program was enacted. From 1984 to 1990, Medicaid eligibility was expanded to include women and children.

Section 1115 waivers issued between 1991 and 1993, which allowed states to expand Medicaid coverage through pilot or demonstration projects, enabled individual states to increase the number of individuals covered by Medicaid. Programs such as TennCare, MassHealth, ARKids First, and Hawaii QUEST are examples of programs established under the Section 1115 expansion.

The State Children’s Health Initiation Program (SCHIP) was enacted in 1997 and outreach efforts expanded the number of covered individuals. A severe economic downturn beginning in 2001 put Medicaid at the center of budget debates at both the state and federal levels of government. Medicaid spending and enrollment growth peaked at the same time; when state revenues plummeted in 2002, states were forced to implement an array of measures to control Medicaid spending growth.

As this period of fiscal stress abated, the federal government implemented two major pieces of legislation with significant implications for Medicaid. The Medicare Modernization Act, which became effective in January 2006, transitioned more than 6 million low-income seniors and individuals with disabilities from Medicaid to Medicare Part D plans for their drug coverage. The Deficit Reduction Act, enacted in February 2006, presented states with new Medicaid requirements as well as some new options.

Current enrollment
Medicaid currently provides health and long-term care coverage for 58 million low-income individuals. Approximately 44 million people in low-income families receive comprehensive, low-cost health coverage under the program, and 14 million elderly and persons with disabilities receive acute and long-term care (
Fig. 1).

Federal and state expenditures to support Medicaid total more than $300 billion; nearly 60 percent of those funds come from the federal government. Medicaid accounts for $1 of every $5 spent on health care and $1 of every $2 spent on nursing home care.

Individuals covered by Medicaid include the following:

  • more than 60 percent of poor or near-poor individuals (2006 poverty level for a single individual was less than $10,400 of annual income)
  • 26 percent of all children, including 50 percent of low-income children (low income defined as household income that does not exceed 80 percent of the area median income)
  • 37 percent of pregnant women and their subsequent births
  • 20 percent of people with severe disabilities
  • 44 percent of people living with HIV/AIDS
  • 60 percent of nursing home residents

Although the elderly and the disabled account for 25 percent of the individuals enrolled in Medicaid, they are responsible for 69 percent of Medicaid spending. In contrast, children account for nearly half of those covered by Medicaid, but only benefit from 19 percent of Medicaid dollars.

The positive impact of Medicaid cannot be overlooked, however, particularly in the areas of access to care and cost containment. Medicaid provides children with a regular source of care that is comparable to private insurance. Only 16 percent of Medicaid patients did not receive a Pap smear test in the past two years, compared with 20 percent of the privately insured, and 41 percent of the uninsured.

Furthermore, from 2000 to 2003, Medicaid spending grew at a slower rate (6.9 percent) than private coverage (9.0 percent) or employer-sponsored programs (12.6 percent). Total Medicaid spending growth hit a record low of just 1.3 percent for 2006; states reported that total Medicaid spending growth continued at a slightly higher but still relatively slow pace of 2.9 percent in 2007 (Fig. 2).

States are placing a high priority on measuring and improving the quality of Medicaid-financed health care, often through enhancements in managed care or disease management. More broadly, almost all states report that they are moving forward with initiatives to address the increasing numbers of uninsured individuals and that Medicaid is a key building block and critical component of these strategies.

What does the future hold?
Until now, states had generally been free to set their own Medicaid eligibility criteria. Because the federal government pays nearly 60 percent of the costs associated with Medicaid, the Bush administration has developed far-reaching policies that affect state Medicaid regulations.

New restrictions limit the ability of states to expand eligibility for Medicaid, in an effort to prevent them from offering coverage to families of modest incomes who, the argument goes, may have access to private health insurance. These restrictions mirror those placed on SCHIP in August 2007 after states tried to broaden eligibility for it as well.

Economists and health policy experts agree that Medicaid and Medicare are unsustainable in their current forms, because they are growing much faster than the economy or the revenues used to finance them. With no change in existing law, the Congressional Budget Office says that the cost of Medicaid will double in 10 years and the program will account for more than 20 percent of the budget. Hence, the issues surrounding these federal programs and their future are being debated during the current 2008 presidential campaigns.

To help pay for their coverage plans and sustain Medicaid (or, rather, the principles on which it was founded), Democratic candidates Sens. Clinton and Obama both say they would roll back the “Bush tax cuts” for the wealthiest Americans. But major provisions of the tax cuts, adopted in 2001 and 2003, are already scheduled to expire at the end of 2010. Democratic lawmakers, moreover, have committed the savings from the elapsed tax cuts several times over to other programs, such as eliminating the alternative minimum tax.

By contrast, Sen. McCain’s strategy for healthcare reform does little to address Medicaid directly, emphasizing instead market reforms aimed at making the private healthcare system more affordable so a greater percentage of Americans can be part of that system. He claims that there would be no additional upfront cost.

The outcome of the 2008 presidential election will ultimately determine how much reform to Medicaid will occur at the federal and state level. Medicaid’s role as a health insurer for single parents with dependent children and the “aged, blind, and disabled” may be altered. As individual states look to expand coverage to the uninsured and sustain their Medicaid programs, controlling costs, improving quality, and balancing long-term care services will undoubtedly remain top priorities.

The Washington Health Policy Fellows include Samir Mehta, MD; Ryan Nunley, MD; Aaron Covey, MD; James Genuario, MD, MS; A. Alex Jahangir, MD; Sharat K. Kusuma, MD; Alok D. Sharan, MD; Anil Ranawat, MD; and John Flint, MD.


    1. State Coverage Initiatives. (2001). Medicaid Section 1115 Waiver. State Coverage Initiatives.

    2. Kaiser Commission on Medicaid Facts, Nov 2007.

Did you know?
58 million:
Number of individuals enrolled in Medicaid
47 million:
Number of uninsured Americans
$314.6 billion:
Amount spent in 2006 on Medicaid
Percentage of U.S. gross domestic product spent on Medicaid in 2006