Perspective

Health Care 2009

Health Care and Medicaid — Weathering the Recession

Diane Rowland, Sc.D.

N Engl J Med 2009; 360:1273-1276March 26, 2009

Article

These are tough economic times. Since December 2007, the U.S. economy has shed 4.4 million jobs, and as of February, the unemployment rate had risen from 4.9% to 8.1%. Millions of Americans have seen their jobs disappear, incomes decline, and health care coverage become increasingly remote (see line graphU.S. Unemployment Rate, January 2008–January 2009.). Many have sought public coverage from the states through Medicaid, but Medicaid's ability to fill the gap is becoming increasingly constrained, as state revenues decline and states turn to Washington for help in paying their share of the Medicaid bill. What are the implications of this cycle for families, for providers, and for state and federal policy? How does the recession jeopardize health care?

Perhaps most obviously, the recession jeopardizes health coverage for millions of Americans — both those who have Medicaid coverage today and those who are losing job-based coverage — and leaves more families uninsured. In 2007, before the recession began, 45 million Americans under 65 years of age were without health insurance. Eight in 10 of America's uninsured are from working families, and two thirds come from families with incomes below 200% of the poverty level ($44,000 for a family of four in 2009).1 Health insurance is generally not offered to these families through their jobs, nor is it affordable for them to purchase on their own, since the average health insurance plan for a family costs more than $12,000 a year. Families in this situation face an economic downturn with few resources. They postpone or forgo needed care, which often leads to more serious illness and more costly care, which puts an additional financial strain on health care providers as their uncompensated costs rise.2

When the economy is in recession, as it has been since December 2007, coverage quickly unravels further. When insured workers lose their jobs, they also lose their job-based health insurance coverage; without a job, few have the resources to use the option, under the Consolidated Omnibus Budget Reconciliation Act (COBRA), of extending their employer-sponsored coverage by paying the full health insurance premium themselves. As workers are laid off or have their hours and earnings reduced, more families become eligible for coverage through Medicaid and the State Children's Health Insurance Program. These programs reach more children than adults because most states have set the income-eligibility cutoff for children at or above 200% of the poverty level. For parents, coverage through Medicaid is far more limited, with a cutoff below 100% of the poverty level in 33 states — meaning that children are often covered while their parents remain uninsured. For adults without dependent children, no matter how poor, Medicaid coverage is largely unavailable unless they qualify on the basis of a severe disability.

Thus, though Medicaid is a safety net that will grow during this severe economic downturn, many low-income people will fall through the holes and become uninsured. For every increase of 1 percentage point in the national unemployment rate, it is estimated that an additional 1 million Americans turn to Medicaid for coverage and another 1.1 million go uninsured (see bar graphEffect of Increases in Unemployment on the Number of Persons Who Enroll in Medicaid or CHIP or Are Uninsured (Panel A) and on State Revenues for Medicaid or CHIP (Panel B)., Panel A), while revenues for financing the state's share of Medicaid costs and other state services fall by 3 to 4% as Medicaid expenditures are rising (Panel B).3 With a 3.2-percentage-point increase in the unemployment rate that has occurred since the end of 2007, the number of uninsured is probably approaching 50 million as we continue to weather this recession.

In addition to putting health coverage for families in jeopardy, expansion of Medicaid enrollment and the ranks of the uninsured during a recession jeopardizes the ability of Medicaid and states to respond to the needs of beneficiaries and residents. With fewer people working and less consumption, state revenues drop even as spending for Medicaid swells. Because states must balance their budgets annually, declines in revenues require them either to raise taxes (politically unpopular, especially in hard economic times) or to cut spending — limiting their ability to pay their share of Medicaid costs. Since Medicaid is jointly financed by the federal and state governments, when states try to save money by trimming back their Medicaid programs, the cuts are doubly deep: to save a state dollar, the state loses at least a dollar of federal matching funds. Cutbacks in Medicaid services and provider payments can lead to workforce and other service reductions that jeopardize states' efforts to recover from the recession. At a time when states need to be growing their economies, such cutbacks will exacerbate the economic downturn.

Shrinking Medicaid coverage can also jeopardize the health of both individual beneficiaries and the health care system. Medicaid is on the front line of health care today — not only as the health insurer for nearly 30 million children (1 in 4 U.S. children) and 15 million of their parents but also as the main source of health and long-term care coverage for more than 14 million elderly Americans and people with disabilities (see tableMedicaid Today.). Because Medicaid plays multiple roles, when its financing is cut or strained, the impact ripples throughout the health care system; individuals who depend on the program for their health coverage are affected, but so are the hospitals, clinics, long-term care facilities, and health workers who provide their care and depend on Medicaid to help finance it. And as more Americans become uninsured, safety-net facilities and clinics will feel the increased burden of uninsured families' seeking care without the ability to pay, making reductions in Medicaid payments even more difficult to absorb.

As this recession has deepened, the need to stabilize coverage and shore up our health safety net as part of our response to the economic crisis has become ever more apparent. In President Barack Obama's first month in office, Congress passed and Obama signed two important pieces of legislation that will help states and families maintain their health coverage and, it is hoped, weather the recession. The Children's Health Insurance Program Reauthorization Act provides $33 billion in additional federal funds to extend and expand CHIP (formerly called SCHIP) for 4.5 years to enable states to reach an additional 4.1 million children who would otherwise be uninsured. Among other health-related measures, the American Recovery and Reinvestment Act provides $87 billion for a temporary increase in the federal share of Medicaid costs through 2010 and $25 billion in temporary subsidies to assist unemployed families with the cost of their COBRA premiums.

The increase in the federal share of Medicaid spending is designed to help state Medicaid programs meet the increased costs and maintain coverage. To be eligible for the enhanced federal financing, states must not make changes to restrict eligibility levels or make it more difficult for people to apply for or renew coverage. For children, the additional federal financing in Medicaid and CHIP will provide opportunities for states to improve coverage. For families losing job-based coverage, the COBRA subsidy provides some assistance with the cost of maintaining coverage, but it does not address the coverage needs of those who were uninsured before losing their jobs. As a result, millions of Americans who are not eligible for Medicaid and cannot obtain or afford private coverage will still be added to the ranks of the uninsured.

The effects of the deepening recession underscore the importance of tackling health care reform to achieve greater stability and broader health coverage of the U.S. population. Medicaid can serve as a platform for broadened coverage of the low-income population, but achieving this goal will require new policies that establish a minimum eligibility threshold for adults (including those without dependent children), promote greater access to primary care and equity in payment rates across payers, provide more automatic countercyclical federal financing during economic downturns, and restructure federal and state responsibilities to ensure that financing for coverage remains secure. These changes can help to alleviate the crisis in health care coverage and financing that we're now facing.

No potential conflict of interest relevant to this article was reported.

Source Information

Dr. Rowland is the executive vice president of the Henry J. Kaiser Family Foundation and the executive director of the Kaiser Commission on Medicaid and the Uninsured, Washington, DC.

References

References

1. 1

   The uninsured: a primer. Washington, DC: Kaiser Commission on Medicaid and the Uninsured, October 2008.
   

2. 2

   Turning to Medicaid and SCHIP in an economic recession: conversations with recent applicants and enrollees. Washington, DC: Kaiser Commission on Medicaid and the Uninsured, December 2008.
   

3. 3

   Holahan J, Garrett AB. Rising unemployment, Medicaid and the uninsured. Washington, DC: Kaiser Commission on Medicaid and the Uninsured, January 2009.
   

Citing Articles (2)

Citing Articles

1. 1

   Karim S. Ladha, J. Hunter Young, Derek K. Ng, David T. Efron, Adil H. Haider. (2011) Factors Affecting the Likelihood of Presentation to the Emergency Department of Trauma Patients After Discharge. Annals of Emergency Medicine 58:5, 431-437
   CrossRef

2. 2

   Dominic Hodgkin, Hannah E. Karpman. (2010) Economic Crises and Public Spending on Mental Health Care. International Journal of Mental Health 39:2, 91-106
   CrossRef