Perspective
A “Customary and Necessary” Program — Medicaid and Health Care Reform
N Engl J Med 2010; 362:1952-1955May 27, 2010
- Article
The recently passed U.S. health care reform law envisions a health care system that rests atop a four-legged stool consisting of employer-sponsored health plans, coverage purchased through state-based exchanges, Medicare, and Medicaid. Each leg faces important challenges, none more than Medicaid. Numerous issues confront the “new” Medicaid. Will states be able to achieve full coverage for eligible persons and align their operations smoothly with those of other coverage sources? Will coverage be adequate to the population's need? Will providers participate, and will the safety net be sustained? And perhaps above all, will states continue to operate Medicaid programs and share in their costs?
Medicaid plays a starring role in health care reform. In its final cost estimates,1 the Congressional Budget Office (CBO) projected that 94% of the U.S. population will have health care coverage by 2019, up from 83% under current policy. Of the 32 million people gaining benefits, half — 16 million people — are expected to derive their coverage through Medicaid and the Children's Health Insurance Program (CHIP). This expansion will come at a 10-year cost of $434 billion in additional federal funding. CBO estimates also show that the Medicaid reforms will not merely boost program enrollment over 10 years but will actually stave off an increase in the number of uninsured persons resulting from, among other factors, a decline in the number of children and adults covered by Medicaid and CHIP.
To achieve these results and address other program challenges, Congress has fundamentally altered Medicaid's eligibility structure. Historically, Medicaid eligibility has been tied to both low income and demographic characteristics that are a vestige of federal cash-welfare programs designed to benefit the disabled, the aged, and extremely poor “dependent” minor children and their parents. Reforms that have been enacted over the past 25 years have achieved eligibility of all poor children. But current mandatory coverage rules continue to exclude near-poor pregnant women and near-poor children 5 to 18 years of age. They also exclude millions of poor parents of minor children in states whose income-eligibility ceiling for such individuals can dip as low as 17% of the federal poverty level,2 as well as other impoverished adults who have neither minor children nor a serious disability. Over the years, a handful of states have used state funding or have operated their programs under special federal demonstration authority to help cover more low-income adults, but in the vast majority of states, poor adults — both parents and childless adults — remain completely uninsured, and near-poor children 5 to 8 years of age remain ineligible for Medicaid although they're covered through the more modest CHIP.
Health care reform changes all that. As of 2014 (see Implementation Timeline for Selected Medicaid Reforms in the Health Care Reform Law), state Medicaid programs will be required to extend coverage to all nonelderly persons with incomes under 133% of the federal poverty level (and the CBO estimates that the actual threshold will be 138% of the poverty level, once new income calculation methods are applied). This change is not merely a matter of basic fairness; it also reflects the fact that using a program that is jointly financed by the federal and state governments to expand health care coverage considerably reduces the federal cost of expansion. Furthermore, since most Medicaid programs today buy insurance-style products (known as managed care) for their nondisabled, nonelderly populations, the insurance industry did not object; after all, it will retain a strong and expanding presence in a market that can be expected to grow considerably in the coming years.3
The legislation also revises outreach and enrollment procedures, benefit and coverage structures for newly eligible persons, and states' service-delivery options. In addition, the law increases state Medicaid payments to the same level as Medicare payments for primary care services furnished by physicians with primary specialty designations in pediatrics, family medicine, or general internal medicine. To finance these eligibility and provider-payment reforms, the law increases the federal contribution rate to Medicaid for new populations and services while retaining the current federal contribution structure for current beneficiaries and services. Under current law, the federal government pays 50 to 83% of total medical expenditures; for “new eligibles” and the provider-payment increase, the federal share will be 100% of total spending for 2014 through 2016, gradually decreasing to 90% in 2020.
Throughout Medicaid's history, state lawmakers have railed at its financial and regulatory burdens. Furthermore, the constitutionality of the new law's individual insurance “mandate” (which is in fact not a mandate at all but a tax penalty for failing to obtain coverage if it is affordable) came under constant fire during the reform debate.4 These legal and political themes have converged in the form of a lawsuit filed by 13 states5 (in some cases, by Republican attorneys general over the objections of Democratic lawmakers), alleging that the law represents an unconstitutional violation of the limits of congressional powers — specifically, the Constitution's Commerce and Taxing and Spending Clauses and the Tenth Amendment (“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people”).
The states' legal claims border on the frivolous, but the litigation offers added insight into Medicaid politics. Framing Medicaid as a “customary and necessary” feature of state governments, the plaintiffs argue that Congress has essentially hijacked the program, forcing states to become unwilling partners in an unlawful legislative scheme. Claiming that the law “converts what had been a voluntary federal–state partnership into a compulsory top-down federal program in which the discretion of [states] is removed,” the lawsuit attempts to portray states as compelled — because there exists “no practical alternative” to their Medicaid participation — either to adopt the reforms mandated by Congress or exit the program altogether.
Nothing in the law compels a state to continue to participate in Medicaid. But unlike the provisions regarding health insurance exchanges, which provide for federal administration in the absence of state operations, the law contemplates no alternative to continued state participation in Medicaid. Seizing on this silence, the plaintiffs attempt to frame the Medicaid provisions as compulsory and as an effort to “commandeer” states in furtherance of a “federal regulatory scheme.”
The legal dimensions of the case are crucial, but the political message may be louder. The case offers a blunt argument that the law's financial inducements for participating in Medicaid are insufficient. Furthermore, this legal argument comes at a time when state economies are still reeling from the effects of the recession and when doubts exist over whether Congress will extend the special infusion of federal Medicaid funding that states received under the 2009 American Recovery and Reinvestment Act, which is now scheduled to expire on December 31, 2010.
In the end, the fate of health care reform depends on the fate of Medicaid. Regardless of the course of the states' litigation, the case underscores the long-term need to reconceptualize Medicaid's financing and administration for the sake of the country's most vulnerable populations. Medicaid is essential to health care reform, and without the enormous flow of Medicaid funds, state health care systems and economies will falter. At the same time, there are enormous questions regarding how the federal–state partnership should work, in terms of the allocation of financial responsibility and the extent to which states, even as they receive billions of dollars in federal funding, should retain discretion over the structure and operational components of their programs. The resolution of these enduring issues will determine the course — and ultimately the success — of health care reform for the country's neediest individuals, as well as for the providers who care for them.
Implementation Timeline for Selected Medicaid Reforms in the Health Care Reform Law.*
2010
State option to cover all low-income nonelderly adults not already eligible for Medicaid (regular federal financial contribution levels)
State option to cover low-income women for family-planning services
Coverage of smoking-cessation services for pregnant women
Coverage of free-standing birthing centers
Expanded options to strengthen coverage of home and community care services
Demonstrations in five states to strengthen large safety-net hospital systems
Increased federal-policy focus on dually eligible Medicare–Medicaid beneficiaries
2011
New state option to create medical home programs for persons with chronic health conditions (including those with serious and persistent mental illnesses)
New state awards program to improve preventive services for Medicaid beneficiaries
Prohibition of federal payments for health care–acquired conditions
New Community First Choice option to expand personal attendant care services for persons with disabilities
State Balancing Incentive option to achieve greater parity between payment for institutional and community-based long-term care
2012
New demonstrations of payment bundling and pediatric accountable care organizations
2013
Federal incentive payments to expand coverage of preventive services and immunizations for adults
Enhanced federal payments for primary care services furnished by primary health care physicians
2014
Mandatory coverage of all nonelderly adults with adjusted family incomes below 133% of the federal poverty level
Enhanced federal financing for mandatory coverage population
Expanded coverage for young adults who age out of foster care
Reduced federal contributions to states' Medicaid disproportionate-share-hospital (DSH) payment programs
*Data are from the Kaiser Family Foundation.
Disclosure forms provided by the author are available with the full text of this article at NEJM.org.
This article (10.1056/NEJMp1003890) was published on May 5, 2010, at NEJM.org.
Source Information
From the Department of Health Policy, School of Public Health and Health Services, George Washington University Medical Center, Washington, DC.
- References
References
1
Letter from Douglas W. Elmendorf to House Speaker Nancy Pelosi, March 20, 2010. (Accessed May 4, 2010, at http://www.cbo.gov/ftpdocs/113xx/doc11379/Manager'sAmendmenttoReconciliationProposal.pdf.)
2
Kaiser state health facts: Medicaid and state funded coverage income eligibility limits for low-income adults, 2009. (Accessed May 4, 2010, at http://www.statehealthfacts.org/comparereport.jsp?rep=54&cat=4.)
3
United Health. Coverage for consumers, savings for states: options for modernizing Medicaid. Working paper 3. April 2010. (Accessed May 4, 2010, at http://www.unitedhealthgroup.com/hrm/UNH_WorkingPaper3.pdf.)
4
Barnett R, Stewart N, Gaziano T. Why the personal mandate to buy health insurance is unprecedented and unconstitutional. Legal memorandum 49. Washington, DC: Heritage Foundation, December 9, 2009.
5
State of Florida et al v. United States Department of Health and Human Services et al., (No. 3:10-cv.91)(N.D. Fl.) 2010 (FL, SC, NB, TX, UT, LA, AL, MI, CO, PA, WA, ID, and SD).
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Bisgaier, Joanna, Rhodes, Karin V., . (2011) Auditing Access to Specialty Care for Children with Public Insurance. New England Journal of Medicine 364:24, 2324-2333
Full Text5
Hall, Mark A., . (2011) Clearing Out the Underbrush in Constitutional Challenges to Health Insurance Reform. New England Journal of Medicine 364:9, 793-795
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