Analysis: Is Medicaid Really That Bad?

Published October 27, 2014

Health policy experts around the nation have diverged sharply on the question of whether Medicaid provides high-quality, effective medical care to the poor.

In 2011, the Wall Street Journal published a column by American Enterprise Institute Resident Fellow Scott Gottlieb, M.D., concluding, “Medicaid coverage is worse than no coverage at all.”

The federal and state governments spent $460 billion on Medicaid last year. Is it really feasible this buys nothing? Two scholars affiliated with the Kaiser Family Foundation, Julia Paradise and Rachel Garfield, published a paper contradicting that conclusion.

Paradise and Garfield concluded Medicaid, “while not perfect, is highly effective.… [D]espite the poorer health and the socioeconomic disadvantages of the low-income population it serves, Medicaid has been shown to meet demanding benchmarks on important measures of access, utilization, and quality of care.”

Different Researchers, Different Results

Gottlieb found poor outcomes for serious conditions such as cancer and major surgery, whereas Paradise and Garfield emphasized preventive and primary care.

Gottlieb’s focus on catastrophic illnesses and procedures and Paradise and Garfield’s emphasis on non-catastrophic care create the temptation to overgeneralize and conclude Medicaid is ineffective for very sick people but okay for people who are not very sick.

Medicaid is not a single national, or even state, health plan. Most beneficiaries are enrolled in private health plans, which contract with the states. These are categorized as either managed-care organizations (MCOs) or primary-care case management (PCCM).

In 2012, more than 26 million Medicaid dependents were enrolled in MCOs and 8.8 million were enrolled in PCCM, out of nearly 54 million total Medicaid enrollees. Although they comprise two thirds of Medicaid dependents, enrollees in private plans account for only one fifth of Medicaid spending because MCOs and PCCMs mostly cover pregnant women as well as children and their parents while the majority of Medicaid spending goes towards the disabled and elderly, most of whom remain in fee-for-service.

States have been using private plans to provide benefits to healthier Medicaid dependents and leaving sicker ones to the FFS system, where governments pay providers according to bureaucratically determined fee schedules. That may explain why outcomes are poor for the sickest Medicaid recipients and relatively healthy Medicaid enrollees tend to have better outcomes.

Block grants vs. MCOs

Where do we go from here? Reformers who want to increase patient choice recommend block grants, vouchers, or refundable tax credits for Medicaid dependents to buy their own private coverage. These will be positive reforms, but they are not going anywhere politically for the next few years. Medicaid managed care, on the other hand, is an open door that is swinging wider.

Avalere Health estimates 75 percent of Medicaid dependents will be enrolled in MCOs by 2015, up from 63 percent in 2012. The Kaiser Family Foundation predicts states will enroll more of the sickest Medicaid dependents in private plans.

If done properly, this should improve outcomes for those patients. Medicaid managed care blurs the line between the Medicaid “ghetto” and private choice. When the opportunity for post-Obamacare health reform arises, its success will make patient-centered reforms to the whole system easier to bring about.

John R. Graham ([email protected]) is a senior fellow at the National Center for Policy Analysis