Medicaid: Health Reform’s Fatal Flaw

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Don’t get me wrong, I’m all for expanding coverage. Especially for the poor. Nothing frustrates me more when I have a patient in the ER who would benefit from an outpatient treatment but won’t get it because they don’t have money and/or insurance coverage.

First, a little history. Medicaid was passed in 1965 along with Medicare. However, Medicaid was set up in line with welfare, where there were income eligibility requirements determined by the states. Also, the federal government matched the states outlays to Medicaid as part of the funding process, leading to many of the budgetary problems the states face today.

The program was voluntary, and since states had to pay money to receive money, the poorer states had the most stringent requirements, making only the poorest of the poor eligible and leaving many poor without coverage. Worse, it incentivized people not to work, because earning even a minimal amount of money now made you ineligible for Medicaid.


The worst problem with the setup of medicaid was the lack of cost controls. It was assumed (see reference in the link above for source) that the State determined eligibility requirements and requirement for State matching would be the force to hold costs down. However, Medicaid pays for care, not for insurance. And as the program got larger, costs needed to come down somehow. Benefits were not directly cut (at first, though eventually some benefits were made more restrictive), however payments to providers of that care were.

The federal government determines what the fee schedules are to pay physicians and hospitals. Increasingly, the states are facing budget shortfalls and looking for ways to cut their part of Medicaid, and doing it by holding back payments to physicians and hospitals (usually skewed towards physicians since hospitals have more political influence), limiting access to certain medicines, and again, lowering the thresholds for eligibility.

As a result of these cuts, Medicaid pays physicians and hospitals less than the cost of providing these services. And while hospitals can only write that off, physicians who can choose their patients, choose not to take Medicaid as it is as if the patient is uninsured. Or they limit the number of Medicaid patients they will see. And specialties such as pediatrics which depend highly upon the Medicaid population for their business earn proportionately less than their internal medicine counterparts.


Despite these cost-cutting attempts, Medicaid is still a 200 billion dollars a year behemoth (approximately half of Medicare) that grows more in the lean years and shrinks somewhat during the booming years of the economy.

Getting back to the health care reform issue, one of the main tactics for insuring more people is by increasing the thresholds for eligibility for Medicaid. Yes, this will insure more people. Massachusetts proved this to be the case in their 97% universal health care plan. However, physicians and hospitals that are located in poor areas dominated by Medicaid find they are losing money.

Physicians decide not to see those patients, or give them 4 month waits for a limited number of “Medicaid” appointments, and those patients understandably end up in the ERs getting expensive care that is incompletely reimbursed, thus jeopardizing the solvency of hospitals like Boston Medical Center.

If we model our national health care reform efforts after Massachusetts then we will get the same problems magnified fifty times over: escalating costs, poor access to primary care physicians – especially for those with Medicaid/Medicare, and risk of insolvency of critical hospitals. And the states will have a harder time than they already have making their budgets work, since they will be paying out more to Medicaid than previously (which was already enough to break the budgets).


Since we have the example of Massachusetts to learn from (good aspects and bad aspects) we should learn those lessons – the chief being, MEDICAID MUST BE REFORMED BEFORE IT IS EXPANDED.

To read the rest of this post, go to Dr. Brenner’s Thoughts on Healthcare


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