Unequal burdens among the states in Medicaid financing

September 19, 2010  |  General

Medicaid is the joint state/federal program that covers low-income families with children, disabled persons, and long-term care for the elderly. It’s particularly important for our PICU patients: although only a quarter of America’s children are on Medicaid, half of PICU patients are (details here).

With the implementation of the new healthcare reform bill, a key feature is that Medicaid coverage will be extended to low-income adults who are not in these categories. The federal government pays at least 50% of the costs of Medicaid, with the individual states picking up the rest.

Some states, however, receive far more help than others. Mississippi pays only 25% of its Medicaid costs, for example. (You can see what each state pays here.) Why the difference? Is that fair?

The answer is that Medicaid was set up so that the poorest states — those with the lowest per capita personal income — got more support from the federal government. The intent, I think, was to reduce disparities in medical care quality from state to state. It’s not clear it has turned out that way.

Medicaid is an enormous financial problem for most states, largely because many are forbidden by their constitutions to run a deficit; so every year they need to find a way to pay their share of the Medicaid bill. In contrast, the federal government is allowed to use deficit spending for its obligations.

One way to make the system fairer between the states would be to federalize it. After all, Medicaid was enacted at the same time as Medicare, and the latter is entirely a federal program. As Maggie Mahar has pointed out, this was actually Ronald Reagan’s preference. It is unfair to demand, as we currently do, that the states finance Medicaid one way while the feds are allowed to finance it another way. Federalizing the program could also ensure that citizens of poor states get the same care opportunities of those living in richer states.

Making Medicaid a federal program should at least be a financial wash to the total economy — new expenses for the federal government would be countered by reduced expenses to the state governments. There should be administrative savings, since right now there are, in effect, fifty separate Medicaid administrations. As someone who has practiced medicine in several states, I can testify that they vary substantially in how (and how well) they operate.

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