Disparities in payments to providers for Medicaid vs Medicare: a legacy of racism

January 20, 2011  |  General

In all the noise of our current debate over government funding of healthcare, most people seem unaware that the government — federal and state — already pay half of our nation’s healthcare bills. Although some of this funding comes through the Veteran’s Administration system, the bulk of it is in the form of two government programs — Medicare and Medicaid. Again, most people lump them together in their minds. Physicians and hospitals, however, realize that, although the two programs were begun at the same time in the mid-1960s, they are very, very different.

Medicare is the federally funded program that cares for the elderly. We pay into the program with a payroll tax and are generally eligible for coverage under it when we reach age 65. Everybody is eligible, regardless of income. In contrast, Medicaid is a program jointly funded by the federal government and the states. It is for children of low-income families, pregnant women, and the disabled. (This is slated to change with implementation of the Affordable Care Act, aka Obamacare, with low-income adults also eligible.) The ratio of federal money to state money in Medicaid varies — the federal contribution is higher for poorer states — but for most states the number is about fifty-fifty.

That’s the funding side. Looking at the payment side, the money paid out to hospitals and doctors shows a huge disparity between Medicare and Medicaid that few people outside healthcare know about. Medicare typically pays much more to the provider than Medicaid does FOR THE EXACT SAME SERVICE. You can read more about the details of this disparity, which the Affordable Care Act also aims to change, here. As with all things about Medicaid, it does vary from state to state. But it is not unusual for a physician to be paid ten times as much by Medicare for the same thing. Why is this?

The fundamental reason is that, when Medicaid was established, the Congress needed to compromise to get it passed. That compromise needed to accommodate Congressmen who were frank racists, mostly Southern Democrats. As Timothy Jost wrote:

The fact that Medicaid is a federal-state cooperative program, rather than a national program like Medicare, is an artifact of a history of which we should not be proud. It is in part the history of trying to keep poor people on relief under the thumb of local government, where their lives could be managed more closely. It is also in part the history of racism, with which President Roosevelt had to come to terms to get his New Deal programs past Southern Democratics in Congress who insisted on control over who got welfare and how much.

A huge proportion of poor people in the South during the 1960s were black. And Congress wanted to make sure of two things: not as much money would be spent on them; and the individual states could keep the medical care the poor received worse than that of more affluent people by the simple expedient of paying doctors and hospitals less money to deliver it.

The effects of this huge disparity in reimbursement has had predictable effects on physicians, who frequently lose money with every Medicaid patient they see. Not surprisingly, six times as many physicians refuse to see Medicaid patients as refuse to see Medicare patients.

It’s all a sorry legacy, and its correction is a key component of the Affordable Care Act.


  1. That was a real eye opening post. I personally am aware of the disparity. I never realized the background behind it. I find it funny that my cleaning service/mechanic/plumber, etc, etc gets paid more per hour than I do for providing critical care for Medicaid patients.

    The medicaid/medicare disparity explains why pediatric subspecialists make about 1/2 what our adult colleagues do. Fortunately (or unfortunately depending on how you look it at) we all can’t/don’t drop medicaid so at least the children get their care.

  2. Indeed. Pediatric intensivists care for children who range in size from infants to adult-sized adolescents. Just from a technical standpoint, placing a central venous line in an infant is more challenging than placing one in an adult-sized person. Yet the reimbursement, if the infant is on Medicaid, is a fraction of what our adult intensivist colleagues are paid for placing a central line in a Medicare patient. This disparity all began with politics.

  3. Good thing this isn’t “Journal Club” cause your post has more fallacies, straw men, and conundrums than…
    thought I had an analogy, but it’s gone.
    1: I know your more interested in kids, but ummm psssttttt
    Theres alot of old Black Peoples too, so how come those racist Southern Democrats didn’t put some literacy/background check/drug testing elgibility requirements to qualify for medicare??, and don’t answer, its rhetorical.
    2:The Medicare/Medicaid disparity exists in New Hampshire, Vermont, both Dakotas, Iowa, Nebraska, Wyoming, Montana, Utah, and Idaho, all of whom have even fewer Black Peoples than Minnesota, guess that was the fault of all those racist NORTHERN Democrats.
    3: “A huge proportion of poor people in the South during the 1960’s were Black”??
    First of all, congratulations on mastering English, cause that sentence is about as awkward as telling a Male Homosexual that he can’t donate blood to his domestic partner unless he’s been celibate for the last 33 years(don’t blame me, blame the Red Cross)
    Seriously, so did poor people become white during the 70’s? Or did they stop being poor?
    Anyway, thanks to the intergrated pubic schools, there’s alot of poor White Peoples too.
    4: Why do you have to take Medicaid Patients? This isn’t Russia. Umm well maybe where you live.


  4. Hi Frank:

    The assertion of racism as a principal cause for the reimbursement disparities between Medicare and Medicaid isn’t mine — it’s Timothy Jost’s, found in the link to his article in my post. I find his argument persuasive; apparently you don’t.

    And about all those straw men — I don’t think that word means what you think it means. But yes, there’s a conundrum or two.

  5. Racism issues aside…

    I think unfortunately most of us in peds subspecialites are forced to take medicaid if we want to enjoy our medical practice. As an intensivist my job options are a) take a lower paying job in an academic center where you get to see really sick patients but have a lot of medicaid and boost your salary with research grants or b) work in a private hospital with no medicaid but end up transfering out any moderately sick patient to the intensivist in a).

    My hospital is somewhere in between a) and b) in terms of salary and acuity….

  6. PICUDoc:

    Thanks for stopping by again.

    Yes, most of our sickest kids are Medicaid kids. It’s one of those well-known things that, although around a quarter of America’s children are on Medicaid, half or more of kids in PICUs are on Medicaid. There’s a reason for that: poor kids tend to be the sicker kids. So, as PICU docs, you and I take care of a lot of children on Medicaid.

    That’s really fine with me. I’m paid well enough, I think. Like you, I could have made more money by choosing another specialty. But I’m 59 years old and enjoy my job very much; how many folks can say that?

  7. Chris:
    Your lucky, I only got into Anesthesia cause it was 1994 and I spoke English, funny how things work out, the specialty that not even Bin Laden would do 15 years ago is the hightest paying today…
    Your still working at 59?!?!?!?!?!?

  8. Hi Frank:

    Glad you enjoy anesthesia. But is that your full-time gig? I ask because whenever you drop by with a friendly hello you post from what appears to be an occupational medicine office. Or perhaps occupational health anesthesia is something new? We pediatricians can be so sheltered.

  9. I say again, Mockingbird has it right !

  10. Indeed. Harper Lee knew her culture very well.

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