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.