Medicaid is touted to be the Federal-State program to provide health care to the poor. But is this really true? In the State of Ohio Medicaid reported in 2001 a total of 1,676,157 individuals as receiving benefits from the program according to the Ohio Department of Jobs and Family Services. At the same time the Census Bureau reports Ohio as having 1,174,000 individuals below the poverty level. As the State struggles to deal with a serious budget problem a reasonable question is why a program for the poor covers far more than the total number of impoverished in the State?
Part of the answer is a voluntary expansion of Medicaid benefits. In the past eligibility for Medicaid was generally restricted to single parent homes with income levels no more than the poverty level. In the late 1980's and early 90's Medicaid was expanded to include all pregnant women and children under age 6 with family incomes up to 133 percent of the poverty level. The states had the option of covering this group up to 185 percent of the poverty level. Furthermore, the increase in qualifying income levels was no longer restricted to single parent households.
The result was quite predictable. Nationwide the number of children who were eligible for Medicaid rose by 50 percent and the percentage of pregnant women who were eligible doubled. Proponents of such measures considered the expanded programs a major success from the point of view of lower income groups now having access to health care. They failed to recognize that, as with any change in a government subsidy, individuals are likely to alter their behavior.
There is considerable evidence that they did respond to the Medicaid expansion. First, there was a natural experiment nationwide as minimum eligibility was significantly expanded. Second, because each state had different eligibility levels above the minimum Federal mandate it was possible to examine in more detail the response to Medicaid expansion. As stated above the programs looked very successful from the point of view of increasing coverage.
Unfortunately, the expanded coverage was largely for women and children who already had health insurance! Research from the National Bureau of Economic Research indicates that at least 50 percent and possibly as high as 75 percent of new enrollees in Medicaid simply dropped private health insurance coverage (usually for dependants) and registered them for coverage at tax payer expense. [1] What is surprising is not that this happened but, rather, that policy makers did not anticipate this rational change in behavior. A better approach to covering the non-poor would have been a sliding scale subsidy to purchase private health insurance.
There are numerous examples of expanded benefits above the minimum Federal mandate. In Ohio, for example, adult Medicaid beneficiaries received medical coverage for dental, chiropractic, podiatric, vision, and psychological services despite the fact that these were not mandated. Ohio also had covered adult parents of eligible children at levels above the Federal Medicaid requirement. Given the propensity of individuals to drop private coverage when the public provision becomes availability the benefits of these expansions are drastically overstated.
Medicaid for primary and acute care in Ohio (and nationwide) should be reformed by getting the government out of paying for medical services directly and instead providing Medicaid beneficiaries monetary grants to purchase private health insurance. The insurance would be available from a Medicaid operated Insurance and Provider Exchange (IPE) where private carriers would compete with each other to offer coverage. The grants could also be used to purchase insurance through employer based plans. If the State of Ohio wishes to provide coverage above mandated minimum income levels the grants would be available at 100 percent to recipients at the high end of minimum income/family requirements with the grant sliding down to zero at the top end of the expanded income range.
Notes
[1] David M. Cutler and Jonathon Gruber, “Does Public Insurance Crowd Out Private Insurance” NBER Working Paper Series, Number 5082.
Michael T. Bond, Ph.D., is Director of the Center for Health Care Policy at The Buckeye Institute and a professor in the Department of Finance at Cleveland State University.