Medicare and Medicaid
[APRIL 1, 1998] The nations Medicare and Medicaid programs (titles
XVIII and XIX, respectively, of the Social Security Act) were created in 1965 as part of
the so-called Great Society legislation. The programs were enacted at the same time that
comprehensive private health insurance coverage was becoming available to most of the
nations population. Congress enacted Medicare (a federal program) and Medicaid (a
state and federal program) to ensure that certain vulnerable populations had access to
health care coverage. Today, Medicare targets mainly the elderly, and Medicaid targets
mainly the poor.
Over time, the two
initiatives have become much more expensive than originally envisioned.
1970 to 1996, total federal expenditures for Medicare grew from $8
billion to $203 billion.
1970 to 1996, total state and federal expenditures for Medicaid grew
from something over $5 billion to almost $148 billion.
1996 Medicare alone accounted for almost 20 percent of total health
care costs, which had reached $1 trillion (more than 14 percent of
the gross domestic product); Medicaid (including state and federal
spending) accounted for more than 14 percent of total health care
The two initiatives also have become
much more expansive: Since first initiated, both have undergone substantial change in
regard to the people they help and the health care services they cover.
As originally enacted, a persons eligibility for Medicare was determined by his/her
eligibility for Supplemental Security Income (SSI). In 1966 this meant that a person had
a U.S. citizen,
certain asset and income requirements,
aged 65 or older, and
many cases, have paid a certain amount in payroll taxes (into the
Social Security Trust Fund).
As eligibility requirements for SSI
expanded, so did those for Medicare. In the 1970s Congress extended access to the program
to those who
blind and/or severely disabled, and
from end-stage renal disease.
In Medicares first year, there
were just over 19 million enrolled; by 1997despite there not having been a major
Medicare eligibility expansion since the 1970sthe number had doubled, to 38 million.
About 87 percent of the programs enrollees are elderly (aged 65 or older); the
remainder are blind or disabled. In Michigan, approximately 1.3 million people are
eligible for Medicare benefits.
Today, for its beneficiaries,
Medicare provides two types of health care coverage: hospital insurance (Part A) and
medical insurance (Part B).
Part A is provided automatically to qualified people aged 65 and over
and to most who are severely disabled and entitled to SSI benefits.
It reimburses participating institutional providers for care rendered;
coverage includes inpatient hospital services, care given in skilled
nursing facilities, home health services, and hospice care. Part A
is financed by the Medicare Trust Fund, which is funded by a 2.9 percent
payroll tax that is split between employer and employee.
Part B benefits also are available to almost all citizens aged 65
and over, certain aliens aged 65 and over (even those not entitled
to SSI benefits), and blind or disabled people entitled to Part A.
Part B coverage is optional and to obtain it, recipients must pay
a monthly premium, which accounts for one-third of Part B funding;
the rest is paid for by general tax revenue. Almost all people entitled
to Part A choose to enroll in Part B, which covers
- physician services (in both hospital and
- clinical laboratory tests,
- durable medical equipment,
- flu vaccinations,
- drugs that cannot be self-administered (except
certain anticancer drugs),
- most medical supplies,
- diagnostic tests,
- ambulance services,
- hospital outpatient and ambulatory surgical center
- some therapy, and
- blood products not covered by Medicare Part A.
Medicare generally will not cover
any service unless it is medically necessary, nor does it cover dentures, dental care,
prescription drugs (except certain self-administered anti-cancer drugs), eyeglasses,
hearing aids, and certain other services (some of these services may be covered under
certain managed-care arrangements).
Medicaid is a state/federal cost-shared program that provides medical assistance for
certain individuals and families with low income and limited assets. The federal
government has established certain parameters within which each state may
its own eligibility standards,
the type, amount, duration, and scope of services,
payment levels for services, and
Medicaid does not provide medical
assistance for all poor peopleonly for designated groups (categories). Although
there are only two eligible populationsthe categorically and medically
needythe categories have been expanded numerous times and so have the services
Originally, "categorically needy" included only families receiving cash
assistance through Aid for Families with Dependent Children (AFDC) and aged, blind, and
disabled people receiving Supplemental Security Income benefits; in 1997 AFDC and SSI were
incorporated on the national level into a single programTemporary Assistance for
Needy Families (TANF). Over the years, categorically needy has been expanded to include
children, and pregnant women in lower-income families
elderly and disabled persons
eligible for transitional Medicaid (provided for 12 months to beneficiaries
who get a job or a better job and, because of the income increase,
become ineligible for Medicaid)
low-income Medicare beneficiaries
Within the categorically needy
population, there are many for whom states must provide Medicaid services and
many for whom the state may choose to provide the services; most states choose to extend
Medicaid services to their most vulnerable populations who meet certain asset and income
States may choose, as Michigan has done, also to establish programs for the
"medically needy" people who have substantial medical costs, but their
income is too high for them to be eligible for Medicaid. Such people must "spend
down" their income until it reaches a level at which they meet Medicaids income
and asset requirements. States that establish a medically needy program must serve
children aged under 18 and pregnant women from low-income families.
Medicaid services have expanded over time. When the Michigan Medicaid program was
implemented, in 1966, the state indicated that "the medical services are of a
curative, not a preventive, nature. Thus, routine medical examinations and immunizations
are not covered." Today, the programs focus is different: For example, the
Early and Periodic Screening Diagnosis and Treatment program (EPSDT) for children places a
strong emphasis on disease prevention and immunization for children.
Originally, the federal government
required states to cover only five Medicaid services. Since 1966 the list has expanded
substantially and now includes
and outpatient hospital services,
provided at rural health clinic and federally qualified health centers,
and x-ray services,
services, including medical and surgical services provided by a dentist,
for youth under age 21,
planning services and supplies,
medical transportation, and
provided by a nurse midwife, certified pediatric nurse, and certified
family nurse practitioner.
Michigans Medicaid program
also covers 24 of 33 optional services (for some, the state may require recipients to make
a copayment), including
services and dentures,
occupational, and speech therapy,
optometry, and chiropractic services,
psychiatric services for people aged 2165 and intermediate-care-
facility services for the mentally retarded, and
hearing aids, and prosthetic devices.
Currently, Michigans Medicaid program serves 25 eligible populations, which fall
roughly into the following seven categories:
Independence Program (FIP) participants (Michigans name for
its AFDC program)
and pregnant women in families who have annual income under 185 percent
of the federal poverty level (the 1998 FPL for a family of three is
older than one year but younger than 16 in families with income below
150 percent of the FPL
and disabled persons with income below the FPL
FIP recipients whose cases were closed due to employment but do not
have health insurance coverage (this is referred to as the transitional
In Michigan approximately 1.1
million people are eligible to receive Medicaid. In 1997 the states total spending
(including state and federal funds) on the Medicaid program totaled almost $5 billion,
including about $1.3 billion in state general funds. Of the people who receive Medicaid
services in Michigan,
percent are children,
percent are low-income adults,
percent are blind or disabled, and
Although almost half of
Michigans Medicaid population are children, three-quarters of the programs
spending goes to the elderly, disabled, and blind. Of total spending,
percent goes to the blind and disabled;
percent to the elderly;
percent to children; and
percent to adults.
Nationwide, only 10 million people
were enrolled in the program in 1960; now more than 38 million are served, nearly four
times as many as in the beginning. Nationally, in 1997, Medicaid financed care for
adults in low-income families,
7 million people who are blind and disabled,
5 million elderly, and
Almost 14 percent of the American
population are eligible to receive Medicaid benefitsup more than 35 percent from
Since their inception, the Medicare and Medicaid
programs have grown substantially.
1970 to 1996, total federal Medicare spending rose nearly 24-fold.
1970 to 1996, total federal and state Medicaid spending rose nearly
1966 to 1997, Medicare enrollees increased by 100 percent.
1966 to 1997, Medicaid enrollees increased by 280 percent.
Very soon, federal and state
spending on these programs will not able to keep pace with the demand for their services.
The Medicare program is in particular jeopardy: In 1995 there were only 34 million
American elderly, but by 2025 the number is projected at almost 61 milliona 79
percent increase. Additional utilization and spending because of this populations
growth is expected to push the programs cost beyond $447 billion by 2008. Although
the Medicare-spending growth rate has subsided somewhat in recent years, policymakers
expect it to increase in the future. In fact, Congress estimates that Medicare will become
bankrupt by 2010, just as the first wave of babyboomers begins retiring.
Current demographic trends portend a
considerable problem for Medicaid as well. Although the elderly (aged 65 and over) account
for the smallest segment of this programs population, their care is the most
expensive. In Michigan, Medicaid services cost about only about $790 per child but $9,400
per elderly adult. As the number of elderly who qualify for the program grows, so will the
To address Medicare and
Medicaids financial future, policymakers are debating changes in the way in which
health care services are delivered to beneficiaries. Managed care is seen as a way to
substantially reduce costs. Federal officials are addressing Medicare costs also by
considering changes to eligibility standards and requiring recipients to pay more for the
One way that the federal government and the states hope to save Medicare and Medicaid
dollars is by switching from fee-for-service to managed care. Managed care is an approach
to health care that (1) coordinates patient care so as to ensure that services are
appropriately utilized (that is, care is not unnecessarily rendered), and (2) routinely
monitors and measures provider performance so as to control cost and maintain or improve
the quality of care.
Today only 13 percent of the entire Medicare population receives health care through a
managed-care system, but this soon will change. In 1997 Congress voted to extend this
option to Medicare recipients. The federal plan allows managed-care organizations other
than health maintenance organizations (HMOs)for example, provider-sponsored
organizationsto compete to give care to Medicare beneficiaries. The plan, known as
Medicare+Choice, also establishes payment incentives that will encourage MCOs to provide
services in rural areas, which usually are considered a less lucrative market than others.
The federal government will begin a marketing campaign to encourage (but not require)
senior citizens to enroll in MCOs.
Michigan is one of many states that to reduce program costs and improve health care access
and quality has adopted a mandatory Medicaid managed-care strategy. In 1997
several HMOs and clinic plans were selected through a competitive bid process to begin
providing comprehensive, capitated managed-care services to recipients in five southeast
Michigan counties; officials expect to have statewide managed care in place by mid-1998.
Under the plan, enrollment in a managed-care organization (either an HMO or other
preferred-provider arrangement) will be mandatory for all but a few Medicaid recipients
for whom the state is devising separate managed-care plans. (Excepted from the mandatory
managed care requirements will be those needing mental health and substance abuse
services, those needing long-term care, and children with special health care needs.)
Michigan officials expect total Medicaid managed-care savings to reach nearly $120
Although Michigan officials are
confident that the Medicaid managed-care initiative will be a great success, many
observers are concerned about some of its potential effects. Opponents of the program fear
that consumers will have to leave their regular physician to select one who has agreed to
participate in a managed-care plan, and this affects continuity of care. Others worry that
because capitation limits the amount that carriers are paid to cover health care services,
some managed-care organizations, to save money, may deny Medicaid managed-care enrollees
medical services they need or limit their access to them.
Managed care is not the only answer to Medicare and Medicaids future financial
concerns; other options are to limit program eligibility and require beneficiaries to
contribute more out of pocket.
As Congress considered whether to expand Medicare managed care, many lawmakers argued that
a more economical course would be to raise the agefrom 65 to 67at which a
person becomes eligible to receive benefits. Although the Senate approved the initiative,
the House defeated it. Many believe that the idea failed because it is unpopular with the
elderly (a national poll conducted before the vote on the issue showed 65 percent of
Americans opposed to it), who tend to vote more regularly and in greater number than
Rather than raise the eligibility
age, Congress considered requiring the affluent to pay a higher Medicare premium. Although
this option was not adopted, its supporters argued that those who can afford to pay more
out of pocket for their health care ought to be required to do so. Opponents argued that
people who are aged 65 and over already have paid for their Medicare services: For years
they paid payroll taxes that fund the program. Others contend that the elderly receive
much more in benefits than they contributed in payroll taxes.
In their effort to control Medicare
spending, policymakers also have adopted policies to
the growth in Medicare payments to providers,
fees on physicians who violate certain Medicare standards, and
spending fraud and abuse.
These, combined with the federal
governments recently adopted managed-care initiatives, are expected to save $115
billion over five years. Despite this, Congress estimates that Medicare faces bankruptcy
as early as 2010.
Despite Medicares financial
difficulties, President Clinton met lawmakers proposal to raise the Medicare
eligibility age with a proposal to lower it. Under the presidents plan, able-bodied
adults aged 5564 could buy into Medicare with a $300400 monthly premium.
Supporters argue that the extension will pay for itself; detractors contend that it will
Most states, including Michigan, are deferring a decision on narrowing Medicaid
eligibility limits or requiring additional patient out-of-pocket contributions until the
results are in on the managed-care initiatives.
Michigan policymakers, however,
dealt with a new Medicaid question: How should health care services be extended to
uninsured children? In 1997 Congress appropriated $24 billion to help states to do just
that, and of this money, the State of Michigan will receive $467 million over five years.
(This is a textbook example of "devolution," the shift from a higher to a lower
level of government the responsibility for decision-making in regard to government
services.) The states are permitted to (1) expand their existing Medicaid program or (2)
create an entirely new childrens health care program; Michigan lawmakers opted for a
Originally, the Michigan Department
of Community Health (MDCH) proposed a new health insurance program for uninsured children
who (1) are aged under 19, (2) live in a family having income at or below 200 percent of
the federal poverty level, and (3) are ineligible for any other health insurance program,
childrens advocates, and others agreed that coverage should be extended to this
uninsured population, many disagreed with the decision to create a new, state-run health
plan. Opponents of the MDCH initiative argued instead for expanding Medicaid, contending
that this would avoid having to allocate limited state and federal resources to developing
care benefits package for children;
care provider network to deliver those benefits; and
system, including information technology, to monitor the results of
the program and coordinate childrens health care.
After much debate, legislators
adopted and the governor signed a plan (Public Act 54 of 1998) that supersedes the MDCH
proposal. It both expands Medicaid and creates a new program: Uninsured children
in families with income under 150 percent of FPL will become eligible for Medicaid, while
children in families with income of 150200 percent of FPL shall obtain coverage
through the new plan, called MIChild. NOTE: Many people may refer to both the Medicaid
expansion and the new program as the MIChild initiative.
Opponents of the combined approach
argue that it will be difficult to administer, but supporters contend that provisions in
the plan allowing families to apply simultaneously for the new program and Medicaid will
save them from having to apply for Medicaid, then, if denied, go though another
application process for MIChild, or vice versa.
Those who created Medicare and Medicaid could not have envisioned the programs
present cost and scope. Todays policymakers have the unenviable legacy of having to
maintain, if not improve, vulnerable populations access to health care, while at the
same time manage the cost of doing so. The biggest question for state and federal
officials, however, is whether the responsibility should continue to be governments
or whether a greater share should be assumed by the private sectoremployers and
Child and Family Services; Devolution;
Early Childhood Development; Health
Care Access; Health Care Costs and Managed
Care; Long-Term and Related Care; Substance
American Association of Retired Persons
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(517) 482-2794 FAX
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Family Independence Agency
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Health Care Financing Administration
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Medical Services Administration
Michigan Department of Community Health
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Medicare/Medicaid Assistance Program
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Lansing, MI 48917
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Michigan Council for Maternal and
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Lansing, MI 48933
(517) 482-9242 FAX
Michigan League for Human Services
300 North Washington Square, Suite 401
Lansing, MI 48933
(517) 371-4546 FAX
CONTENT CURRENT AS OF
APRIL 1, 1998.
Public Sector Consultants, Inc.