Medicaid Backgrounder

In 1965, Congress added Title XIX to the Social Security Act, and created the program now known as Medicaid. Medicaid.gov; Social Security Act, 42 U.S.C. § 1396. Medicaid was founded to provide health care funding to low-income adults. See Medicaid.gov. Created by the federal government, the program runs on a state-by-state basis; the federal Centers for Medicare and Medicaid Services (“CMS”) monitors each state-run program. See id. The CMS sets minimum requirements for eligibility standards, funding, services provided, and the quality of care. See id.

Since its founding, the Medicaid program has undergone significant changes. See id. at Section on Financing. In 1990, the Omnibus Budget Reconciliation Act created the Medicaid Drug Rebate Program, which required drug manufacturers to provide rebates to states whose Medicaid programs covered their drugs. See Medicaid.gov; CBO Papers: How the Medicaid Rebate on Prescription Drugs Affects Pricing in the Pharmaceutical Industry (Jan. 1996). In the last 15 years, state-run Medicaid programs have been switching from fee-for-service programs to Medicaid-managed care programs. See id. Under Medicaid-managed care programs, Medicaid subscribers receive funding for care provided by a private health plan that has a contract with the state; the state pays that private health insurance provider the monthly premium. See id. Presently, Medicaid-managed care program enrollment outnumbers traditional state Medicaid program enrollment. See id.

In order to enroll in a Medicaid program, an individual must fit into one of the CMS-defined eligibility categories. Centers for Medicare & Medicaid Services., Medicaid Eligibility. Potential enrollees must show both poverty status and qualification in an eligibility category whose requirements can include age, pregnancy, disability, and blindness as factors. See id. With recent efforts to reduce budget deficits, states have begun setting higher premiums and co-payments for enrollees, increasing the difficulty for the needy to obtain care. New York Times, New Medicaid Rules Allow States to Set Premiums and Higher Co-Payments. Additionally, before the recent enactment of Medicare Part D, Medicaid represented the largest federal funding contribution to those with HIV/AIDS. The Kaiser Family Foundation, Medicaid & HIV/AIDS. Part D now requires that people who are HIV positive fit into another eligibility category before they can receive funding. See id. Having HIV that has progressed to AIDS, however, qualifies the patient for Medicaid. See id.

Despite efforts to reduce Medicaid spending through adjusted eligibility requirements, state governments have encountered increased difficulty as a result of the 2008 financial crisis. See The Kaiser Family Foundation, States Report Sharp Increase in Medicaid Enrollment and Spending Amid Worst Recession in Decades. Since the crisis, states have seen a drastic increase in the number Medicaid enrollees; nine states report increases of 15% or more. New York Times, Recession Drove Many to Medicaid Last Year. Consequently, providing health care has become more difficult on tight state budgets. See id.

The Patient Protection and Affordable Care Act (“PPACA”) aims to expand Medicaid eligibility for low-income individuals beginning in 2014. National Healthcare Reform Magazine, Health Reform and Medicaid Expansion. The PPACA will create a mandatory nationwide income eligibility level at 133 percent of the poverty line. See id. In addition, adults without dependent children who meet the income eligibility requirement will qualify for Medicaid in every state. See Medicaid.gov. The PPACA will also provide federal funding to those states that expand Medicaid eligibility before the 2014 deadline. See id. Breaking from the traditional framework of Medicaid programs funded by the states, the PPACA promises federal funding for all newly eligible adults for the first three years after the PPACA goes into effect. See id. The PPACA also aims to eliminate wasteful spending by simplifying eligibility requirements, and making application to the program easier through web-based tools. See Medicaid.gov. The new application process will rely more heavily on electronic data verification, and will streamline renewal and payment processes. See Healthcare.gov.

In the upcoming Supreme Court case regarding constitutionality of the PPACA, the Court will consider briefs and hear one hour of oral argument on the issue of Medicaid expansion. The New England Journal of Medicine, The Constitutionality of the ACA’s Medicaid-Expansion Mandate. Twenty-six states argue that the new federally mandated Medicaid eligibility requirements have the effect of unconstitutionally coercing state governments to cover additional adults. See id. They claim that the PPACA violates the court-defined limitation that federal conditions on funding must not be ambiguous, and that the federal government may not use its spending power to coerce states to follow federal requirements. See id. Although states are not explicitly required to accept the eligibility changes enacted by the PPACA, the 26 states argue that the funding provided by the federal government, and the conditions on those funds, make opting out impossible. See id. Because federal funding accounts for between 50 and 80 percent of state Medicaid program financing, and Medicaid programs represent such a large portion of state budgets, refusing those federal funds would require drastic cuts in other areas of the budget or bankruptcy. Health Affairs Blog, The ACA Supreme Court Litigation: The States’ Medicaid and Minimum Coverage Briefs. The states argue that, because the federal government will pay 90% of the cost of expansion for the first three years, no state would turn down such a large quantity of federal funding, in the short run, in exchange for a long-term financial burden. See id.

Courts have upheld the Medicaid provision of the PPACA. See Fla. Attorney Gen. v. U.S. Dep’t of Health and Human Servs., 648 F.3d 1235 (N.D. Fla. 2011). Even the three judges who struck down the individual mandate as unconstitutional ruled that the Medicaid provision was a proper use of the Congressional spending power. See id. at 1262. The Supreme Court’s decision will have an impact on Medicaid and the states that run it, and will also refine the scope of the Congressional spending power.

Prepared by: Brooks Kaufman