Decoding Health Care
Part 4: The Affordable Care Act and Medicaid
When discussing health care, one should anticipate controversy. I have carefully avoided it to this point, but we need to change that. By now, several themes have been established in these posts. One of them is that the government has profound influence, directly and indirectly, by commission as well as omission, on healthcare in the US. The passage of the Affordable Care Act (ACA), or Obamacare, was the most important piece of healthcare legislation since the establishment of Medicare.
The ACA was designed to address two major issues: access and cost. It may seem that a lot of the things about the ACA don’t neatly fall into these two categories, but I can make the case that they do. For example, access can mean how many people do not have health insurance. Or it can mean that the insurance isn’t easily accessible or doesn’t completely fulfill people’s needs. And cost can mean cost to the individual or cost to the country. In order to understand why we needed the ACA we should pick up our discussion of health insurance where we left off: with Medicaid.
Medicaid dates back to 1965, just like Medicare. Medicare was always a national health insurance program; Medicaid was different. The Social Security Act, which FDR passed as part of the New Deal during the depression, was a social welfare program for retired Americans. Medicaid, passed as an addendum to the Social Security Act in 1965, was intended as a safety net for those in poverty. To make it politically palatable, funding involved contributions from the individual states as well as the federal government. State participation was voluntary, but ultimately everybody agreed to participate. However, the states retained a fair amount of control on how the program was to be administered, including determining eligibility. In this relationship, the federal government simply helped offset some of the cost.
Eligibility has always been indexed to poverty, but sometimes not JUST poverty. Over the years various states have added work requirements or introduced time limits on benefits. Reliably, women (of child bearing age especially) and children have been eligible. 37% of all children are covered by Medicaid and this makes up 46% of all Medicaid lives. About 20% of women receive Medicaid, and Medicaid pays for over 40% of all births. Also, the elderly poor (11% of Medicaid beneficiaries) and disabled (20% of Medicaid beneficiaries) have always qualified for Medicaid. In more than half of the states, Medicaid is administered by a managed care company; the insurance company is paid a certain amount per beneficiary to cover the medical benefits. Medicaid pays for custodial nursing home care for the poor elderly; this alone makes up about one third of all Medicaid spend.
Medicaid is a major expenditure for states. The states contribute between one third and one half of all health care costs in Medicaid, with the federal government making up the difference; richer states get less from the federal government. For any individual state, health care is often the number one budget item, with education being number two. This, along with the political “leanings” of the state explains why Medicaid eligibility was so limited prior to the ACA. It also explains why some states supported expanding Medicaid eligibility while others did not.
Virtually all states offer Medicaid to the disabled, the poor elderly, children, and women of child bearing age. The ACA attempted to standardize the eligibility level for Medicaid to 138% of the federal poverty level (in 2023, the federal poverty level for an individual is an annual income of $14,580, for a family of two it is $19,720 and for a family of four it is $30,000). This may seem like a reasonable income level, and perhaps in rural America it is, but it certainly is not a lot of money in New York City. In return the federal government agreed to pay up to 90% of the expenditures incurred as a consequence of this expansion. This did not sit well with many states that had far more restrictive eligibility levels. This wound up in the Supreme Court and it ruled that the federal government could not mandate this expansion.
As of today, forty-one states (including the District of Columbia) have agreed to expand Medicaid. Of the ten that have not, most are in the south (the exceptions are Wyoming, Kansas, and Wisconsin) with the two most populous states being Texas and Florida. Twenty-five states expanded Medicaid eligibility immediately, and another 16 have over the ensuing years. South Dakota and North Carolina have done so within the last year. Of note, many of the most recent program entrants have done so because of ballot referendums that voted for expansion. Voting counts. In the states that have chosen not to expand, people of color are disproportionately impacted, magnifying racial disparities in health care access. It is not surprising that many of the states that did not expand Medicaid are near the bottom in most measures of health care outcomes. The decision not to expand Medicaid is exclusively a financial one.
During the Covid pandemic, the number of Medicaid enrollees grew substantially because the government blocked states from the routine practice of trimming Medicaid enrollment by regularly reassessing eligibility; in other words, if you had Medicaid during the public health emergency you kept it (continuity of coverage). This was designed to ensure the greatest number of people had health insurance in case they needed it during Covid. However, now that the public health emergency is over, states are returning to their pre-pandemic eligibility. This is creating a huge headache. Certainly many who received Medicaid benefits during the pandemic would have lost coverage due to changes in eligibility. But the manner in which unwinding is occurring puts many eligible people at risk of losing their health care because they are having difficulty filling out their paperwork. The real number of people being victimized by this administrative obstacle course is unknown but definitely numbers in the millions (https://www.hsph.harvard.edu/news/features/the-problem-with-medicaid-unwinding/). This is crazy.
Why did President Obama want to expand Medicaid? The simple answer is that too many Americans were uninsured. Prior to the ACA, about 16% of Americans had no health insurance. The vast majority of these people did not get coverage through their job or just could not afford it. This meant 50 million Americans had no insurance, by far the worst of any developed country. The ACA attacked this problem through Medicaid expansion, but also by forming the health insurance exchanges which offered subsidized health insurance to those who made too much to qualify for Medicaid. The subsidies were designed to offset most of the premium expenditures for the working poor; nine million people get coverage via the exchanges, and of these 8 million receive subsidies. These two programs reduced the uninsured from 16 percent to 8 percent. Of those that remain uninsured, a third are immigrants (documented and undocumented) and the rest just still cannot afford coverage. If all states agreed to expand Medicaid we could pick up another 1-2%.
So what? The biggest so what is that the health outcomes after expansion have improved quite a bit. This is most clear in heart disease, diabetes, and cancer. But the glass is really half full. The health care you can receive if you have Medicaid is not the same as that you might receive if you have commercial health insurance or even Medicare. Doctors are not required to accept Medicaid patients. And Medicaid doesn’t make this any easier because it pays about 2/3 of what Medicare pays (and we already established Medicare does not pay enough). Good luck finding a dermatologist who takes Medicaid. Or a private psychiatrist.
And the exchanges have their own set of problems. Since they are low cost commercial insurance products the health benefits can be lean. Just as we have discussed before (in Medicare Advantage), the network of physicians is severely restricted. An exchange patient cannot receive care at a major cancer center as they are “out of network”. Plus many of these plans have very high beneficiary co-pays resulting in the cost of care being out of reach. Being poor is bad for your health.
It would be a huge mistake to consider the ACA as simply being Medicaid expansion and the creation of health care exchanges. The ACA was designed to address access for all Americans. In fact, the political brilliance of the ACA was that it had something for just about everybody. The ACA attacked some of the annoying impediments that made getting health care difficult. Interestingly, as the political battles about Medicaid expansion and reversing the ACA have persisted, these benefits have been embraced.
What are the key features of the ACA that expanded access for all Americans?
1. The ACA established a maximum out of pocket spend for individuals/families covered by commercial health insurance or Medicare Advantage in a given year. Although some might argue that this number is too high for most people, at least now there is a number.
2. The ACA required commercial health plans to spend 85% of the premium dollar on health care. It limited the profitability of commercial insurance companies. If the health plan spends less than 85% of the premium on health care, it must issue a rebate to the beneficiaries. This actually happened during COVID because people didn’t get elective medical care!
3. The ACA eliminated lifetime caps on care.
4. The ACA allowed dependent children to stay on parents’ health plan until age 26. This is a great benefit considering how rough starting out can be financially for a lot of young people.
5. The ACA eliminated pre-existing conditions as a determinant of insurability or premium. Many employees didn’t change jobs for fear they couldn’t get health insurance.
6. The ACA established a set of “essential health benefits” that must be provided by ALL health insurance. These included maternal and newborn care, mental health coverage, prescription coverage, and ambulatory/emergency/inpatient care.
7. The ACA required preventive care, vaccinations and screenings be provided without co-insurance or deductibles. This includes all cancer screening endorsed by the US Preventive Services Task Force (USPSTF), like mammography, colonoscopy, and chest CT for lung cancer screening. Recently this has been challenged because the USPSTF is appointed without legislative oversight. This will be adjudicated some time this year. Let’s hope common sense prevails; we need to encourage people to get cancer screening, not discourage them.
All of these are good for Americans. So are Medicaid expansion and the subsidized exchanges. None of these are perfect but they point us in the right direction regarding improving access to medical care.
The ACA did not do such a great job when it comes to cost. The ACA reduced Medicare part C payments to health plans. Several other features attempted to rein in commercial health plans. The ACA also instituted policies that focused on payment based on quality and efficiency, like eliminating hospital payments for Medicare beneficiaries who are readmitted or suffer medical misadventures like hospital acquired infections. But the real goal of the ACA was to control cost by reforming how we pay for health care delivery. Change of this sort is difficult.
As I mentioned in the last blog, there was (and remains) a strong belief that in the current health care environment of fee for service, since you get paid more if you do more, most doctors/hospitals do more. There was a desire to move towards alternative payment models in which physicians are held “accountable” for cost and quality. These models might involve a global payment to physicians (risk adjusted, of course) to care for a population of patients. Groups of physicians, Accountable Care Organizations (ACOs) would provide all the care to these populations, and payment would place the medical group at risk for cost and quality. Sounds like a good idea. Easier said than done.
These novel payment arrangements to this point have been predominantly in Medicare. Within Medicare, the Center for Medicaid and Medicare Innovation (CMMI) has been running these payment experiments. CMMI was created by the ACA with the ability to proceed unencumbered by traditional Medicare payment rules, and they have run several pilots. We will discuss in a subsequent post what CMMI has done and the results it has achieved. Medicare has loudly trumpeted the success of ACOs. I am not sure everybody agrees. For now, we can say that after ten years we still live in a fee for service world and health care costs are as much an issue as they have always been. The ACA has done much better in improving access than it has in decreasing cost.
The ACA proved that it is still possible to do big things in health care. But it also reminded us that a reform path that is not bipartisan sets itself up for lots of challenges down the road. The ACA passed without a single Republican vote, and if it were not for John McCain it probably would have been substantially dismantled by the Republicans. And bipartisan IS possible; Medicare part D was bipartisan legislation. Access to health care is better now than it ever has been, but there is much room for improvement. Whether that means National Health Insurance is debatable; as we look at how models have worked in other countries we should be thoughtful (and critical). Medicare for all is not really Medicare. That is a topic for another post.
We have not made meaningful progress in controlling cost. We need to examine why. We will start with hospitals, then move on to insurance companies, and then pharma.