Katrina's Victims Deserve Better than Medicaid

Report Health Care Reform

Katrina's Victims Deserve Better than Medicaid

September 26, 2005 11 min read
Nina Owcharenko
Former Director, Center for Health Policy Studies
Nina Owcharenko is well known as a champion of patient choice and robust competition in America’s health insurance markets.

Donna Shalala, Secretary of the Department of Health and Human Services (HHS) under President Clinton, says that all Katrina survivors should be enrolled in Medicaid, the federal-state health care entitlement program for the poor. Says Shalala, "This should be done even for those who don't fit into one of Medicaid's current eligibility groups and regardless of whether they were previously on Medicaid or were insured."[1]


Congress should not support any such effort. Putting Katrina survivors into Medicaid goes directly against the goals of restoring stability and normalcy and encouraging personal independence-as opposed to greater government control and dependence. Moreover, Medicaid, already financially troubled, is simply another government program that directs dollars to a bureaucracy rather than to people. There are very few Americans who would voluntarily give up their private insurance to enroll in Medicaid.


Instead of expanding Medicaid, Congress and the Administration should consider ways to assist hurricane survivors directly by helping them maintain their existing private health care coverage or obtain private coverage of their own. Such an approach is a far better way for the federal government to help get individuals and families back on their feet and enable them to keep and get the kind of coverage they want. 


The Grassley-Baucus Proposal

Sens. Charles Grassley (R-IA) and Max Baucus (D-MT) recently introduced S. 1716, the "Emergency Health Care Relief Act."[2] The legislation would provide emergency health care and other assistance to the victims of Hurricane Katrina. Under the terms of the bill, for a 5-month period that could be extended by the President, Congress would expand Medicaid eligibility for Katrina survivors. The bill would also increase federal contribution payments to Medicaid and establish an emergency fund for other health related expenditures. With respect to Medicaid, the Grassley-Baucus proposal would:

  • Require states to enroll hurricane victims who earn up to 100 percent of the federal poverty level (FPL) and up to 200 percent of the FPL for pregnant women and children;[3]
  • Require states to provide the full Medicaid benefits package to those enrolled individuals and extend other services to them as well, such as broad mental health benefits;[4]
  • Require states to set up a streamlined enrollment and verification process for these individuals;[5] and
  • Provide a 100 percent federal matching rate for those applicable states.[6]

Adverse Consequences

While the Grassley/Baucus bill does not go as far as former Secretary Shalala's proposal, it does establish an unprecedented and radical entitlement expansion. Even the 9/11 economic recovery plan did not go so far, only providing states with a temporary bump in the federal Medicaid matching rate. Members of Congress, as well as state policymakers, should be wary of a major Medicaid expansion as the primary vehicle for the delivery of care to Hurricane Katrina survivors for at least four reasons:


  • Unlimited federal dollars to Medicaid opens opportunities for gaming. The current federal-state matching rate creates a natural tension in the Medicaid program that helps keep spending and growth under control. While it is important to assist the states involved in hurricane relief with unanticipated costs, a blank check from the federal government, with no accountability, creates the perfect conditions for fraud and abuse. For example, with the broad scope of available services, unscrupulous providers and other vendors could easily manipulate the system and cost federal taxpayers far more than expected. Furthermore, Medicaid's current payment structure for uncompensated care is inefficient and lacks transparency.


  • Expanded Medicaid eligibility increases the likelihood that states will face future financial difficulties. The requirement that states expand coverage beyond their existing eligibility rules will create a dilemma for those states when the full federal funding for that expansion expires. States will have to decide whether to return to their current eligibility rules and remove individuals from the program, a politically difficult task, or face a significant increase in their share of Medicaid costs, bringing already tight state budgets closer to the breaking point.


  • Medicaid expansion displaces private health care coverage. While the Grassley/Baucus bill does not open eligibility to all hurricane survivors, it would make it far easier for many to enroll in Medicaid. The proposal requires states to ask whether an individual had private coverage but does not direct states to assist individuals who had coverage in maintaining it. Nor would prior private coverage disqualify individuals from enrolling in Medicaid. Furthermore, there is no comparable "streamlined process" proposed for assisting individuals with private coverage, making Medicaid the default option for anyone who qualifies.


  • Individuals with no other choices besides Medicaid enrollment are forced to depend on a low-quality health care program. Medicaid is notorious for promising more than it delivers. Access to quality care and health care providers are critical problems. For example, while private plans allow policyholders to obtain care out-of-network during this hurricane crisis, Medicaid enrollees must depend on the crumbling network of providers who accept Medicaid patients. A Medicare Payment Advisory Commission (MedPac) survey found that access was difficult, "with more than 30 percent of all physicians now refusing to accept any new Medicaid patients."[7] A new study published in the Journal of the American Medical Association found that Medicaid and uninsured patients found it far more difficult to schedule a follow-up care appointment than those with private coverage.[8]

A Better Solution

Congress can do much better than simply expand Medicaid. Members of Congress should build on the potentially more promising aspects of the bill, such as the Disaster Relief Fund, which would give state greater flexibility to address the health needs stemming from the hurricane and complement existing efforts by the Bush Administration. Specifically:


  • Offer emergency health grants to states and give them greater flexibility. Instead of dictating that states expand Medicaid, the federal government should offer the states grants to assist them in dealing with the health care needs of hurricane victims. Members of Congress should build on the concept of the Disaster Relief Fund put forth in the Grassley/Baucus bill, making it the centerpiece of their health care assistance proposal. States could use these funds in a variety of ways. For instance, instead of depending on the bureaucratic maze of Medicaid, they could pay providers directly, including safety net providers, for uncompensated care. States could also provide premium assistance to individuals purchasing or maintaining private health care coverage, as well as establish health accounts to assist individuals with health-related expenses, such as deductibles and co-pays.

    These grants should be offered with greater federal waiver authority and state flexibility. The Bush Administration is already working on a state-by-state basis to provide needed waiver authority.[9] Congress should support and expand on these efforts. This would give states the tools to help them address the unique needs of hurricane victims. Instead of a forced Medicaid expansion, some states may prefer to designate their SCHIP program, state employee plan, or some other alternative coverage arrangement to meet the care and coverage needs of hurricane victims. Grants and broader federal waiver authority would give the states much needed flexibility.


  • Provide premium subsidies for private health insurance. Hurricane survivors, especially those with existing private coverage, should be eligible to receive assistance to maintain or purchase private health care coverage. Many hurricane survivors, including those living at 100 percent of the FPL (or the 200 percent limit for pregnant women and children), may have existing private coverage. The Kaiser Family Foundation conducted a survey of hurricane survivors and found that of those who indicated that they had a source of coverage at the time of the hurricane, 44 percent had private health insurance.[10] The Grassley/Baucus bill would allow states to use the Disaster Relief Fund to help individuals and certain employers maintain their existing private coverage, but policymakers should make this even more robust. A generous premium subsidy could come through the emergency grant system or through a system of health care tax credits.[11]

    Private health plans have already done a tremendous amount to reassure hurricane victims. For example, many insurers are allowing policyholders to access care out-of-network, obtain prescription drugs refills from the nearest source without prior authorization, and delay premium payments.[12] Finally, state insurance commissioners, who regulate insurance products, also have latitude to ensure stability in the private market.[13] 

    Even those hurricane victims who did not have private health care coverage should be able to receive a subsidy to help them obtain it. A Commonwealth Fund survey found that the overwhelming majority of individuals prefer private coverage over public coverage and a significant number would prefer a policy of their own.[14] Promoting individual choice and ownership would certainly help move the health care system toward greater stability and security. 


  • Limit Medicaid enrollment to those currently eligible and enrolled in the program. To ensure that Medicaid does not crowd out existing private coverage or new coverage options, states should be able to limit Medicaid enrollment to those survivors who were previously eligible for and enrolled in their states' Medicaid program. Furthermore, if a state chooses to extend Medicaid eligibility to certain hurricane survivors, that state should be able to provide an amended benefit package to the expanded population.

    However, even Medicaid-eligible individuals should have the option of purchasing private health care coverage. States should be able to use their Medicaid funds to subsidize premiums for private health care coverage for those individuals, enabling them to purchase a plan of their choice and mainstream into far superior private coverage.


Congress should be cautious and refrain from expanding Medicaid eligibility at the expense of allowing individuals and families to keep or purchase the private health coverage options of their choice. The Grassley/Baucus bill creates a dangerous precedent for a massive Medicaid expansion. Instead, Members of Congress should build upon provisions of the bill that thus far have received less attention, but have the greatest potential. This is particularly true of the Disaster Relief Fund concept. The Disaster Relief Fund would empower hurricane survivors to secure high quality health care for themselves and their families, bringing stability and normalcy back to their lives.

Nina Owcharenko is Senior Policy Analyst in the Center for Health Policy Studies at The Heritage Foundation.

[1] Donna E. Shalala, "For Fast Federal Action on the Katrina Health Crisis," The Washington Post, September 20, 2005, p. A23.

[2] See S. 1716 at http://thomas.loc.gov.

[3] Not all states have the same eligibility requirements, and many do not cover 100 percent FPL for all groups. For example, neither Texas nor Arkansas cover working parents up to 100 percent FPL. For state-specific information, see http://www.statehealthfacts.org.

[4] The legislation requires states to provide "categorically needy" coverage, which entitles an enrolled individual to all mandatory and option services. A state does not have to provide the full scope of benefits to groups designated "medically needy."

[5] The legislation requires that a state only "make a good faith effort to verify the status…" See S. 1716, p. 22.

[6] Under current law, the federal government pays a portion of states' total Medicaid expenditures. The matching rate is based on a formula and ranges from 50 percent to 80 percent, depending on the state. According to the bill, at the end of the emergency designation, states would return to their current state-specific federal/state matching rate and eligibility rules.

[7]Medicare Payment Advisory Commission, "2002 Survey of Physicians about Medicare Program," p. 2 at http://www.medpac.gov/publications/

[8] Lindsey Tanner, "Study Says Uninsured Lack Follow-Up Care," Associated Press, September 13, 2005, at http://www.washingtonpost.com/wp-dyn/content/article/2005/09/13/AR2005091301221_2.html.

[9] See "HHS Declares Public Health Emergency for Hurricane Katrina," September 4, 2005, at http://www.hhs.gov/katrina/ssawaiver.html.

[10] "Survey of Hurricane Katrina Evacuees," The Washington Post/Kaiser Family Foundation/Harvard University, September 2005, p. 19 at /static/reportimages/46963AE4714872AA23D58F1F6ECAEB1B.pdf.

[11] A system for administering a health care tax credit already exists as a result of Trade Adjustment and Assistance (TAA) Act, which enacted health care tax credit for certain individuals. Policymakers could build upon such a model for the hurricane survivors.

[12] For more information on health insurance plan activity in response to Hurricane Katrina, see "Hurricane Katrina Disaster Response," at http://www.ahip.org/HurricaneResponse.

[13] For example, the Commissioner of Insurance in the state of Louisiana issued emergency rulings and regulations in regards to health insurance matters due to Hurricane Katrina; see http://www.ldi.state.la.us/whats_new/Emer_Rule_17FinalRule.pdf.

[14] Jennifer N. Edwards, Michelle M. Doty, and Cathy Schoen, "The Erosion of Employer-Based Health Coverage and the Threat to Workers' Health Care," The Commonwealth Fund Issue Brief, August 2002, p. 7 at /static/reportimages/F0F2556AE8616E4756A5261444B6D403.pdf.


Nina Owcharenko

Former Director, Center for Health Policy Studies