In spite of Medicaid's growing pressure on state budgets, some
governors and state lawmakers want to expand its coverage. They
seek to increase eligibility for the program up the income scale
and enroll larger numbers of uninsured working families. Aside from
the daunting fiscal issues, as a clinical matter, this would be an
ideologically driven mistake because Medicaid does not provide
high-quality health care. And according to surveys, uninsured
Americans would prefer private coverage to Medicaid. Nonetheless,
many policymakers insist on pushing them into Medicaid. As
editorialists of The Washington Times noted, "That's like
forcing people into the medical equivalent of public housing."
A much better option would be to mainstream low-income families
into the private health insurance markets, enabling them to secure
the kind of coverage that best meets their personal needs.
What the Data Show
Medicaid provides care to over 53 million low-income Americans,
and total federal and state Medicaid expenditures will reach $349
billion in 2007. About 57 percent ($199 billion) of the program is
federally funded, and 43 percent ($150 billion) is state funded.
Medicaid accounts for 22 percent of all state spending. It is the
largest expenditure in increasingly strained state budgets,
exceeding spending education and other important state
Medicaid is burdened by quality issues, at a time when a broad
spectrum of health policy analysts have emphasized the need to
promote evidence-based medical practice and to secure value for
payment for medical goods and services. Meanwhile, there is
mounting evidence that Medicaid, as it is currently structured, is
a bad value for beneficiaries as well as taxpayers. Not only does
it fail to provide adequate access to primary care and preventive
services, a recent study shows that Medicaid patients receive
inferior care compared to patients with private insurance.
In spite of Medicaid's hefty price tag, Medicaid patients find
it difficult to access the health care system. Medicaid payment
rates are considerably lower than physician payment rates under
private insurance or even Medicare, in which physician payment is a
recurrent problem. This has deterred physician participation in
Medicaid. According to a 2003 Medicare Payment Advisory Commission
(MEDPAC) study, only 69.5 percent of physicians surveyed were
willing to accept new Medicaid patients, substantially fewer than
the number willing to accept new privately insured patients (99.3
percent), Medicare patients (95.9 percent), and even the uninsured
(92.8 percent). This disparity holds for primary care physicians as
well as medical and surgical specialists.
More recent data from the Center for Studying Health System
Change (HSC) show a continuation of this trend. About one-fifth of
physicians (21 percent) reported accepting no new Medicaid patients
in 2004-05, a rate six times higher than for Medicare
patients and five times higher than for privately insured
patients. Low physician participation in Medicaid has been shown to
reduce enrollees' access to medical care. The most important reasons
given by physicians for not accepting Medicaid patients are
inadequate or delayed reimbursement and the growing burden of
Medicaid administration and paperwork.
There is much evidence of Medicaid's inability to provide access
to primary care services. The number of Medicaid beneficiaries who
use emergency department services (ED) for non-urgent problems is a
serious problem in many states. In 2004, the ED visit rate for
Medicaid and SCHIP patients (80.3 visits per 100 persons) was
higher than the rate for those in any other payer group, including
those in Medicare (47.1 visits per 100 persons), without insurance
(44.6 visits per 100 persons), and with private insurance (20.3
visits per 100 persons). In addition, a greater portion of ED
visits by Medicaid/SCHIP patients in 2005 were classified as
non-urgent or semi-urgent (35.7 percent) than visits by self-pay
patients (23.7 percent), according to data from the National
Ambulatory Medical Care Survey.
Once Medicaid beneficiaries gain access to the health care
system, they receive inferior quality of care compared to patients
with private insurance.
For example, patients with non-ST segment elevation acute
coronary syndromes (NSTSE ACS), a form of heart attack, benefit
significantly from innovative therapeutic approaches, including
early invasive management strategies. These measures have now been
incorporated into the guidelines of the American College of
Cardiology and the American Heart Association. According to a study
in the Annals of Internal Medicine, however, Medicaid
patients with NSTSE ACS were less likely to receive evidence-based
therapies and had worse outcomes (including increased mortality
rates) than patients who had private insurance as the primary
study found that these differences in care and outcomes persisted
after adjusting for clinical characteristics (associated
illness), socioeconomic factors (education and income), and the
type of center where patients received treatment. In other words,
the most important predictor of treatment and outcome in the study
was whether the patient had Medicaid or private insurance.
Moreover, the data also show that Medicaid beneficiaries face
more difficulties scheduling adequate and timely follow-up care
after initial treatment for an illness than those with private
So despite the high costs of Medicaid, its enrollees face
limited access to care, relatively poor quality of care, and
inadequate follow-up care. There is no reason why policymakers,
either at the federal or state level, should push even more
families into Medicaid. They should instead devise better ways to
help families get superior private coverage in a consumer-driven
system that is far more responsive to patients' needs.
Given the high cost and poor quality of the services provided by
Medicaid, state lawmakers should refrain from expanding it to
address the growing number of Americans without health insurance.
Instead, state and federal policymakers should move rapidly to a
new system that gives patients powerful economic incentives to get
the best care for the dollars spent. These incentives should be
accompanied by personal ownership of heath insurance policies and
the provision of solid consumer information on quality and
performance of doctors, hospitals, and other medical
Such a new system would enhance the doctor-patient relationship
and would be driven by patients' personal decisions and doctors'
professional decisions in an environment of transparency in cost
and quality of care. Specifically, policymakers at the federal and
state level should:
- Restructure health care financing to assist low-income
Americans in purchasing coverage. Government heavily subsidizes
health care, especially for low-income Americans. The large
federal and stateexpenditures in the Medicaid program need to be
restructured in a way that addresses the basic purpose of the
program-providing quality health care coverage for low-income and
medically needy individuals. The current approach is
"system-based," defining in advance the specific services and goods
that are or are not to be covered, and government subsidies are
directed toward institutions rather than individuals and families.
A better approach would be one that is "patient-centered." The
financing should be a defined contributionto an individual or
family eligible for government assistance.
- Increase flexibility through creative federalism.The
health care needs of low-income populations vary considerably from
state to state, and this is inadequately addressed by Medicaid.
Congress needs to allow states enough flexibility to tailor
programs to meet their particular needs without having to go
through burdensome federal waiver process. Medicaid should be
incorporated into a broader approach to state health care
experimentation, in which federal assistance is available for
states to try new and different approaches to health care
financing. The federal government would oversee the performance of
the states in using federal funds to expand coverage, increase
quality, and improve patient outcomes. 
- Promote individual responsibility and realign economic
incentives for the purchase of value-based health care.In order
to promote personal responsibility for health care, federal
lawmakers and state officials should establish incentives for
low-income patients to secure value for the health care dollars
provided for their care. At the federal level, Congress could enact
an advanceable and refundable individual health care tax credit for
low-income individuals and families to help them secure affordable
private health insurance. This policy is embodied, for example, in
the Tax Equity and Affordability Act of 2006 sponsored by Senators
Mel Martinez (R-FL) and Tom Coburn (R-OK). State lawmakers could use
existing state funds, plus existing federal subsidies intended to
offset the costs of the uninsured, to establish a "premium support"
system for low-income persons to get the coverage they need.
The aim of these policies would be to transfer decision making
from government to individuals and families, who can best determine
the type of insurance coverage most appropriate to their personal
needs. Meanwhile, state and federal officials could also promote
initiatives to secure transparency in the price and quality of
health care. Private insurance, based on the empirical evidence,
works better than public programs in terms of reducing the number
of patients who use the emergency room for non-urgent medical
problems. With ample consumer information, it will work even
An expansion of Medicaid is the wrong policy for the uninsured
and for the taxpayers. Medicaid is expensive and rapidly
becoming unsupportable in many states, while the quality of care it
delivers is often substandard. Medicaid patients are more
likely to face difficulties accessing care, often receive inferior
treatment, and are more likely to receive inadequate follow up care
than those with private health plans.
Congress needs to restructure the way tax dollars are used to
finance health care for low-income individuals, and states need to
develop innovative programs appropriate to their needs and allow
patients to enroll in the health plans of their choice. Personal
ownership of health insurance, and personal control over the flow
of dollars in the health care system, will enhance personal
responsibility and create powerful economic incentives for patients
to demand and receive better value for health care dollars. This is
an opportunity currently unavailable to patients enrolled in the
John S. O'Shea, M.D., MPA, is a
practicing surgeon and Health Policy Fellow in the Center for
Health Policy Studies at The Heritage Foundation.
"Bush's Better Health Care Policy," The Washington Times
, January 24, 2007, p. A-18.
MEDPAC, "Access to Care in the Medicare Program," Data Book, June 2004, p. 42.
Peter J. Cunningham and Len M. Nichols, "The Effects of Medicaid Reimbursement on the Access to Care of Medicaid Enrollees: A Community Perspective," Medical Care Research and Review, Vol. 62, No. 6, December 2005.
L.F. McCaig and E.W. Nawar "National Hospital Ambulatory Medical Care Survey: 2004 Emergency Department Summary," Centers for Disease Control, Advance Data, June 2006, at "www.cdc.gov/nchs/data/ad/ad372.pdf.
James E. Calvin, Matthew T. Roe, Anita Y. Chen, et al, "Insurance Coverage and Care of Patients with Non-ST Segment Elevation Acute Coronary Syndrome," Annals of Internal Medicine, (Nov. 21, 2006) 145 (10): 739-748
This general approach is embodied in the Health Care Partnership Act (H.R. 5864) sponsored by Representatives Tammy Baldwin (D-WI) and Tom Price (R-GA). For a discussion of this approach, see Stuart M. Butler, Ph.D., and Nina Owcharenko, "The Baldwin-Price Health Bill: Bipartisan Encouragement for State Action on The Uninsured," Heritage Foundation WebMemo No. 1190, August 7, 2006, at www.heritage.org/research/healthcare/wm1190.cfm.