Advancing Social Justice and Equity: The Federal/State Balance in Health Care Reform

April 19, 2010

One of the most interesting stories in the new health reform Act – and vastly under-reported – is the significance of the roles established for state and federal governments. These roles represent a historic shift in the philosophy of health care policy-making in this country: a shift I think is all to the good.

Because we live in the moment, we have a tendency to see current events as slow to unfold and a radical shift from the past. But when we look at health care reform throughout history, in particular the history of Medicaid and Medicare, it is easy to see the parallels and the philosophical foundations for today’s events.

Both pieces of legislation (despite our often fuzzy recollection of history), like health reform today, were years in the making and survived to become laws of the land despite many attacks on their formation. Both were built on years of prior policies. And, today’s health reform moves us further down the path laid by both Medicare and Medicaid and brings the philosophy of both programs closer together.

When Medicaid came into being 45 years ago, it was founded on a historical relationship to cash welfare benefits. So, Medicaid in 1965 was never intended to cover all of the poor – it was intended to cover those who were poor because they were not expected to work (i.e., the aged, disabled, blind, and single mothers with children).

Medicaid of 1965, like reform today, was built upon past policy. Medicaid extended and modified the Kerr-Mills Act of 1960, which provided a program of state payments to medical vendors for the indigent elderly. Because the Kerr-Mills Act was intended to help the states, the idea of federal matching funds for states was fundamental to Medicaid as well (and the idea of distributing funds based on the relative wealth of states was a concept that was politically attractive in Congress at the time). Because Medicaid was established within the structure of welfare programs, the administrative approaches of welfare came along, too: that is, it was administered at the state level and many policy determinations were left to the states.

Whereas Medicaid’s structure and financing were based on welfare policy, Medicare was founded based on the principles of Social Security. Indeed, Medicare was designed to fix many of the flaws in the Kerr-Mills Act and provide coverage for all the elderly – not just the indigent elderly. So, while Medicaid evolved from welfare policy, enhanced federal state financing, and left intact a state administrative structure; Medicare was a federally-financed, and essentially, federally-administered program from its start.

Fast forward to today and you can see that the evolution in state/federal roles continues in the Patient Protection and Affordable Care Act. The changes envisioned for the Medicaid program move the state/federal partnership more heavily into the federal column: for the first few years, full federal funding is provided for the expansion of coverage up to 133 percent of poverty for those not currently eligible for Medicaid. And, even when full federal payment is ended, the federal matching levels are higher than most matching levels today, and standard for all states for the expanded population (rather than varying upon the resources of a particular state).

Beyond Medicaid, states are afforded significant roles within health reform – the implementation of state insurance exchanges being the most visible but not the only – but many of those roles are structured at the federal level. State roles under health reform are principally administrative: state policy making is significantly limited.

P.L. 111-148 moves this country considerably closer to the vision of Medicare: uniform funding and benefits regardless of where one resides, limited state variability in the delivery of benefits, and a heavier reliance on federal rather than state funding for those enrolled in public programs. Medicaid provider rates, with a brief exception related to primary care, continue to be set at the state level. (I have previously commented on the problem that that issue creates: access to care will be limited for current and new Medicaid recipients as long as that care is so significantly underfunded. The fact that this particular issue wasn’t addressed more broadly in PL 111-148 is a flaw that needs to be fixed over time.)

The changes embodied in health reform are an important step forward for social justice and equity. Health coverage in this country should not vary just by virtue of where you live. While administration based on local circumstances can make sense, the scope of health coverage for those who must rely on public financing should not. In this regard, the current health reform Act is a beginning, not an end.