Today, we are releasing our 2010 report on health care coverage in Michigan. This report includes comprehensive data on the uninsured, publicly, privately insured and the safety net. In addition, we have included a final chapter on what could be the impact of health reform on coverage in Michigan. The 2010 report principally includes data from 2007/8, the most recently available comprehensive data on health care coverage in the U.S. and Michigan.

Perhaps not surprisingly, the picture of health care coverage in our state in 2007/8 looks considerably worse than it did in 2005/6. The degree of change in a negative direction is greater than we expected and most concerning. For example:

• While still better than the national average, Michigan’s uninsured increased significantly between 2005/6 and 2007/8. Michigan now ranks 16th lowest in the country in terms of the percent of the State’s population who are uninsured compared to 10th lowest in 2005/6 – that’s a concerning change in ranking in just one year.

• Medicaid expenditures continued to grow representing 22.2 percent of the total state budget in 2008, a considerable increase from the 18.9 percent it represented in 1999. Michigan ranked 16th highest in terms of state expenditures for Medicaid – a big change from 2007 when Michigan ranked 27th highest.

• The rise in the uninsured and publicly insured has been a direct result of the continued decline in private coverage in the state, going from 77.5 percent of the state’s population in 2003/4 to 74 percent in 2007/8. And for those with coverage, there has been a significant increase over the past several years in the share of premiums individuals are paying.

The report also notes the strain on the safety net these changes are taking – with more than $2 billion in uncompensated care now being provided by hospitals and safety net providers being challenged to care for all those in need.

We do project a very positive impact on these trends due to health reform. Indeed, if everyone who becomes eligible for Medicaid enrolls and everyone who is mandated to have private coverage, purchases that coverage, the number of uninsured in the state could go from more than 1 million in 2007/8 to less than 150,000 in 2014, mostly undocumented immigrants. And many will likely benefit from the subsidies and tax credits included in health reform. But, the most significant health reform changes won’t take effect until 2014 – 4 years from now. And, when we look at these data again for what has happened in 2009/2010, the trends are likely to be worse.

But given that the most significant changes from health reform won’t take effect until 2014 (and 2009/10 is likely to look worse than 2007/8), should we all just hunker down until then? Well, no. There are two charts in the report that I think are very significant and give us both hope and a challenge. If you look at nothing else in the report, take a look at the charts on pages 47 and 115 (ok, not a test to see if you read it!). On page 47, we noted that the state peaked in terms of enrollment in Medicaid in 2005 – a time when Michigan had a very robust outreach effort designed to get kids enrolled. At that time we had more than 55,000 kids enrolled in MiChild. The number has now dropped to less than 44,000 – not because the need or eligibility have changed but because there is no longer the outreach program as a result of state budget challenges.

Similarly, our data on page 115 show that almost 16 percent of those who are currently uninsured – more than 165,000 people are Medicaid eligible today under the current eligibility rules. So, these are our opportunities and our challenge: we can get many more people enrolled in coverage if we want right now – we don’t have to wait until 2014.

And, lest we get too overwhelmed with the negative, there is one piece of really good news in the report: again this year, Michigan health insurance premiums are less than the US average. In 2008, Michigan family premiums averaged $11,300, $1,000 per person less than the U.S. average of $12,300. Now, that is something to build on!

The recently passed “Patient Protection and Affordable Care Act” a/k/a “health care reform” is a monumental piece of legislation, both literally and figuratively. Despite its supposed intent to “reform” the health care system, however, it is quite tepid on reform and very aggressive on enhancing coverage.

The legislation contains a virtual smorgasbord of programs, directives, initiatives, instructions, orders, regulations, requirements, recommendations, exchanges, options, incentives, rewards, pilots, demonstration projects, commissions, task forces, centers, institutes, fees, grants, taxes, tax credits, and mandates. Unfortunately, very few of these components address, in any serious manner, what many clearly feel is the most critical problem of our current health care “non-system”: the ability to constrain the unrelenting and unsustainable increase in the cost of care.

For example, the chance to implement meaningful tort reform, substantially revise the provider reimbursement structure to reward value (quality) instead of productivity (quantity), improve end-of-life care, or link cost-effective analysis with coverage decisions was either relegated to small pilot programs (malpractice and reimbursement) or ultimately dismissed because of a lack of political courage (cost-effective coverage decisions and end-of-life care). The end result is that the legislation largely addresses coverage expansion and essentially ignores the underlying structural cost drivers. To put it more succinctly, the bill “dumps’ over 30 million newly insured members into a highly dysfunctional, inefficient, fragmented, and extremely costly health care non-system.

Notwithstanding the rhetoric of the bill’s partisan supporters that it will reduce health care costs (by “eliminating waste, fraud and abuse”!) and the federal deficit (by “bending the cost curve”!), the final result will inevitably be an acceleration and heightening of an already out-of-control cost issue. I would suggest that anyone who thinks otherwise probably needs an urgent head CT scan, immediate detoxification or an emergency psychiatric referral (or perhaps all three!). All of these services by the way will be readily available, at little or no cost and with little or no scrutiny, under a poorly designed, heavily regulated, quasi-government run, plan.

What is unfortunate about this situation is that our “leaders” had a real opportunity to truly “reform” (revolutionize?) the health care system but that chance is probably now lost. It is highly unlikely that any substantial or meaningful efforts or revisions along with these lines will be forthcoming in the near future. Instead, the focus will be on establishing the detailed rules and regulations that will govern the existing legislation. Attention will therefore be on the trees instead of the forest.

Smorgasbord sandwiches often taste good initially but when completely digested, the full effects become readily apparent. Under the circumstances, consulting your local gastroenterologist would seem to be a prudent next step.

Guest blogger Douglas R. Woll, M.D. recently retired from his position as senior vice president and chief medical officer for Blue Care Network of Michigan, the HMO subsidiary of Blue Cross Blue Shield of Michigan. Prior to joining the Blues in 1998, Woll spent almost a decade at SelectCare, where he served as senior vice president and chief medical officer. He served as a senior staff physician at Henry Ford Hospital from 1980 through 1989. Woll is certified by the American Board of Internal Medicine, and was elected a fellow of the American College of Physicians in 1998. He is involved with several professional organizations, including the Quality Committee of America’s Health Insurance Plans.

The Detroit Regional Chamber of Commerce held its annual policy conference on Mackinac Island this past week. Health care reform was a topic of great interest to many of the attendees. In general, this group of 1,100 or so business leaders was either agnostic about the Patient Protection and Affordable Care Act or negative on it. Few had much knowledge of the details or clarity on what to expect – there was much confusion and an overarching view that there was just “too much government” in it.

Kathleen Sibelius, Secretary of U.S. Department of Health and Human Services, was the keynote speaker on Friday morning, June 4. This was a golden opportunity to really connect on the value of the Act to this largely skeptical but very influential audience.

So, did she? Unfortunately, no. What she did at the Mackinac conference is representative of what has been happening since health reform was passed into law earlier this year and why there has been no positive “bounce” for that passage. The problem with how communication has gone on health reform isn’t just the fact that there have been a lot of other critical issues since its passage – everything from the Gulf oil spill to the employment numbers – it’s really about a lack of a cohesive message that connects with consumers, business leaders, providers, and state policy makers about what health reform really is and what it can do for them.

Secretary Sibelius is clearly very competent and extremely knowledgeable. She demonstrated all of that on Mackinac Island. But, what she did in her speech was to describe the Act in its parts. By 15 minutes into her 45 minute talk (she took no questions), the audience had checked out – with most on their Blackberrys or reading the newspaper. She gave a list of some of the things in the Act and tried to say that it was important because otherwise, businesses in this country would not be competitive. But, she gave no overarching vision of the Act – no emotional punch about why it’s important and what will look different after it is fully implemented. And, she relied on a statement that everyone in Washington seems to think resonates outside the beltway: she talked about her latest trip to the Mayo clinic – something that actually doesn’t help many people relate to the promise of this law.

Why is it so hard to communicate the positives that are in this Act? Is it because it is 1,000 pages long? Is it because since it is dealing with one sixth of the economy, there are many different sections and aspects to it? Is it because there are so many details that the focus becomes on those rather than the whole?

It’s probably all of those things and also the fact that those in Washington have been so immersed in the ins and outs of the specifics, that they have lost sight of the fact that most of the country still just doesn’t get the over-arching premise of the Act.

The audience in Mackinac needed to hear this: the Act will reduce the number of uninsured – significantly. And, that’s important because the health of our citizens and productivity of our country is affected by not having insurance. The Act will provide financial support for millions of businesses in the country (small businesses – the engine of growth in this economy) to provide health insurance to their workers – thus, helping them attract and retain good employees, and immediately helping them to reduce their costs. Groups (employers and labor unions) that provide coverage to early retirees will get financial support to do so. The Act will help fix the broken individual market – making sure those who are sick are not excluded from coverage and helping to even out the risks and costs of coverage. Both individuals and businesses will be able to make more informed health insurance purchasing decisions because of this Act. And, the government role in all of these areas is essential to make them work. There are only limited ways to get to essentially universal coverage and there are problems and benefits associated with all of them. The approach embedded in PL 111-148 is actually one that was previously favored most by conservatives and is, in important ways the one that includes the least intrusive role for government. The Act includes a significant amount of state and local control and leaves many crucial decisions to providers of care, community groups, and state policy makers. And, the Act lays the ground work towards improving our health status, our health care work force, and the quality and efficiency of our medical care system in fundamental ways.

Many of those points were there in Secretary Sibelius’ speech – but they were there as trees and not the forest. She needed to give that big picture – and then fill it in some to help people see more concretely how the Act will benefit each segment represented in the room – business, consumers, state leaders and Michigan overall. And, then, she needed to take questions.

As I’ve said in past posts, health care reform is much more about insurance reform of the health insurance system than it is about real and fundamental change to the health care delivery or public health systems (see “The Case of the Missing $115 Billion“). The bulk of the dollars included in the Patient Protection and Affordable Care Act (PPACA) go toward expanding coverage rather than improving the delivery system.

But the PPACA includes many good concepts that would – if funded – strengthen clinical and public health outcomes. To capitalize on these opportunities, however, it will be essential for those who care about these issues to be actively engaged at the federal, state and local levels.

On May 25, 2010, our organization released a policy brief to help guide advocates, consumers and others to take advantage of those opportunities. Those opportunities for state and local action fall into two broad categories:

• Appropriations. At the federal level, it is essential to address the issue of funding for provisions in the Act that are authorized but not appropriated. Our Congressional delegation and others in Congress need to hear that these ideas are important and have strong local support.
• State and local approaches to implementation. At the state and local levels, there are many choices to make as the Act is implemented, and many opportunities for providers, advocates and others to come together to improve the quality, efficiency, and safety of the health care system. Citizens’ voices will be important to define the best way to set up things like insurance exchanges, select approaches to Medicaid expansion, and pursue demonstration projects at the state and local level.

What is important to understand about these opportunities, however, is that they will only be available to the extent that groups and individuals come together to develop a collective view on what should be done. Groups are so much more effective in Washington or Lansing when they speak with a common voice rather than advocate for their own individual ideas or agendas.

Michigan has both a special challenge and opportunity in that regard. Over the next several months, the executive branch in state government will go through wholesale change as the Granholm administration leaves office and a new administration comes in. All of the decisions being made now could be fundamentally changed by a new administration. In addition, virtually the entire Michigan Senate will be changing in January. This inevitable change in leadership makes it even more important in Michigan than in most other states for voluntary groups to come together to help lay the ground work for health reform.

For years in Michigan, we were told that we did not get more funding for federally qualified health centers (FQHCs) because we had no common vision and too many groups competing against each other. FQHCs are now coming together with a shared voice: are other groups ready to do the same?

When I first came to Michigan from Indiana a year ago, I knew I was coming to a special state for health care.

Impressively, hospitals across Michigan have topped the national charts for years when it comes to providing high-quality health care. And compared with most states, Michigan has a long history of innovative pharmaceutical and medical research, excellent private insurance coverage for workers and a strong medical safety net for the poor.

Now, as we face known and unknown implications of federal health care reform, an increasingly competitive statewide environment and ongoing economic challenges, we also stand at an important fork in the road, where the path we choose will determine the future of our health care institutions, as well as the health of our citizens and of our broader state economy.

One direction will take us down an open road, wide enough for healthy industry competition to co-exist with collaboration and partnerships that leverage the extraordinary knowledge and expertise of Michigan’s health care community. This direction has the potential to lead to cost containment while preserving our ability to serve Michiganders with the excellent care they deserve.

Another direction could force our hospitals and other providers down a road toward intense competition that would move us away from why most of us entered health care in the first place – to discover and implement the science and practices that make people and communities healthier. That path could also compromise our ability to reinvent and reinvigorate Michigan.

In many important ways, we’ve already started down the open road.

Hospitals and doctors’ groups across the state are working together to improve the efficiency, quality and safety of the care they provide, while containing the growth of health care costs. In addition, they are finding ways to make sure patients have access to as much care as possible closer to home so they only need to travel to receive the most specialized care.

For instance, dozens of hospitals across the state have united in the shared interest of improving the care of patients with clogged arteries through the Blue Cross Blue Shield of Michigan Cardiovascular Consortium. By sharing data and best practices – together – we’ve prevented needless complications in thousands of patients and saved millions of dollars. We’re engaged in the same type of statewide collaborative work with initiatives that focus on everything from stroke to cancer to surgery.

Similar collaborations and sharing of best practices are happening in doctors’ offices statewide. Thousands of physicians are taking part in the Physician Group Incentive Program, a cooperative effort to improve the quality of the care they provide through their group practices. One example of the power of these partnerships is the savings of $29 million realized through specific steps to increase the use of generic drugs.

In support of this effort, University of Michigan teams have been training participating physicians in the “lean thinking” approach that many industries have used to streamline their manufacturing processes. We’re using a “lean” approach at the U-M Health System with great results and are excited to share this methodology with our partners across the state so that they can implement systematic changes that benefit their practices and organization.

We have to work hard to stay on a course of partnerships and overall improvement of health care delivery in Michigan. We cannot lose site of the benefits of collaboration and cooperation, especially as the forces of health care shift and especially as our citizens continue to need and deserve the best care.

Hospitals, health systems and physician groups have a choice to make about which path we take. Let’s make the right one.

Ora Hirsch Pescovitz, M.D., is the Executive Vice President for Medical Affairs at the University of Michigan and CEO of the U-M Health System.

Bruce Vladeck has a terrific piece in this week’s New England Journal of Medicine describing the problems with how physician fees are currently adjusted under Medicare.

The Sustainable Growth Rate (SGR) formula, put in place in by Congress in 1997 – was designed to use physician fees as a tool to control health care spending. That is, total physician payments per beneficiary were to grow no faster than growth in the gross domestic product (GDP), and if they did, physician fees would have to be reduced.

This policy has not worked to slow health care spending, and every year, when Congress gets to the point of having to cut physician payments (since health care costs have grown more than GDP), they suspend the policy without fundamentally altering it.

Today, this has become a $20 billion problem (and, Congress is again suspending the 21 percent fee reduction that was to have gone into effect on April 1). This issue was “supposed” to have been fixed in health care reform, but a desire to limit projected cost increases in the bill kept this issue out of the Patient Protection and Affordable Care Act.

Oh, if only Congress had talked to Michigan back in 1997: we could have told them what a bad idea the SGR was because we tried it – two decades earlier – with the same effect.

In the late 1970s, Blue Cross and Blue Shield of Michigan noticed that health care spending in one part of the state (the I-75 corridor, Detroit to Flint) was much higher than in the rest of the state. So, the Blues decided not to increase physician fees in that region until spending was on par with spending in the rest of the state.

What a disaster! Not only did spending not go down in that region, it actually went up!

On reflection, it makes sense that spending increased as a result of the I-75 corridor policy, right? Start with the fact that physicians are rational economic actors. Even if they aren’t consciously thinking about their incomes when determining appropriate referrals and the like, they are (as are we all) influenced by incentives. The I-75 corridor policy, like the SGR, relied on the collective actions of individual actors – physicians – to make any difference in future payments. And, physicians did not believe that the collective would change. Therefore, the rational economic incentive of this policy for any one physician was to spend, prescribe, and provide as many services as possible in the short run, because in the long run, payments would likely decline. That is exactly what happened in Michigan, and it’s exactly what happened nationally in the Medicare program. The only difference is those trends became clear at BCBSM by the early 1980s, and BCBSM decided to abandon the policy in favor of different approaches to addressing health care spending – something Congress has not yet been able to do, even after more than 10 years of clarity that the SGR is a failed strategy.

So it’s all well and good for us here in Michigan to look at Washington and say, “I told you so.” But, that doesn’t really help the country get on a different path.

This is a policy that clearly requires the political courage to say, as we did in Michigan years ago, OK, we made a mistake, and then move on. Bruce Vladeck provides an elegant analysis of why this is so hard to do politically – the projected impact of this change does have a considerable effect on the projected national deficit. Nevertheless, it must be done – and every year’s delay makes the problem worse since “costs” accumulate and compound over time.

Beyond fixing this particular problem, it is essential for us to take steps to avoid falling into this same trap again. As we say to our children, the issue isn’t to fix blame for the mess we’re in, but to learn from it so it doesn’t happen again.

So, what is the learning here? The learning is that there are lots of us out in the field – beyond the beltway – trying a lot of different approaches to addressing health care spending. And, it would be good if policy makers in D.C. were interested in and open to learning about our experiences, because we can teach them about things that didn’t work as well as those that did.

There is a world beyond Washington D.C., and while Congress sometimes recognizes that and looks for models (like the Mayo Clinic, Geisinger, and a few others), it should be casting a wider net. Health reform provides a great opportunity for experimentation. How about taking full advantage of what the private sector has already learned at the state and local level, and building on that?

In the run up to health care reform, there was considerable discussion and advocacy for the idea of encouraging the implementation of something called accountable care organization (ACOs). Count me as a hope-to-be proved-wrong skeptic of this idea.

The definition of an ACO is somewhat vague. Essentially the idea is to have groups of providers (group practices, individual providers, hospitals) take responsibility (and thus, “accountability”) for the care of a defined set of patients, i.e. to be fully responsible for all care, including the cost and quality of that care, and share in any savings that might accrue if that care is delivered more cost effectively than it would be in the standard environment.

Sound familiar? Yes, it shares the same overarching philosophy of health maintenance organizations (HMOs) but without the concomitant structure. As defined in the health reform Act, ACOs would continue within the fee-for-service system, but with a sharing of savings. There is no risk arrangement per se; and it is a direct contract with groups of providers rather than a health plan. Sound too good to be true? I am afraid it may be, and perhaps worse, may have an unanticipated negative effect on health care spending.

Here’s the too-good-to-be true part: after health care reform failed under President Clinton, the country shifted wholesale into managed care-heavy ( i.e. risk based), capitated HMOs. These HMOs did slow the cost of health care; national health care spending trends were flat for several years after this shift. But many consumers hated conforming to the requirements and limitations of those HMOs. Most HMOs achieve cost savings by aggressive oversight of hospital stays and expensive referrals, using both financial incentives/disincentives for providers and administrative mechanisms for approvals of certain types of care. Consumers not used to these kinds of processes rebelled against them and the “managed care backlash” was born in the late 1990s. Because health plans do in fact respond to the market (and also to legislators, who began enacting laws to prohibit limits on hospital stays in certain cases), they began to loosen the constraints in their plans and shifted instead to a preferred provider organization (PPO) model – a less tightly controlled version of managed care (managed care “lite,” to many).

So, what happened to health care spending? Well, it did indeed go up – in some cases, a lot.

And now, along comes the latest “rage” in health care (as noted by the Healthcare Economist): the ACO – an even “lighter” version of managed care. Can such an organization really slow national health care spending? Color me doubtful.

And, here’s the unintended potential negative effect: In all the furor around the 39 percent rate increase requested by Anthem Blue Cross earlier this year, one important aspect of the issue didn’t get enough attention: what drove the need for that rate increase? Anthem argued it was the result of demands by certain providers for higher fees, and the negotiating leverage of “marquee” providers that were essential to include in the network in order to serve Anthem customers.

This is an issue that has been well documented elsewhere (see the Massachusetts Attorney General’s report). Having negotiated contracts with providers on behalf of a health plan for many years myself, I can tell you it is a lot easier to negotiate in an environment of plenty than when a provider controls a significant portion of the market.

ACOs have the positive effect of encouraging providers to get organized and structure themselves to deliver and coordinate quality of care. But they also will have the unintended effect of creating bigger geographic blocks of providers – with more negotiating leverage – within regions. Hospitals have been trying to do this for years through physician-hospital organizations (PHOs) and other strategies. ACOs may finally give this idea such a boost that markets become dominated by a small set of “must-have” providers that will shift negotiating leverage with health plans. Color me worried.

Don’t get me wrong: I do hope ACOs work, and I do believe that the underlying philosophy is a good one: care should be managed by providers and not insurers; quality should be the responsibility of providers; care must be better coordinated between and among providers, and shared savings is a great idea. But, as with any big idea, we must go into this with our eyes open – watching for and protecting against those unintended consequences and making sure not to over promise what can really be achieved.

Many commentators have noted that the success or failure of health reform will be determined by how well it is implemented by the Department of Health and Human Services – in particular, the Centers for Medicare and Medicaid (CMS).

There is no question this issue is critical, and it is precisely why HHS is quickly issuing regulations for the elements of health reform that must go into effect in the near term. But implementation is not just a federal issue. As I noted in last week’s blog post, many of the provisions of health reform rely on administration at the state level.

For health reform to be a success, implementation by the states must be effective as well. And, implementation at the state level is arguably an even bigger challenge than implementation at the federal level.

Michigan offers just one example of the complexity that implementation of health reform faces. Governor Jennifer M. Granholm has established a coordinating council and a team determine how best to implement health reform in the state. But, at the same time that that effort is proceeding, the state’s attorney general (representing himself, not the state) has joined other attorneys general in filing a brief opposing the Act. And, Michigan’s attorney general is running for governor of the state.

Governor Granholm is term-limited and will be leaving office after this year’s election, as will many in the legislature. Indeed, almost all members of the state Senate – 30 of 38 – are term-limited and cannot be re-elected. Thirty-four of 110 members in the House are also term-limited. So, with a new governor, 64 new legislators, and all the other leadership and staff changes that will ensue, it is quite possible everything that is done in Michigan this year to prepare for health reform could be undone.

Other states face similar situations of expected instability in state leadership and have many challenging issues to focus on besides implementation of federal health care reform.

The Patient Protection and Affordable Care Act is complex – with a tremendous number of moving parts – and is designed to expand coverage and make improvements in the cost and quality of care. There is little doubt that some things will go wrong in the implementation of health reform – and the Act itself has several known shortcomings.

For example, the Act relies on an individual mandate to increase health care coverage, but the sanction for lack of coverage was a politically negotiated number that was relatively low: $695 per year in 2016, up to a maximum of three times that amount per family or 2.5 percent of household income (the penalty is phased in starting in 2014 and indexed after 2016). As the New York Times pointed out, for those who are working but not high income, even the subsidies may not be enough to offset the cost of coverage. Every individual will make a calculation of whether they are better off – financially and otherwise – by paying for the coverage or the fine. Many may choose to go “bare,” which would undermine the fundamentals upon which the Act is based.

Other challenges involve assumptions and speculations about whether or not the initiatives in the Act will result in savings. Some, like Atul Gawande, are truly optimistic about what they see as exciting experiments about to begin in states and the private sector; others have more doubts. And, reports like the April 22 memo from the Chief Actuary at CMS projecting cost increases from the Act, which conflicts with the previous CBO analysis, exemplify the complexities in health reform. If these policy flaws and complexities are compounded by implementation problems at the state level, they will be magnified many fold.

Implementation success is thus fundamental to policy success. For all who want this round of health reform to work, becoming involved in what is happening at the state level and in local health care systems to implement health reform will be important.

As Atul Gawande said so well: “…the one truly scary thing about health reform: far from being a government takeover, it counts on local communities and clinicians for success. We are the ones to determine whether costs are controlled and health care improves—which is to say, whether reform survives and resistance is defeated.”

So, it’s time for all of us to turn our attention to the states and local health care communities and do what we can there. A key to the success – or failure – of health reform may be closer to home than we think.

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.