NE Medicaid Expansion: Birth of an Entitlement Nation

The purpose of this article is to sketch a short history of Medicaid.  Why?

“We study the past to understand the present; we understand the present to guide the future.”     — William Lund

Nebraskans are, even now, being asked to sign a petition to put the question of whether to expand the state’s Medicaid program on the ballot and, if a sufficient number of signatures are secured, we all will be asked to vote the proposition up or down in the November general election.  It is impossible to make an informed decision on this issue without examining the life cycle of the Medicaid program:  its birth and subsequent development, how it looks today, and where the proponents of Medicaid expansion would have us take it in the future.  This article will address Medicaid’s creation and subsequent development.  Two future articles will describe where the program currently stands within the state and how the Nebraska Medicaid program will look if expanded as proposed in the initiative petition.

Advocates of health care reform are often heard to say that major reforms to the system were — and are — necessitated by the failure of “the free market” in that context.  My response is to note that the United States hasn’t had a free market in the health care arena for many years:  certainly not since the federal government inserted itself as the major player in the field in 1965 with the creation of Medicare and Medicaid and, even before that, when Congress acted in 1950 to improve access to medical care for needy persons who were receiving public assistance.  The 1950 legislation “permitted, for the first time, federal participation in the financing of state payments made directly to the providers of medical care for costs incurred by public assistance recipients.”

Although a national health-insurance plan was initially included in President Franklin Roosevelt’s sweeping social-welfare legislation that, in 1935, became Social Security and Aid to Families with Dependent Children, Roosevelt was doubtful of his political clout to push the health-insurance portion through Congress and, consequently, left it out.  Several similar proposals were discussed throughout the remainder of the ’30s, ’40s, and 50s, but failed due to opposition by voters and by the American Medical Association.

All that changed with President Lyndon Johnson’s “Great Society” program, enacted to wage a “war on poverty.” Johnson’s 1965 amendments to the Social Security Act created both the Medicare and the Medicaid programs.  Both are entitlement programs; both represented an incremental approach to a nationalized health system at their creation.  Medicare was and is a health insurance program, largely for persons 65 years of age and older, which is funded entirely at the federal level by taxes and/or premium payments. Medicaid, as created, was a means-tested, needs-based, social welfare program designed to cover low income families with minor children; pregnant women and their babies; and the aged, blind, and disabled, all funded by a combination of state and federal tax dollars.

“Wilbur Mills and other early champions of the program denied that Medicaid was intended to be another large entitlement; they saw it merely as a safety net for the poorest and most helpless Americans.” But actual experience that first year proved them wrong from the start. When it was enacted in 1965, the House Ways and Means Committee estimated that the cost of the Medicaid program would be $238 million for its first year. It wound up costing $1.3 billion.  “In fact, in most years since 1965, Medicaid spending has grown faster than either private health spending or Medicare spending.”

Although a state’s participation is voluntary, all fifty states currently do participate in the Medicaid program. I’m not sure when Nebraska got on board, but it was prior to 1982 when Arizona became the last state to join.  I haven’t spent the time necessary to determine what our state legislators anticipated spending when they first opted into Medicaid, but as of 2015:

“Approximately 233,000 Nebraskans [were] enrolled in the program at an annual cost of about $1.8 billion, or 37 percent of the state’s total budget.  Annual state Medicaid spending in Nebraska [had] nearly doubled over the last decade, growing at a rate much faster than state revenues. Even without Medicaid Expansion, Nebraska [was] projected to spend $34.4 billion on Medicaid during the next decade, compared with $10.9 billion over the last ten years.”

“History is filled with examples of federal programs – especially in health care – that cost far more than originally predicted.” Clearly, Medicaid is a prime example.  But you may ask:  Why is that so, particularly with regard to the Medicaid program?  One commentator compares the thought that went into the drafting of the Medicare and the Medicaid legislation, concluding that the Medicaid program was almost an afterthought.  He goes on to observe as follows:

“This lack of planning and careful attention certainly revealed itself in the [Medicaid] program’s haphazard design. Unlike the two parts of Medicare, Medicaid is a joint federal-state undertaking: Each state administers its own Medicaid system, though it must follow broad federal guidelines for the program’s design and operation. Funding responsibilities are shared by the federal government and the states in accordance with a formula based largely on the scope of poverty within each state; wealthier states, like Connecticut and Colorado, receive a 50% federal share, while poorer states receive significantly larger federal subsidies. (The largest share this year is Mississippi’s, at 74.7%.)

. . . .

“[I]t didn’t take long for state politicians and lawyers to figure out how to maximize the participation of the able-bodied poor, and for financial advisors to juggle the assets of middle-class seniors so that Medicaid would pay for their nursing-home bills. The sloppiness of the legislation — including the many loopholes it opened up — made out-of-control costs inevitable.”

I bolded that reference to the able-bodied poor for a reason.  The principal purpose of the present initiative to expand Medicaid is explicitly to extend coverage to single adults between the ages of 19 and 64, inclusive.  Behind-the-scenes chipping away at the original purpose of the Medicaid legislation is no longer necessary; proponents are open and obvious in moving Medicaid further down the road toward a national health insurance model.  We’ll address that and other issues in future articles.

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