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Exploring the Future of Medicaid on Its 50th Anniversary

As the nation's largest health insurer turns 50 this month, a leading Medicaid expert tells us about the program's biggest challenges and how to overcome them.

Since Medicaid's creation in 1965, it's become the largest health insurer in the country, covering more than 70 million Americans. Initially covering only poor, single parents and their children, the program now also offers government-subsidized insurance to disabled people, able-bodied adults without kids and some elderly.

The program's expansion may slow down a bit, but it’s not likely to stop anytime soon, and there’s a whole lot of reform going on, along with major shifts in coverage.

As Medicaid turns 50 years old at the end of July, we asked Matt Salo, executive director of the National Association of Medicaid Directors, to explore what the program's future will look like. The transcript that follows has been edited for clarity and length.  

You recently said that the Medicaid statute, which is 50 years old, “often reflects a health care reality that no longer exists,” meaning states have had to get waivers to do things that aren’t considered too radical these days, like shifting to managed care or offering community-based alternatives to nursing homes. What do you see as the problems with this approach, and what needs to change?

The problem is that you’re expending a lot of resources at the state and federal level in trying to go about getting these waivers done. When you have to get permission, justify it and evaluate it, you’re spending a lot of time, money and intellectual bandwidth to do that. You need to be able to do different things, and the waiver authority should be nimble enough to allow that. 

The challenge with the Section 1115 waiver process is that technically it’s still about research and demonstration. So for example, Arizona every couple of years has to go in and actually prove they’re researching and demonstrating something new. There isn’t the ability to say, "Oh we’ve researched this, we’ve demonstrated it works, so it becomes a part of the baseline." If we could do that, we could free up staff at the state and federal level to actually do the innovative things.

That would require either a change in the base Title 19 of the Social Security Act, which brought Medicaid into existence, or Section 1115 itself. It could be as simple as saying, "By the time you get your second renewal, let’s assume you know what you’re doing."

That seems like the kind of thing you could get bipartisan support for, that a Republican-controlled Congress would want to reduce what they possibly see as red tape. 

This is definitely something that’s doable. We’ve talked about a package of tweaks like that that should be doable. It may be a question of scope, similar to the political challenge Republicans have had with the Affordable Care Act (ACA): Do you repeal it or do you try to tweak it? 

What is the biggest challenge Medicaid faces in the next 50 years?

What’s uniquely true for Medicaid is that costs are rising faster than state revenues, so as it continues to grow, it continues to squeeze out other key programs like education and infrastructure. Everyone loves K-12. Everybody wants smaller class sizes for their kids. But growth, combined with a lingering lack of appreciation for how much Medicaid does, challenges its future. 

The other challenge is getting better health care while bending the cost curve. It’s one thing to talk about how we create an insurance design that improves health and reduces costs for people like you and me -- relatively healthy, relatively young, working-age people -- but that’s almost irrelevant to the grand scheme of things because we don’t cost the health system anything. It's 1 percent of the people producing 25 percent of costs and 5 percent that account for 50 percent of the costs.

How much of 'bending the cost curve' comes down to value-based payment?

There’s no silver bullet, but there's a whole bunch of things we can do to get away from fee for service, which is a functionality of a fragmented system. 

But isn’t it going to be a lot harder and take longer for Medicaid to shift away?  

What we’ll see is pockets where it’ll happen a lot faster, but Medicaid will still suffer from that lack of economy of scale. Arizona or Tennessee or Delaware can figure things out within their state contours, but they have no control over what’s just over the border. The faster that’s picked up nationwide, the better we’ll all be.

Medicaid is a pretty big lever. We’re going to spend $500 billion this year, which makes Medicaid about 3 percent of GDP. But Medicaid doesn’t live on an island. Through these reforms, it’s trying to move the rest of the health system around. For Medicaid to say you’re inefficient and you’re not doing your business based on value, that’s not a message they want to hear. When we’re using carrots and sticks to change the business model of 18 percent of the nation’s economy, that’s slow going. Reducing costs means less revenue for somebody else, and those somebodies have a lot of power. That’s the challenge for Medicaid. How do you manage that change fiscally, politically and programmatically?

We’ve hit a sort of standstill with Medicaid expansion. Do you think there’s more interest than we realize?

I think there is because even in places like Texas, Alabama and Louisiana, where they’ve been really quiet, you’re seeing language pop up in state appropriations bills. In Texas, they’re saying things like, "Well, we should look at expanding through a block grant." You could say that’s not realistic, but the fact that they’re talking about it at all is significant progress from where they were a few years ago, and that says there’s a significant amount of debate going on. 

What will decide whether or not these states come in later this year, next year or two, three, four years from now, is the conversation between the Centers for Medicare and Medicaid Services and the states. It’s not states saying, "We don’t care about insurance for people who are poor;" it’s "What’s the best way to go about designing the program?" In Indiana they were very enthusiastic about their Healthy Indiana Program, which is essentially a health savings account. They said, "We feel so strongly this is the best way to structure a program for low-income individuals that we’re sticking to our guns. We’re going to do this or we’re not going to do it at all." Letting that play out is going to be the key to figuring out how quickly those states come in. How willing is the administration to back off from some of its lines in the sands it had drawn previously?

If these experimental ideas for expanding Medicaid prove their worth, will they become part of the program in the next 50 years?

Not in a blanket way, but I do think we’re in the golden age of Medicaid experimentation. You’re seeing that with Arkansas and its private option, in Iowa and Michigan with their versions, in Indiana with Healthy Indiana. But unrelated to expansion, you’re also seeing a lot with Delivery System Reform Incentive Payments. 

It’s still early, but what do we know at this point about Medicaid expansion -- its successes and challenges -- and what does that mean for the future? 

States that expanded are seeing more people show up than they expected. To some extent, trying to plan for major changes in Medicaid is always a bit of a gamble. But for a lot of states -- including Kentucky and Oregon -- they enrolled more people in six months than they thought they would in six years. In some states, they didn’t even think they had that many eligible people in the state. And in a lot of the places, people who do showed up tended to be a bit sicker, which sets up a budgetary challenge. But as folks in Kentucky have said, "How could we afford not to do this?" Just how many people came, that’s a testament to how much need there was. 

The states that expanded have largely produced studies saying "This is a net-positive for us." Is that a contradiction when we’re still talking about Medicaid's unwieldy growth?

Medicaid is part of state budgets, but so is uncompensated care, public health, prison health, mental health and substance abuse block grants. Some of that is absorbed by the state, some by counties, some by consumers. You can grow Medicaid and shrink those other pieces. That can be a net benefit to the state. 

But you still have the issue that, politically, is splashing across the front page that Medicaid is out of control…

Exactly. All of these other entities are looking to Medicaid to say, "Hey, if you just came into the prisons and cured people of hepatitis C, if you did, x, y and z, it would be great for the state. Medicaid costs will go up, but the state will benefit." We’ve heard that for decades. But unless you’ve got enlightened leadership -- whether from the governor or the finance and appropriation committee -- to understand how that plays out, what happens far too often in states is that they just see Medicaid going up and they hit the panic button.

You can grow Medicaid in a thoughtful way and it can save the state overall. But many states have taken local or target programs, Medicaid-ized them and made them a covered benefit to bring them to more people. What you gain in federal share, you give up in control. Then if costs balloon or new federal mandates come down, you’re beholden to them. That’s a dynamic a lot of states are looking to get away from: They could do the expansion now for practically free, but it’s an entitlement program, so states become more beholden when HHS or Congress says they want something. That’s a dynamic that’s going to continue to play out.  

Chris covers health care for GOVERNING. An Ohio native with an interest in education, he set out for New Orleans with Teach For America after finishing a degree at Ohio University’s E.W. Scripps School of Journalism. He later covered government and politics at the Savannah Morning News and its South Carolina paper. He most recently covered North Carolina’s 2013 legislative session for the Associated Press.
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