Taking a Scalpel to Medicaid Reform versus a Chainsaw

Reflecting on my own experiences

We are embroiled in a heated debate relating to Medicaid reform. As I hear the claims and counterclaims related to “reform” ideas and initiatives, I am making a concerted effort to hear both sides of these arguments. Issues, such as Medicaid reform, which impacts so many people’s lives, while also plagued by escalating healthcare costs, are too important to not seriously evaluate all potential solutions or ideas that could benefit our society. We cannot blindly follow an ideology (right or left) that limits our ability to have an open and honest discourse on opposing perspectives. This is also why, given the lives impacted by Medicaid, it is critical that any reform initiatives be conducted by “healthcare experts” with a scalpel versus a chainsaw.  

In the late 1990s. In that role, I was responsible for five clinical sites as well as community services, which we now call population health.

Ohio University is in Southeast, Ohio (SEO), in the foothills of the Appalachian Mountains. Counties in this rural region are the poorest in Ohio and among the poorest counties in the country. Most of the counties not only have no hospitals within their boundaries, but many do not have practicing physicians.

OUHCOM was the primary provider of clinical services for the uninsured, Medicaid and the Children’s Health Insurance Program (CHIP) recipients in the region, so we saw firsthand some of the healthcare challenges being faced by rural Americans, and consequently the importance of being covered by insurance.  

OUHCOM two mobile units, staffed by physicians, nurse practitioners, nurses, and medical students, provided clinical and preventive services to the surrounding counties in SEO.

In my role as Associate Dean of Community Services, I was also the Executive Director of a healthcare collaborative in SEO called CAMP (Consortium of Area Medical Providers), which included more community stakeholders than healthcare providers. The collaborative included regional healthcare providers, regional governmental and non-governmental entities that focused directly and indirectly on the overall health of the residents of the region, including the county health department, Jobs and Families Services, local school districts, OUHCOM, various departments at Ohio University, local Federally Qualified Health Centers, and numerous non-profit organizations.

My experience working with the collaborative provided great insight into some of the issues that impacted directly and indirectly the overall health status of the residents of the region. In the late 1990s, we did not identify these issues as social determinants of health, but they would fall under that definition today. This collaborative experience emphasized to me the importance of community stakeholders taking a ground-up approach to addressing the diverse social determinants that negatively impact the quality of life and healthcare needs to residents in rural America.

Overview of Medicaid

Thinking about my prior experiences as noted above leads me to the Medicaid reform debate.

Medicaid is our largest public health insurance program covering about 85 million Americans.

As noted in a publication of The Center for Law and Social Policy, “Since 1965, Medicaid provides health insurance for one in five Americans, including 83 percent of children living in poverty; 48 percent of children with special health care needs; 45 percent of nonelderly adults with disabilities; and more than 60 percent of nursing home residents.” 

Medicaid also represents on average 20% of state budgets and 10% of our national budget. Medicaid is our largest healthcare payer, and its costs continue to escalate at a rapid pace.

Per a recent editorial in the Wallstreet Journal (2/27/25), “Medicaid spending is outpacing even Social Security and Medicare. Federal Medicaid outlays have increased 207% since 2008 and 51% since 2019. Medicaid spending as a share of federal outlays rose to 10% from 7% between 2007 and 2023, while the share of Social Security and Medicare remained stable.”

Both our national and state governments have financial and budgetary interests in ensuring that Medicaid funds are spent efficiently and achieve the best value-based outcomes.

The takeaways from this overview are clear.  Medicaid plays an important and beneficial role in our society, but escalating costs require a serious look at reform initiatives.

Hot topics in Medicaid reform

Medicaid expansion

To date, 40 states as well as the District of Columbia have adopted Medicaid expansion.

Per the Center on Budget and Policy Priorities,  “Under the ACA, the federal government paid 100 percent of the cost of expansion coverage from 2014 to 2016, with the federal share then dropping gradually to 90 percent for 2020. For other Medicaid enrollees, by comparison, the federal government pays between 50 and 77 percent of the cost of health coverage, depending on the state.”

As further noted by the Center on Budget and Policy Priorities, “Health coverage through Medicaid expansion makes people healthier and more financially secure by improving their access to preventive and primary care, providing care for serious diseases, preventing premature deaths, and reducing cases of catastrophic out-of-pocket medical costs, a large body of research shows.”

Per the recent KFF report, “If states drop the ACA Medicaid expansion in response to the elimination of the 90% federal match rate, this would result in a 25% (or $1.7 trillion) decrease in federal Medicaid spending and a 5% (or $186 billion) decrease in state Medicaid spending across all states over a 10-year period. This would also cut total Medicaid spending by nearly one-fifth (or $1.9 trillion), and nearly a quarter of all Medicaid enrollees (20 million people) would lose coverage.”

As stated in the KFF report “Some people losing Medicaid would be eligible for ACA marketplace coverage (those with incomes 100-138% of the poverty level) and others would be able to obtain employer-sponsored health insurance. But others would become uninsured. Most people over age 65 and some who qualify for Medicaid based on a disability would generally be able to maintain Medicare coverage but could lose access to wrap-around services not covered by Medicare.”

While Medicaid expansion has accomplished much good, per a Paragon Health Institute and the Economic Policy Innovation Center (EPIC) recently published report “Medicaid expansion has created “bad incentives” for states to maximum their Medicaid reimbursement from the federal government.” 

Per Brian Blasé, CEO of The Paragon Health Institute “The basic bad incentives in the program are amplified by the terms of the Medicaid expansion in the Affordable Care Act (ACA). As a result of the ACA, the federal government reimburses a much higher percentage of state costs for providing Medicaid to able-bodied, working age, generally childless adults than for traditional enrollees, such as low-income children, pregnant women, seniors, and people with disabilities. This higher reimbursement rate for expansion enrollees (90%) creates an incentive for states to improperly classify traditional enrollees, as well as ineligible applicants, as expansion enrollees.”

This claim of improper allocation of enrollees needs to be investigated by “independent” third-parties, but if improper payments are identified, we need to ensure it does not harm individuals that were properly eligible for Medicaid. Also, if states are determined to be financially liable, any repayments to the federal government should be accomplished in a way (egg., over a period of time) that does not jeopardize the state’s Medicaid program mission.   

While Medicaid expansion has been successful in accomplishing its goal of decreasing the number of uninsured, the 90% federal funding was met to be temporary, and, I believe, states will need to “gradually” reduce their reliance on this financial support.

The challenge will be determining the time period for such a reduction in federal support of enhanced matching dollars, as well as the total dollar match reduction on an annual basis. Ultimately, as noted previously, we need to be sensitive to the impact on individual Medicaid recipients during this phase-down period.

States do need to find innovative, cost-effective ways to serve their Medicaid population, but the federal government, in its societal role, needs to partner with states with technical, strategic and, if necessary, financial support to assist in this process.

Medicaid Work requirements

Proponents of work requirements assert that these requirements encourage self-sufficiency by requiring beneficiaries to participate in employment or community service. The challenge is that many Medicaid recipients face real barriers to employment, including limited job opportunities, transportation issues, or even health-related challenges, which could result in loss of coverage. Medicaid beneficiaries, including those managing chronic illnesses or balancing caregiving responsibilities, often struggle to meet these requirements, resulting in gaps in coverage and higher rates of uninsured individuals.

Georgia is currently the only state with work requirements for Medicaid eligibility.  Depending upon what you read, it has either been moderately successful, or an administrative nightmare. Per an interim report conducted by independent experts commissioned by the state, the program to-date has been costly and has faced administrative challenges.  Clearly, it would make sense to thoroughly study the Georgia work experiment before expanding this initiative to other states.

Nationwide 92% of able-bodied Medicaid enrollees already work either full-time or part-time, are in school, or have caregiving responsibilities, according to KFF.

States should be given latitude to evaluate various alternatives to make their Medicaid program more cost-effective. Some of these initiatives are very controversial, but states should have the opportunity to at least explore alternatives such as work requirements, co-pays, etc. The challenge here is implementing such initiatives without unjustly depriving individuals in need of health insurance coverage. 

While one may jump to the conclusion that any barrier, such as work requirements, to Medicaid would adversely impact population health, we also need to appreciate the value of the unemployed receiving job training and finding employment. One of the best social determinants of health for the affected person and their family is having a job at fair pay. We also need to recognize the value of Medicaid recipients taking increased ownership of their own and their family’s health.

All this being said, if it is the goal of both states and the federal government to incent Medicaid members to find jobs, versus just wanting to reduce the number of Medicaid enrollees within the state, then “real” job training and job placement infrastructure needs to be in place (Note: the federal government may need to financially assist in this process) prior to initiating the work requirements.

Do initiatives such as work requirements and co-pays accomplish these objectives? States should be allowed to explore these initiatives while following national guidelines to prevent abuses, especially with regard to administration of initiatives that unfairly exclude individuals from the Medicaid roles.

We should also learn from the Georgia experience to determine what went well and what can be improved about the execution of the work initiative, with a specific focus on ensuring that any administrative processes are user-friendly and cost-effective.

Block grants

When I taught health economics and policy courses for Healthcare MBA students at Baldwin Wallace University, I would attempt to explain the federal/state financial relationship regarding Medicaid in a role-playing exercise.

I would ask the students a simple question: If they were a governor of a state and the federal government would match state financial contribution to programs and initiatives that would be classified under the Medicaid umbrella, would they be more or less likely to move existing or new programs under the Medicaid umbrella?  The answer was obvious; the more they could classify under Medicaid the more they could maximum federal contributions to the program.  We then discussed that this was a double-edged sword since, if the state cut back contributions to Medicaid from a budgetary perspective, they would also lose the associated matching from the federal government.  We also discussed how such a federal match program does not incent efficiencies on the part of the state in administering the Medicaid program.

As we evaluate the needed expenses to support a value-based Medicaid program in a particular state, we must also take into consideration that the federal matching programs, as they exist today, may have resulted in “revenue maximation” efforts which would distort the optimal dollars needed to serve the targeted population.

Supporters of the block grants approach to Medicaid state this funding mechanism allows government agencies to allocate funds with flexibility and autonomy, enabling targeted and impactful investments that address the unique challenges and demands of communities within their state.

If implemented, block grants would require planning, administrative, and analytical capacities beyond what most states have developed to date. The federal government would need to play a major role in providing both financial and technical support, especially during the phase in stage, to ensure an infrastructure is in place to allow for the efficient allocation of resources in addressing the unique challenges and demands of communities within their states.

Transitioning Medicaid into a block grant or initiating per capita caps on spending will pass along all of the potential risks (economic downturns, public health issues such as COVID, etc.) related to funding the program to the states which have fewer financial resources at their disposal during a time of need or crisis than the federal government.  

Any changes to Medicaid should not threaten states' financial stability and Medicaid’s mission to address the health and wellbeing of the underserved.

Eliminating provider tax that states use to finance Medicaid

Per the Paragon Health Institute, states should be required to eliminate provider taxes which are utilized to finance Medicaid. As noted by Paragon, “This is how they work: states overpay providers with Medicaid funds, that payment triggers federal Medicaid matching funds for the state, and the state requires the provider to return a portion of the overpayment. The state and the provider both reap a financial windfall from the scheme at the expense of the federal taxpayer.”

As stated by Brian Blasé, CEO of Paragon Health Institute, “For an in depth discussion of provider taxes, see a 2016 report he authored for Mercatus. As further stated by Brian Blasé, “In a November 2012 editorial, The Washington Post wrote that provider taxes “enable states to manipulate [Medicaid’s] statutory funding mechanism, adding to the federal deficit.” 

As with the potential Medicaid expansions rollback, states should be given a reasonable corridor of time to ween off the “provider tax” approach which is utilized to enhance Medicaid reimbursement from the federal government.

Medicaid’s impact on residents of rural America from a quality of life and healthcare perspective.

If you have followed my publications over the years you will not that I am a major advocate for addressing the quality of life and healthcare challenges of the long-neglected residents of rural America.

Approximately sixty million people live in rural areas across the United States, including millions of Medicare and Medicaid beneficiaries. Per the Economic Research Service of the Department of Agriculture in its March 2024 Report, “Working-age people living in rural areas are 43% more likely to die from natural causes than in urban areas.  Over the past 20 years, the death rate for working-age adults living in rural areas increased, while mortality decreased for those in urban areas”.  

Medicaid provides essential health coverage for residents of small towns and rural communities, playing a significant role in these areas when compared to metropolitan regions.

Medicaid funding is critical for sustaining rural healthcare systems, including hospitals, clinics, and community health centers. Rural hospital closures would leave many residents without nearby health care access, forcing them to travel long distances for even basic treatments and emergency care.

When a rural hospital closes, not only does the community lose access to vital health care, but a major employer and community lynchpin ends, affecting the larger community.

As noted by the Center on Budget and Policy Priorities “Medicaid expansion is especially important to rural hospitals, whose operating margins are often so low that uncompensated care costs — which are typically higher when more people in the area lack insurance — can prove catastrophic. While the uninsured rate has come down in all states under the ACA, the sharpest declines in rural uninsured rates have occurred in expansion states.”

Critical access hospitals in states where Medicaid is reimbursed at full cost (as is the case with Medicare patients) might be exempt from the carnage.  But if one is leading a small-medium size independent rural hospital without a special designation (egg, Medicare Dependent) which is already operating on thin margins, an influx of uncompensated care would further strain resources, potentially leading to hospital closures and diminished access to care.

I am concerned that Medicaid work requirements can also cause adverse effects on rural residents. Rural Americans are more likely to be low-wage workers, more likely to be unemployed, and have fewer job options than urban Americans, making rural Medicaid enrollees more susceptible to losing coverage under work requirement policies. One solution would be to carve out rural counties from any state-mandated work requirements of Medicaid eligibility.

Medicaid Managed Care & Medicare Managed Care Plans (MA) can have a significant role in addressing the healthcare and quality-of-life needs in rural America.

Two thirds of the states have Medicaid Managed Care plans serving their Medicaid population.

There is a greater percentage of Americans over sixty-five in rural areas compared to urban areas which results in Medicare Advantage plans policies and reimbursement have a material impact on rural America.

A significant percentage of residents of rural America are dual-eligible for both Medicare and Medicaid.

Both these plans enter risk arrangements with their states or the Center for Medicare & Medicaid Services (CMS), usually as some form of capitation.

In theory, the ultimate objective of Medicaid Managed Care and Medicare Advantage plans is to keep their membership healthy which, given the risk arrangements with the state and CMS, would result in enhanced profitability for the plans.

Both these plans, either through their own initiatives or state/CMS directives, also play a role in addressing social determinants of health.

Medicaid Managed Care and Medicare Advantage plans should be required to collaborate with each other and other community stakeholders to proactively address the healthcare and quality-of-life needs of residents in rural America.

Medicare Managed Care (MA) and Medicaid Managed Care plans should also be required to provide enhanced financial assistance in the form of higher reimbursement to rural hospitals, especially independent rural hospitals in need.

There is a "scarcity of resources" to address all of our societal priorities and, consequently, any initiatives that focus on making our rural communities healthier must also be done in a cost-effective manner.  

To be sustainable, any initiative must aggressively engage each of the rural communities from both a planning and implementation perspective, taking a ground-up approach.

Community public and private partnerships and collaborations have the potential to address both social determinants of health and needed services that impact health status and the quality of life of rural Americans. These collaborations and initiatives should ideally be coordinated at the local level to ensure cost-effectiveness and impact. The federal and state governments should assist in financing the necessary local administrative infrastructure to facilitate this goal.

Financial resources and initiatives that would complement Medicaid in its mission as well as positively impact overall population health.

The following are a few options that could supplement and/or provide more resources and value to the mission of Medicaid with regard to addressing the underserved populations:

·         Focusing on the real elephant in the room, our costly healthcare system which is not value-based.

The estimated cost of waste in the U.S. healthcare system ranges from $760 billion to $935 billion, or about 25% of the total healthcare spending, according to a report in JAMA

$760 billion to $935 billion would go a long way in addressing the myriad of access to care issues in the United States.

·         Addressing federal and state laws, policies, and regulations with a “scapple.”

As noted in the Health & Human Services (HHS) December 2018 report from the first Trump Administration, Reforming America’s Healthcare System through Choice and Competition: “Many government laws, regulations, guidance, requirements and policies, at both the federal and state level, have reduced incentives for price- and non-price competition, increased barriers to entry, promoted and allowed excessive consolidation, and resulted in healthcare markets that lack the benefits of vigorous competition.”

Increasing competition and innovation in the healthcare sector will reduce costs, increase quality of care, and provide additional financial resources, from a societal perspective, to address the needs of the underserved and uninsured.

·         Community Benefit Requirements relating to non-profit hospital’s tax-exempt status.

Per required hospital reporting, when hospitals quantify their Community Benefits in dollars, they are mainly focused within the walls of the institution as noted below:

1.    Medicaid shortfalls in revenue – the difference between what the hospital receives from Medicaid vs. its perceived costs for providing services to this population represents approximately 60% of its stated Community Benefit.

2.    Another 20%, on average, of its Community Benefit relates to the hospital not receiving sufficient funds from the government for educating residents, etc. 

These resources need to be redirected outside the walls of the hospital as part of a comprehensive strategy to achieve a healthier community and to address population health concerns. 

Community, as defined by the Community Benefit requirement, should not only apply to the local communities these hospital systems serve, but also to rural communities where they may have a satellite hospital which refers “high-end” cases to the “mother ship.”

Per the Lown Institute, “72% of private nonprofit hospitals had a fair share deficit, meaning they spent less on charity care and community investment than they received in tax breaks.”

Potentially, major nonprofit hospital systems could also be required or incented as part of their Community Benefit requirements to accept “fair” capitation from Medicaid Managed Care organizations or directly from the state for the Medicaid population they serve. There would need to be some methodology at the state or federal level to define “fair.”

Since hospitals state that they do not get paid enough from Medicaid, hospitals should be incented, through reimbursement methodologies such as capitation, to focus on keeping their Medicaid patients healthy rather than waiting until the expensive “after-event.”

·         The federal government and states should also look to expand the Program of All-Inclusive Care for the Elderly (PACE) which assumes financial risk and provides comprehensive social, medical, and nursing services. Services include adult day care, transportation to and from the center, food programs, home care, primary care, social services, and other preventive services, all at a lower cost than institutionalization.

PACE is a program that, if effectively managed, can meet the needs of the elderly in the home setting in a cost-effective manner because of the capitated payment methodology that incents efficiency and coordination of services. PACE could also potentially work in rural communities which have few options for institutional care for the elderly.

·         Historically, the federal government has played a major role in devaluing the primary care physician by underpaying them versus specialists (commercial carriers follow suit). The federal government would receive a major return on their investment in the form of reduced healthcare costs and a healthier society if they invest in primary care. This investment should not only be in the form of a significant increase in their reimbursement versus specialists, but also in addressing the other barriers (including administrative burdens) that have negatively impacted primary care physicians.

The residency slot game is one example which illustrates the barriers primary care physicians face. As noted in the Society of Teachers of Family Medicine Journal “Because graduate medical education (GME) is largely publicly funded, it should be judged on how well it addresses the public’s health needs. GME continues to concentrate training in hospital-based academic centers and in subspecialties, which often exacerbates disparities in health outcomes and access to care. GME can be more socially accountable by shifting incentive structures to support primary care, creating more equitable distribution of residency slots (including in rural America) and funding.”

·         Broadband internet expansion will go a long way in addressing the healthcare and quality life challenges as well as providing employment opportunities for residents in rural America.

·         Investment in Federally Quality Health Centers (FQHCs) and community healthcare workers will both positively impact healthcare costs through better primary care, prevention, and safety-net services.

·         Block grants that specifically focus on rural America would play a key role in addressing the needs of this long-neglected part of our society. These block grants can also play a role in developing ground-up strategic initiatives that impact the various quality of life and healthcare needs in these communities.

Conclusion

As noted previously, Medicaid plays a vital role in our society, but escalating costs require a serious look at reform initiatives. This is not merely a cost issue; we also need to ensure that our societal investment in Medicaid provides the most value for our underserved, both in the short-run, and while also laying a foundation for an overall healthier population. This is why it is critical that any Medicaid reform initiatives be performed with a scalpel versus a chainsaw.

As always, I welcome all perspectives on this important issue.

#Medicaid reform; #rural healthcare; #access to care