Should the Federal Government Bail Out State Medicaid Programs?


By Greg Scandlen, The Heartland Institute

Unemployment is growing with the current recession while state tax revenue is falling, putting financial pressure on state governments. More people are becoming eligible for the state Medicaid and SCHIP programs, but the states don’t have the funds to cover them. Governors are asking Washington for $40 billion in financial assistance to help cover the shortfall.

Before approving a federal bailout of state Medicaid programs, taxpayers deserve assurance that their tax dollars would be spent in the most responsible way possible. There are many reasons to believe that enrolling the newly unemployed in Medicaid and State Children’s Health Insurance Programs is not the best use of the money.

While Medicaid and SCHIP offer very generous benefits on paper, in reality they pay providers so poorly that their beneficiaries have difficulty getting in to see doctors. A study published in Health Affairs found that fully one-third of uninsured children had been enrolled in one of these programs within the past year but their parents had dropped out because the programs did not provide actual or reliable access to health care services.

There is also a stigma associated with what many working people see as “welfare medicine.” Many of these families would rather be uninsured than on Medicaid. Once the economy turns around they will regain employment and no longer be eligible. It is extremely difficult for most families to learn the policies and procedures of a whole new insurance program, especially if it is for only a few months of eligibility.

Being on Medicaid also creates perverse incentives. Once a worker is re-employed, his or her family will no longer be eligible for the public program, but the new job may have a waiting period before the employee is allowed to enroll in the employer-provided coverage. So the worker and his or her family will be in limbo between public and private coverage and uninsured once again. Some families may be reluctant to become re-employed if taking a new job also means the loss of public coverage.

Most of the newly unemployed have access to health insurance coverage through COBRA continuation of their employer’s plan for 18 months, or by purchasing non-group coverage in the private market. Unfortunately, because they are unemployed, they may not have the financial ability to pay the premiums. The issue is not the availability of coverage, but the ability to pay for it.

Rather than enrolling these families in a public program, the states could use the funds to help them retain the coverage they already have. Such premium assistance would allow for continuity in their coverage and in the medical services they receive. They would not have to find a new doctor and could continue whatever treatments they are currently receiving. They also would be able to maintain the coverage if they become re-employed but not yet eligible for the new company’s benefits. They may no longer be eligible for the premium assistance from the state, but because they now have regained their incomes they can use their own money to retain their coverage until they can get on the company plan.

Overall, federal assistance to the states to help with the rising burden of the newly unemployed may be necessary. But such funds should be targeted to helping people maintain the coverage they already have instead of enrolling them in an inadequate public program.

Greg Scandlen ([email protected]) is a senior fellow with The Heartland Institute and director of its Consumers for Health Care Choices project.

By Greg Scandlen, The Heartland Institute