What Iowa Policy Makers Need to Know About

What Iowa Policy Makers Need to Know about

Medicaid and Medicaid Expansion

by Charles Bruner

DRAFT February 20, 2013

As Iowa lawmakers decide whether to expand Medicaid to currently ineligible adults earning up to 138 percent of the federal poverty level, a number of questions have been raised about the current scope of Iowa’s Medicaid program, the services it provides, its cost and the federal government’s historical and future commitment to Medicaid.

Iowa has a long history of partnering with the federal government in developing and operating the state’s Medicaid program. The following provides a background on that history and the growth and management of Iowa’s Medicaid program over time.

Q. Who administers Medicaid and is responsible for managing the program to ensure it is cost-effective?

A.Medicaid is a partnership between state and federal governments, with the state responsible for administration, effective management and making most of the coverage decisions. The federal government established broad guidelines and picks up a large share of the cost.

Iowa is responsible for setting up its Medicaid program according to federal guidelines, but Iowa plays the major role in administering and managing the program. Through the legislative process, the Governor and the General Assembly make decisions on coverage options, payment rates and expansion or changes to program eligibility.

Q. What has been the federal government’s commitment to financing Medicaid over time?

A.Since establishing Medicaid in 1965, the federal government has kept its commitments to states in providing the majority share of funding through a funding formula based on state fiscal well-being. The federal government has maintained this formula for over four decades.

Iowa’s Medicaid matching rate has varied over time, based on Iowa’s economy and poverty rates—from a low of 52.0 percent in FFY1972 to a high of 65.0 percent in FFY1992. Since FFY1982 to FFY2012, Iowa’s rate has varied between 55.2 percent and 65.0 percent. The FFY 2012rate was 60.7 percent.

In addition, as part of the American Recovery and Reinvestment Act, between 2009 and 2001, the federal government provided additional temporary assistance to states to help them maintain their Medicaid programs despite state budget deficits. Iowa received over $400 million in supplemental federal payments on top of the above rates in that period.

Q. What have been the changes inand growth of Medicaid over time?

A.Under Democratic and Republican administrations, the federal government has continuously supported Medicaid and offered new options to states toexpand coverage. Expanding Medicaid to all adults (including childless adults) earning up to 138 percent of poverty, part of theAffordable Care Act, is the latest option.

When Medicaid began, eligibility for parents and children was tied to welfare eligibility. In the 1980s the federal government permitted states to expand coverage to pregnant women and infants up to 185 percent of poverty regardless of welfare participation. Medicaid also established new provisions enabling states to provide home- and community-based services, as well as care in intermediate-care facilities,to people with disabilities.

The Child Health Insurance Program, establishedin 1997,allowed states to expand Medicaid or provide coverage through private insurance (or a combination of the two, as Iowa did)to children up to 300 percent of poverty. Recently, the Centers for Medicare and Medicaid Services approved a number of state waivers to cover childless adults under Medicaid. Iowa was one of the first states to adopt the Family Opportunity Act, championed by Sen. Chuck Grassley, which provides additional coverage for children with major special health care needs.

Q. What has Iowa done in terms of adopting changes and how has this supported Iowa’s efforts to meet Iowa health needs?

A.Iowa has taken advantage of prior opportunities to expand Medicaid—in many instances covering individuals who previously had received care through county- or state-funded indigent programs or state mental health institutes and hospital schools.

Through legislative action, Iowa has taken advantage of many opportunities to expand Medicaid, starting by covering pregnant women and children up to 185 percent of poverty in the 1980s. Iowa also expanded Medicaid to cover care provided in state mental health institutes and hospital schools, which previously had been financed entirely with state and county funds. Iowa was noted for helping to create home- and community-based waivers, in what has been known as the Katy Beckett program, that allow children to receive medical care at home rather than requiring them to be hospitalized. Other Medicaid expansions, including the IowaCare waiver, eliminated the need for the state to fund the indigent patient program and reduced county costs in providing coverage for people with developmental disabilities. Through Medicaid expansion, there are additional opportunities to cover costs now assumed by counties and the state, particularly for mental-health services.

Q. Who does the Iowa Medicaid program serve today and what has been driving Medicaid costs?

A.The majority of people served under Medicaid are children, but children account for a very small share of the costs. The primary costs for Medicaid are in serving persons with disabilities, including nursing home care for seniors and institutional care arrangements for people with mental illness, profound physical conditions or mental retardation.

Iowa has been a leader among states in ensuring health coverage for children, primarily through expanding Medicaid coverage up to 185 percent of poverty and hawk-i up to 300 percent of poverty. This has reduced the number of uninsured Iowa children. In fact, Iowa has one of the highest rates of child health insurance coveragein the nation (although 5.7 percent remain uninsured).

Most children still are covered under employer-sponsored family health plans, but because of rising costs, this option has been increasingly less affordable, both for lower-wage workersand many employers. Today, more than three in 10 Iowa children are covered by Medicaid. Children represent over half of all people on Medicaid, but consume less than one-fifth of Medicaid costs.

The major costs in the Medicaid program are covering adults (and select children) who simply cannot care for themselves and are in institutional settings, including intermediate-care facilities (nursing homes) for the elderly, infirmand mentally retarded, state mental-health institutes and state hospital schools. Prior to Medicaid coverage, these individuals often were in county care facilities and shelters or homes supported by local or state funds or charity. People receiving supplementary security income (SSI) for major disabilities are eligible for Medicaid, and Iowa’s Medicaid program has developed additional home health care and treatment programs designed to prevent the need for institutional placement.

In addition to covering children, the Medicaid program covers prenatal services forpregnant women.Medicaid currently covers approximately half of all births in Iowa. Without this coverage, these women would not be able to afford prenatal services. In fact, prior to Medicaid expansion, childbirth was covered through the state papers program, which required women to travel to the University of Iowa Hospitals from across the state to give birth. Expanding Medicaid enabled women to receive prenatal care and give birth in their home communities.

Q. Does the federal Medicaid program allow states to develop more cost-effective services?

A.The federal Medicaid program also has provided states flexibility, and incentives, to develop more cost-effective care. Iowa was one of the first states to take advantage of new enhanced federal funding (90 percent federal match) to provide health homes for patients with chronic health conditions.

In addition to Medicaid expansion, the Affordable Care Act provides opportunities for states to contain costs and improve services. Iowa currently implementing a health home provision to provide more coordinated care for Medicaid patients with chronic health care conditions, with a goal of better maintaining health and reducing ER and hospitalization and re-hospitalization costs. The ACA also promotes health financing mechanisms under Medicaid that meet the “triple aim” of improving health care quality and health outcomes and reducing health costs.

Q. How does the Medicaid program compare with private insurance in terms of costs?

A.The number of people served by Medicaid in Iowa has increased substantially as a result of the state accepting new options. As a result, state Medicaid costs have risen. However, the Iowa Medicaid program has maintained very low administrative costs, and overall cost increases have been low relative to private insurance.

Medicaid costs have risen more slowly overall than private health insurance costs, and the cost of administering Medicaid is well below that of private health insurance plans. Medicaid also has streamlined its eligibility process through opportunities in the Child Health Insurance Program Reauthorization Act (CHIPRA) and has substantially upgraded its Medicaid data system through over $40 million in funds for such activities through the Affordable Care Act.

Q. What would it cost Iowato expand Medicaid to adults up to 138 percent of poverty compared with maintaining the status quo?

A.The latest opportunity to expand Medicaid contains a much higher federal matching rate than past expansions. The federal government will cover all of the costs in the first three years and 90 percent of the costs going forward. In significant measure, this is financed through agreements with hospitals, who agreed to accept lower Medicare payments because theyexpect to seereductions in charity and bad debt liabilities as more previously uninsured adults gain coverage. Actuarial studies show that expanding Medicaid rather than continuing to cover the adults now served by IowaCare without Medicaid expansion will actually save Iowa taxpayers money and help control overall health care costs.

Iowa is one of several states thatare currently covering otherwise non-eligible adults under a Medicaid waiver, in Iowa’s case,IowaCare. Even if Iowa were granted a continued waiver to cover these adults, if the state does not ensure coverage of all eligible adults under 138 percent of poverty with a comprehensive health plan, Iowa would at best be able to continue covering those adults, and would be responsible for at least 38 percent, and possibly 100 percent, of the costs.If Iowa expands Medicaid, these individuals (along with others) will be covered solely by federal funds for the first three years (declining to a 90 percent federal match by year eight).

Expanding Medicaid will also reduce the number of people not receiving primary health care services and those receiving health services in theER or through charity care. Expanding Medicaid is necessary for hospitals, in particular, tomake up for reduced Medicare reimbursements. Expanding Medicaid also will help to ensure that Iowa’s mental health redesign is successful in providing mental-health services equitably and affordably across the state.

Q. What if the federal government changes Medicaid from a cost-sharing program to a capitated, or “block grant” program, as it did for the Temporary Assistance to Needy Families (TANF) program? What will that mean regarding Medicaid expansion?

A.Although very unlikely to happen, the federal government almost certainly would establisha capitated program based on the amount of funding and the population being served at the time. Therefore,Iowa would be at a fiscal disadvantage if it did not expand Medicaid to adults up to 138 percent of poverty.

There has been discussion of “turning over Medicaid to the states” in the form of a block grant or capitated payment—in the name of cost containment—for some time. These calls have never been seriously considered, though. As an alternative, the federal government has provided greater flexibility and incentives to states to manage their programs without establishing an artificial cap on payments. President Obama has stated clearly that he will not accept caps or cuts to Medicaid as part of deficit reduction.

If Medicaid were capped (as the Aid to Families with Dependent Children program was capped when it became TANF), the decision would result from negotiations between the federal government and governors and state legislatures. The TANF result was not imposed on states, but was part of an agreement on a new direction for welfare policy. The cap was based on prior expenditures by states and the federal government on AFDC, to ensure that states could maintain their historical funding. States that had more extensive programs retained the funding to continue that level of effort. If Medicaid ever were to be turned from an entitlement to a capped program, Congress and the President would almost surely adopt a capitation system based on historic federal spending and the contours of the program in place at the time of capitation.

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The Child and Family Policy Center is a Des Moines-based research and advocacy organization promoting outcome-based policies that improve child well-being. For more information on Medicaid expansion in Iowa, contact Charles Bruner at or 515-280-9027.