Return to Virginia Business - November 2002

What is Medicaid?

Related links:
— Should Health Care be a priority for Virginia?
— Confronted with Choices

Medicaid is Virginia's primary funding vehicle for serving the health and long-term care needs of its low-income citizens. In 2001, 616,816 Virginians received services through Medicaid. That's nearly nine percent of the state's total population.

While Medicaid is designed to serve needy patients, it isn't merely a government handout or another form of welfare. Medicaid recipients in Virginia represent a wide array of citizens, including long-term nursing home residents, low-income families with children, and single pregnant women who would otherwise be without necessary pre- and post-natal care. In fact, 18 percent of all children in Virginia depend on Medicaid for basic health services.

Medicaid was authorized by the Social Security Act Amendments of 1965 and is a jointly funded cooperative venture between the federal and state governments. While the cost of the program is shared between states and the federal government, states have significant flexibility within federal guidelines. They can set eligibility levels, types and scopes of benefits offered and the amount of payments for services. In Virginia, the federal government pays slightly more than half of the medical assistance costs associated with Medicaid and shares the administrative costs of the program, generally at the 50 percent level.

How does Medicaid pay for health care services?
Medicaid does not provide financial assistance directly to the recipient to pay for medical costs. Rather, Medicaid provides payment directly to the provider of the covered care or to a contracted managed care plan which then pays the provider. The specific way that providers are reimbursed differs based on the type of care provided.

Virginia's Medicaid program eligibility is largely determined based on family income relative to the Federal Poverty Level (FPL). However, in addition to the income requirements, factors such as age, disability and pregnancy also impact eligibility.

While Medicaid is a critical source of health care coverage for Virginia's extremely poor population, recent estimates indicate that there is an additional 300,000 Virginians with incomes at or below the federal poverty level who are ineligible for Medicaid and remain uninsured. Expanding that analysis to include incomes at up to twice the poverty level would add an additional 270,000 individuals according to estimates. And these totals do not include the elderly, whose Medicaid benefits provide limited coverage of their long-term care needs. Medicaid is the only option for our elderly and disabled populations who have chronic, debilitating conditions, such as Alzheimer's. These Virginians who have worked their entire lives saving for retirement and who, in the face of their disease, have exhausted their own resources to cover expenses related to their health care needs.

What this means to Virginia businesses
As states become increasingly concerned about rising budget deficits, they are turning to their Medicaid programs to find new ways to save money. Cutting vital programs like Medicaid is simply not the answer. Medicaid provides essential coverage for people who otherwise go without medical care until their condition requires urgent treatment — thus playing a crucial role in the lives of many Virginians.

But Medicaid doesn't just provide important services for state residents. It also helps bring in revenue in the form of federal matching funds. These funds are matched at a rate of 51 percent, meaning that for every dollar Virginia spends on Medicaid, the federal government contributes over half of that dollar.

Unfortunately, Virginia continues to underfund Medicaid, even though these matching funds are available. The ultimate responsibility for providing these services falls back on our already burdened health care system. The direct result is higher costs for medical services, which are then passed back to consumers and businesses in the form of escalating health insurance costs.

Another effect of underfunding Medicaid is the additional burden of patients who are denied access to preventive care and then develop chronic or deteriorating illnesses and end up as long-term wards of the state. One example of this would be pre- and post-natal care, which directly impacts a child’s chance at a healthy existence. Treating any patients at advanced stages of illness, rather than providing preventative care earlier, is much more expensive to the patient and the state.

Benefits of increased Medicaid funding to Virginia?
Increasing state funding will bring in more federal dollars, which in turn will allow more people to be covered and treated. The matching funds could extend the program well beyond the scope of current eligibility and services so that more Virginians can take advantage of needed benefits, focusing on early treatment and prevention, rather that costlier treatment in later stages of an illness. By increasing Medicaid funding we will also help support the health care system that is such a vital part of every community. Few of us realize how we depend on the 24-hour care available at our hospitals and the vital role that each emergency department plays in the delivery of health care services.

"Emergency departments are the only open doors available to all, regardless of their ability to pay," according to Chris Bailey, Senior Vice President at VHHA. "Since health care is non-discretionary in nature — when you need it, you have to have it — the uninsured can and will show up at the emergency department, often in the later stages of an illness where the outcome is less certain and it is more expensive to treat."

Once patients enter emergency care, the facility is both legally and morally obligated to treat him. The financial burden on the uninsured is transferred back to those paying customers — the health plans and ultimately the businesses and individual policyholders. Cutting funding to Medicaid can have a direct impact on our health care system and these services we take for granted could be cut back or even eliminated as hospitals struggle to manage their budgets.

In these times of economic uncertainty, Virginia's General Assembly should not look to cut critical programs such as Medicaid that working families, children, seniors and the disabled rely on for their health care needs. Even seemingly small cuts to benefits, small increases in premiums or co-pays, or additional restrictions in eligibility can pose significant barriers to those who need coverage the most — and can least afford it.

Return to Virginia Business - November 2002