A “Customary and Necessary” Program — Medicaid and Health Care Reform | Health Care Reform Center

By Sara Rosenbaum, J.D.

The recently passed U.S. health care reform law envisions a health care system that rests atop a four-legged stool consisting of employer-sponsored health plans, coverage purchased through state-based exchanges, Medicare, and Medicaid. Each leg faces important challenges, none more than Medicaid. Numerous issues confront the “new” Medicaid. Will states be able to achieve full coverage for eligible persons and align their operations smoothly with those of other coverage sources? Will coverage be adequate to the population’s need? Will providers participate, and will the safety net be sustained? And perhaps above all, will states continue to operate Medicaid programs and share in their costs?

Medicaid plays a starring role in health care reform. In its final cost estimates, the Congressional Budget Office (CBO) projected that 94% of the U.S. population will have health care coverage by 2019, up from 83% under current policy. Of the 32 million people gaining benefits, half — 16 million people — are expected to derive their coverage through Medicaid and the Children’s Health Insurance Program (CHIP). This expansion will come at a 10-year cost of $434 billion in additional federal funding. CBO estimates also show that the Medicaid reforms will not merely boost program enrollment over 10 years but will actually stave off an increase in the number of uninsured persons resulting from, among other factors, a decline in the number of children and adults covered by Medicaid and CHIP.

To achieve these results and address other program challenges, Congress has fundamentally altered Medicaid’s eligibility structure. Historically, Medicaid eligibility has been tied to both low income and demographic characteristics that are a vestige of federal cash-welfare programs designed to benefit the disabled, the aged, and extremely poor “dependent” minor children and their parents. Reforms that have been enacted over the past 25 years have achieved eligibility of all poor children. But current mandatory coverage rules continue to exclude near-poor pregnant women and near-poor children 5 to 18 years of age. They also exclude millions of poor parents of minor children in states whose income-eligibility ceiling for such individuals can dip as low as 17% of the federal poverty level,2 as well as other impoverished adults who have neither minor children nor a serious disability. Over the years, a handful of states have used state funding or have operated their programs under special federal demonstration authority to help cover more low-income adults, but in the vast majority of states, poor adults — both parents and childless adults — remain completely uninsured, and near-poor children 5 to 8 years of age remain ineligible for Medicaid although they’re covered through the more modest CHIP.
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