I. Introduction
Medicaid has been called the “workhorse” of the American health care system,Footnote 1 but one would hardly see it that way from the tenor of recurrent political debates over its size and structure. The program has perennially faced political headwinds, recently building to hurricane force. Proposals for structural changes that could substantially shrink Medicaid, such as work requirements, federal funding through block grants, and tighter eligibility reductions, arise with increasing frequency and stridency.Footnote 2 Such proposals are not merely hypothetical. Work requirements and tighter eligibility rules were enacted by Congress in 2025 as part of budget legislation,Footnote 3 yet, as devastating as these proposals are for millions of low-income Americans who rely on Medicaid for essential health care, the repercussions can cause hardship for the entire country in ways not as readily apparent.
A recent example of Medicaid’s impact illustrates the point. There is only one general acute care hospital in a large, highly populated corridor in the inner city of Philadelphia just north of the city’s center.Footnote 4 The area, known as North Philadelphia, is one of the poorest in the city,Footnote 5 already one of the poorest of the ten largest cities in the United States,Footnote 6 and a large proportion of the residents of the area are Black and Latino.Footnote 7 It also has among the lowest ratios of primary care providers to adults in the city.Footnote 8
Hospital access in North Philadelphia shrank significantly in 2019 after the closure of Hahnemann University Hospital, an academic medical center located at the area’s southern edge.Footnote 9 It had been an important source of emergency and advanced high-technology care for residents with limited access to transportation.Footnote 10 It was also the source of thousands of jobs.Footnote 11 Tenet Healthcare, a for-profit national hospital chain, owned it for almost twenty years.Footnote 12 However, located in a poor area, the hospital faced financial challenges as it had a large number of uninsured patients and relied heavily on Medicaid payments for many of the others.Footnote 13 Eventually, Tenet found Medicaid reimbursement insufficient to cover expenses. In 2019, it sold the hospital to a private equity firm, American Academic Health System, which filed for bankruptcy later that year in the face of continuing large losses.Footnote 14
On first blush, it may not seem surprising that a hospital serving a predominantly poor and indigent patient base would be unable to sustain itself financially. However, health care is different in fundamental ways from other industries. It is not only more extensively regulated but also more heavily subsidized.Footnote 15 Every sector of health care rests on a foundation of government regulatory and funding programs that shape its business structure and underlie its financial foundation.Footnote 16 Of the $4.5 trillion that the United States spent on health care in 2022, more than $1,750 trillion, nine percent of the country’s entire gross domestic product, was spent by government programs, most notably Medicaid, to fund health care for those who are financially needy.Footnote 17 Hahnemann Hospital was able to remain financially viable for decades by relying on Medicaid but could not continue to operate when the program’s reimbursement could not keep pace with its needs.Footnote 18
Nevertheless, government spending on Medicaid is frequently questioned in political debates.Footnote 19 Critics routinely ask whether its beneficiaries truly deserve government support and for those who do, how much they should receive, as they during debates over the 2025 budget bill.Footnote 20 Some argue that the system is rewarding many who are undeserving or receiving more than their fair share of taxpayer-funded assistance.Footnote 21
Questions about Medicaid’s value have led to proposals, including some incorporated into the 2025 budget bill, to dramatically shrink it in ways that threaten its scope and effectiveness both directly and indirectly.Footnote 22 Direct threats come from a plan included in the bill to reduce funding by limiting the ability of states to impose taxes on providers to support their share of Medicaid costs, as most of them do.Footnote 23 This would make it more difficult for states to sustain Medicaid funding at current levels.Footnote 24 It is estimated that this could reduce program expenditures by as much as $612 billion over ten years.Footnote 25 Indirect threats come from a plan to reduce enrollment by limiting eligibility in several ways that are also included in the bill.Footnote 26 One would impose work requirements on adults as a condition of receiving benefits along with complex paperwork rules for reporting work status.Footnote 27 Those rules could cause many who are, in fact, working to nevertheless lose eligibility.Footnote 28 It is estimated that this could reduce enrollment by as many as 5.2 million.Footnote 29 Another would impose more frequent eligibility redeterminations for some enrollees, which could cause as many as 700,000 to lose coverage.Footnote 30
This article addresses arguments for shrinking Medicaid by recharacterizing the program as an essential benefit for all of society, not just for those who receive its direct benefits. The article argues that the portrayal of Medicaid as a “safety net” for the “deserving poor” or as an “entitlement” for a fortunate few misses its broader significance as a mainstay of the entire health care system and thereby of the well-being of everyone. In that role, it produces essential benefits that have many of the characteristics of “public goods” — goods that contribute to public welfare but cannot be profitably provided by private markets on their own.Footnote 31 If society is to have them, it must rely on the government to supply them.Footnote 32
Part I of the article provides a summary of the history and structure of Medicaid within the larger context of American health care. Part II explains the economic concept of public goods, and the related concepts of common goods, externalities, and spillover effects. Part III applies these concepts to eight critical societal benefits that Medicaid creates. Part IV explains Medicaid’s major shortcomings while weighing them against these benefits. The conclusion describes a broader conceptual understanding of Medicaid based on this analysis.
II. Medicaid and its Place in American Health Care
A. History and Structure
1. Overall Structure
Although private employer-sponsored health insurance and Medicare cover most of the American population, they fail to reach a sizable portion,Footnote 33 almost one-hundred million in total.Footnote 34 These include people who do not work for an organization that offers health benefits, are not the dependent of someone who does, are unable to afford employer-sponsored insurance if it is available, or are too young for Medicare. Without Medicaid, many of them would have no other source of coverage and therefore limited access to health care.
By number of beneficiaries, Medicaid is the second largest source of health insurance in the United States after private, employer-based coverage.Footnote 35 In 2021, it covered 35.1% of Americans under the age of nineteen, 15.4% of adults between nineteen and sixty-four, and 7.4% of adults over the age of sixty-five.Footnote 36 In 2023, its budget equaled more than half the total amount paid by Americans for private insurance.Footnote 37
Medicaid is an example of cooperative federalism, meaning it is structured as a federal-state partnership, and it is available in every state, although its generosity varies considerably between states.Footnote 38 Funding is shared between the federal government and the states based on each state’s average per capita income, and there is no cap on the amount of the federal contribution.Footnote 39 State contributions vary between fifty and twenty-three percent.Footnote 40 Federal law also sets parameters for coverage and eligibility.Footnote 41 The program has generated considerable political debate in recent years over state decisions on whether to accept federal incentives under the Affordable Care Act (ACA) to expand the range of beneficiaries and over cuts contained in the 2025 bill.Footnote 42
2. Medicaid’s Origins
Medicaid grew out of a predecessor program enacted in 1960 to cover hospital expenses for a few categories of the poor. That program, the Kerr-Mills Act,Footnote 43 was the first to provide financial access to health care on a national basis for patients who would otherwise be unable to afford it.Footnote 44 Although coverage under that act was limited, it represented a significant shift in the locus of government health care spending from the states to the federal government.Footnote 45 Kerr-Mills followed the enactment of laws in twenty-eight states and two territories that provided “old-age assistance.”Footnote 46 Social commentators have observed that the path to their enactment was eased by a softening of widely held attitudes that many of the poor were “social deviates or paupers by choice” and therefore undeserving of government help.Footnote 47
The Kerr-Mills Act created the basic framework on which Medicaid was built with a mix of federal and state financing and administration.Footnote 48 This stands in contrast to Medicare, which was structured as a unified national program financed entirely at the federal level.Footnote 49 The participation of states in Medicaid is voluntary, but as of 1982 when Arizona implemented its program, all fifty states and the District of Columbia had chosen to participate.Footnote 50
In its original form, Medicaid covered a limited group of beneficiaries that included aged, blind, and disabled individuals with low incomes, as well as parents of dependent children receiving public assistance.Footnote 51 States were also required to cover single parents and children receiving welfare through the Aid to Families with Dependent Children (AFDC) program.Footnote 52 However, they were free to set their own thresholds for income eligibility, and many set it below fifty percent of the federal poverty level (FPL).Footnote 53 Under this system of categories, childless adults below the age of sixty-five were ineligible for benefits regardless of income, a situation that was changed in most states by the ACA in 2014.Footnote 54
The original Medicaid program mandated that states determine coverage based on one of two tiers.Footnote 55 The minimal tier required coverage for “categorically needy” individuals, defined as those who qualify solely on the basis of income.Footnote 56 The slightly more generous second tier required coverage for “medically needy” individuals, defined as those who would join the ranks of the categorically needy if medical expenses were considered in determining their financial need.Footnote 57 Covered services for all beneficiaries were mandated to include basic medical care, including hospital and physician services, laboratory and radiology services, and nursing home care.Footnote 58 States that covered medically needy beneficiaries had the option to add coverage for additional products and services, such as prescription drugs, which are covered in all states, and dental care, which is covered in many.Footnote 59
3. Coverage Expansion Over Time
Over time, Congress expanded the scope of Medicaid coverage through both additional mandates for participating states and options that states could choose. A prominent example of an early mandate was the Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program, created by the Social Security Amendments of 1967,Footnote 60 which requires states to cover regular diagnostic screenings and preventive care for children up to age twenty-one.Footnote 61 Another mandate is for coverage of additional essential services for children up to age six that was added in 1981 to combat concerns over rising infant mortality rates.Footnote 62 That expansion also mandated eligibility for pregnant women with incomes up to a state’s income threshold for AFDC.Footnote 63 Other mandatory expansions in 1989 and 1990 increased the income eligibility thresholds.Footnote 64
The most significant expansion occurred in 2014 under the ACA, which was passed in 2010. It offered states an enhanced matching share of ninety percentFootnote 65 for coverage of residents with incomes up to 133% of the FPL who had not previously qualified.Footnote 66 This change both raised the income thresholds in states that had set them lower and added a new category of eligibility for adults aged eighteen to sixty-four with incomes below 133% of the FPL.Footnote 67 The ACA also added a number of new benefit options, including the Basic Health Program, which enabled states to add coverage for individuals with incomes between 133 and 200% of the FPL who do not qualify for other government health care programs.Footnote 68 Such programs are currently in place in Minnesota and New York.Footnote 69
The ACA, as originally drafted, gave states the choice of accepting the new category of coverage or losing eligibility for all federal matching Medicaid funds.Footnote 70 In 2012, the Supreme Court ruled in the case of National Federation of Independent Businesses v. Sebelius that a penalty that large constituted unconstitutional coercion of the states, but that implementation of the enhanced matching share as an incentive for voluntarily expanding Medicaid was constitutionally permissible.Footnote 71 The expansion thereby became voluntary for states. Forty states and the District of Columbia had accepted it as of 2024.Footnote 72
4. Growth in Enrollment Over Time
The expansion of benefits and eligibility over time led to a substantial expansion of Medicaid enrollment and cost. During the program’s first fifty-five years, enrollment grew by more than twenty-fold, from four million in 1966 to 84.7 million in 2021.Footnote 73 There were two periods of especially rapid growth, one in 2014 resulting from implementation of the ACA expansion, and one in 2020 with the start of the COVID pandemic and a temporary prohibition of disenrollment.Footnote 74 Spending during those fifty-five years increased from $0.9 billion to $735.4 billion, reaching more than 17.9 percent of all health care expenditures in the country in 2023.Footnote 75 In 2021, Medicaid was the third largest payer for health care services in the United States after private insurance and Medicare.Footnote 76
5. Innovation through Waivers
A distinctive aspect of Medicaid is the various forms of flexibility it gives states to administer their programs in innovative ways. Among the most important is the authority of the Centers for Medicare & Medicaid Services (CMS), the agency that oversees the federal part of the program, to waive some federal operational requirements to enable states to try new approaches.Footnote 77 Most of these waivers are permitted under two sections of the Social Security Act. Section 1115 authorizes CMS to allow experiments through demonstration programs.Footnote 78 An important early example tested alternative ways of paying providers, such as through managed care and prospective payment to hospitals.Footnote 79 Waivers under this provision were also used to expand access to home and community-based services (HCBS) for beneficiaries needing long-term care who would otherwise require institutionalization,Footnote 80 and to increase treatment options for substance use disorders.Footnote 81 Section 1915 of the Social Security Act was added in 1981 to permit CMS to let states vary their Medicaid programs on an ongoing basis.Footnote 82
In improving access to care for these vulnerable populations, waiver programs also support a range of specialized providers that render their care.Footnote 83 These include professionals, such as occupational therapists and physical therapists, organizations that provide outpatient care, and providers of ancillary services, such as transportation and educational support.Footnote 84 This coverage also reduces the uncompensated care burden on hospitals.Footnote 85
6. Children’s Health Insurance Program
As critical as Medicaid is to the health of millions of low-income Americans, another safety net programs provides important additional support for targeted populations. The Children’s Health Insurance Program (CHIP), enacted in 1997, provides federal matching funds for states that cover children in families with incomes slightly above the Medicaid threshold.Footnote 86 Under it, states can add that coverage either as a separate program or as an expansion of Medicaid.Footnote 87 All states have implemented CHIP coverage, with some increasing eligibility to as high as 200% of the FPL.Footnote 88 In April 2025, CHIP covered more than seven million children.Footnote 89
B. Medicaid’s Importance for Providers
1. Transition From Public Hospitals to Subsidized Coverage
Until the middle of the twentieth century, government support for indigent hospital care was provided primarily through public hospitals, most of which were located in major cities.Footnote 90 However, as the cost of operating these facilities rose in the latter part of the century and Medicare and Medicaid became available to finance care in private hospitals, a growing number of cities moved away from that model, and many public hospitals were closed.Footnote 91 In their place, those cities turned to Medicaid to support care in private facilities,Footnote 92 which were then forced to take up the slack.Footnote 93 As of 2020, only 498 of the 5,230 hospitals in the United States were public.Footnote 94
As more public hospitals around the country closed, the need for government support of private facilities serving their former patients grew. An example is the closure in 1977 of Philadelphia General Hospital, which had been a model of public hospital care for decades.Footnote 95 In its place, indigent patients were sent to several private hospitals, where their care was reimbursed by Medicaid and other government programs. Another example is the closure of Atlanta Medical Center. When plans were announced in 2022 to close it, city and state officials scrambled to find ways to find public funds to relieve the expected strain on a large private hospital system, Grady Health System. The closure left Grady’s flagship hospital as the operator of the region’s only Level 1 trauma center.Footnote 96
As the burden of indigent care has grown for private hospitals, some have incurred large amounts of debt, which has increased their risk of closure.Footnote 97 In fact, debt resulting from indigent care has been identified as the greatest threat to hospital financial survival.Footnote 98 Hospitals’ financial shortfalls are magnified by a failure of Medicaid and other public funding sources to fully cover the cost of care.Footnote 99 The closure of Hahnemann is a notable example, but there are numerous others.Footnote 100 A particularly disruptive one was in Chicago, where Mercy Hospital and Medical Center, a 412-bed facility on the city’s south side that served a predominantly low-income population, closed in 2021.Footnote 101 It was one of three closures of major hospitals in the city that involved facilities in predominantly Black neighborhoods.Footnote 102 Indigent care and insufficient reimbursement have also forced many rural hospitals to close, leaving residents with substantial geographic barriers to accessing care.Footnote 103
2. Support Through Disproportionate Share Payments
To improve the finances of struggling safety net hospitals, defined as those that deliver a significant amount of health care to patients who have no insurance or are on Medicaid,Footnote 104 state Medicaid programs enhance their reimbursement with supplements known as “disproportionate share” (DSH) payments.Footnote 105 Since states are not required to set Medicaid base payment rates at amounts that reflect the actual cost of care, the rates are usually lower than those provided by Medicare and most private insurance plans.Footnote 106 DSH payments are intended to make up some of the shortfall.Footnote 107
DHS payments began in 1981Footnote 108 and constitute a significant share of the amount that many hospitals receive from the program and of program spending.Footnote 109 In 2021, states paid a total of $18.9 billion in DSH payments, with $8.1 billion coming from state funds and $10.8 billion from federal funds.Footnote 110 In 2015, they accounted for forty-nine percent of Medicaid inpatient hospital payments nationally.Footnote 111
However, DHS payments vary considerably between states, even though they are mandatory.Footnote 112 A report by the Government Accountability Office found that in 2017, they represented ninety-seven percent of payments to DSH-eligible hospitals in Maine and only 0.7% in Tennessee.Footnote 113 The report also found that nationally, they covered only fifty-one percent of actual uncompensated care costs.Footnote 114
DSH payments are essential to the ability of many facilities to provide care to lower-income patients.Footnote 115 Moreover, they have been shown to have a significant effect on the financial stability of hospitals that serve those patients.Footnote 116 For many facilities, they are an important source of revenue.Footnote 117 With these supplements, Medicaid reimbursement for some conditions is comparable to or even higher than Medicare rates.Footnote 118 In addition to helping hospitals compensate for shortfalls in Medicaid reimbursement and for the cost of care for patients without any insurance, DSH payments have been instrumental in enabling many hospitals to handle surges in demand, as occurred during the early stages of the COVID pandemic.Footnote 119
3. Support From the ACA Medicaid Expansion
For hospitals, the ACA’s Medicaid expansion has further reduced the number of low-income patients whose care is uncompensated.Footnote 120 As a result, it has been an important source of support for many that serve predominantly low-income populations, as documented by research comparing the financial state of hospitals in jurisdictions that expanded Medicaid and those that rejected it.Footnote 121 An important consequence has been a reduction in the financial disparity between hospitals that treat a disproportionate share of low-income patients and those that do not.Footnote 122 A study that compared uncompensated care costs for hospitals in expansion states and non-expansion states found a decrease after the expansion of between 4.1 and 3.1% in expansion states and no change in non-expansion states.Footnote 123 The hospitals benefiting most were those with the highest proportions of low-income and uninsured patients.Footnote 124
Financial assistance from the Medicaid expansion has been identified as an important factor in saving many hospitals from closure. A study published in 2018 found that hospitals in expansion states were six times less likely to close than those in non-expansion states.Footnote 125 The study did not include states that expanded Medicaid after 2014, raising the possibility that the effect nationally may have become even larger over time.
A study conducted in 2022 by the American Hospital Association found that seventy-four percent of rural hospital closures between 2010 and 2021 occurred in states in which the Medicaid expansion either was not in place or had been in place for less than a year.Footnote 126 During that period, 136 hospitals closed, with the largest number, nineteen, closing in 2020 at the height of the COVID pandemic.Footnote 127 Medicaid, it appears, is especially important to struggling hospitals in times of crisis.Footnote 128
4. Support for Long-Term Care Providers
As important as Medicaid is for hospitals, no sector of health care is more dependent on its coverage than nursing homes and other kinds of long-term care facilities.Footnote 129 In 2015, nursing home stays for 1.4 million people were covered by Medicaid in almost 16,000 facilities.Footnote 130 Medicaid beneficiaries, most of whom were elderly, represented about sixty percent of all nursing home residents, with a total cost to the program of $55 billion.Footnote 131 With an average annual cost of about $82,000 per stay and limited coverage under Medicare, few of them would likely have been able to afford these services without Medicaid.Footnote 132
Support that sustains long-term care facilities also confers indirect benefits on millions of family members and others who serve as caregivers for frail elderly and disabled people.Footnote 133 They have been referred to as “invisible second patients.”Footnote 134 The burden of providing this care generates high rates of psychological morbidity, social isolation, physical ill-health, and financial hardship.Footnote 135 It was estimated to affect 42.1 million family caregivers at any point in 2009 and 61.6 million nationwide over the course of that year, with the value of unpaid labor estimated at approximately $450 billion.Footnote 136 This care burden imposes further costs on caregivers in the form of lost income and on employers in the form of lost productivity of employees whose attention is diverted from their job.Footnote 137 Caregivers for elderly and disabled family members may also have less time to care for their own children, which spreads the burden even further and may have consequences that ripple through subsequent generations.Footnote 138
III. Public Good and Related Concepts
A. The Concept of Public Goods
Faith in the efficiency of free and competitive private markets in producing and allocating goods and services is a hallmark of traditional economics.Footnote 139 Markets facilitate free interchange between buyers and sellers, which is at the core of a free-market economy.Footnote 140 However, even the staunchest advocates of free markets acknowledge that they are not efficient at producing and allocating all goods and services.Footnote 141 Markets are not even capable of supplying some of them, including many that are essential to public wellbeing. Economists refer to instances such as this as “market failure.”Footnote 142
For private firms to provide a good or service, two conditions must be met.Footnote 143 First, the seller must be able to limit access to the good or service to those who are willing to pay and to exclude those who are not. Such a product is considered “exclusive.” Second, once the good or service has been sold to one buyer, it must no longer be available for sale to another. Such a product is considered “rival.”Footnote 144 “Public goods” are goods and services that do not meet these conditions.Footnote 145 A paradigm example of a public good is national defense, which is nonexcludable because it protects everyone living in the country regardless of whether they pay, and nonrival because the protection that one person receives does not diminish the protection of others.Footnote 146
Since private markets are not equipped to provide public goods, alternative mechanisms are needed if society is to have them.Footnote 147 These can take the form of private collective action,Footnote 148 however governments have the resources and public interest to be most effective at providing them.Footnote 149 Economists describe three forms that government intervention can take.Footnote 150 First, the government can regulate a private market to make it more amenable to competitive dynamics.Footnote 151 Second, it can subsidize the production or consumption of a needed good or service.Footnote 152 Third, it can directly provide a good or service, as in the provision of health insurance through Medicare and Medicaid.Footnote 153
B. Related Concepts
1. Common Goods
Some important goods and services that the market does not provide meet the criteria for public goods not because of their intrinsic features but because of external actions. These actions are usually the result of government policy.Footnote 154 Such goods are known as “common goods.”Footnote 155
An example of a common good is public education.Footnote 156 Non-excludability is not an intrinsic feature of it, since tuition could be imposed and students excluded for nonpayment. However, the government makes it nonexclusive by mandating that it be free and available to all children. It is also rival, since the supply of classrooms and teachers is limited, and a seat taken by one student is unavailable for others. Government intervention makes it nonrival, or at least less rival, by building more schools and hiring more teachers. This essential public benefit thereby gains key features of a public good, although it does not fit the idealized concept.Footnote 157
A system of universal health care in those nations that have it can be seen as a common good.Footnote 158 Like education, health care services can be denied to those who do not pay, but under a universal system, they are made nonexclusive by virtue of law. While the elements needed to provide them, such as facilities, drugs, and clinicians, are in finite supply and therefore rival, governments can subsidize their production to reduce their rival nature.
2. Quasi-Public Goods
Some essential goods and services that have some of the attributes of public goods but fail to meet all the criteria may also be characterized as “quasi-public goods.”Footnote 159 Examples include goods that are nonexclusive and nonrival within limits.Footnote 160 Use of a public highway can be restricted by imposing a toll, however it would be infeasible to place tolls on all roads, so most are non-exclusive.Footnote 161 Similarly, one car’s use of a highway does not prevent others from using it, but if enough cars enter the highway, traffic will come to a standstill, making it rival. In response, the government can build more roads or alternative forms of transportation.
3. Externalities
Externalities arise when a transaction affects a party that is external to it.Footnote 162 The effects can be positive or negative. In the case of a positive externality, an outside party receives a windfall, as, for example, when a homeowner installs a smoke detector, which reduces the chance that a fire will spread to neighboring buildings to the benefit of the owners of those buildings. In the case of a negative externality, there is a cost to an outside party, as when a factory emits pollutants that cause health problems for nearby residents and physical damage to their homes.Footnote 163 As with public goods, private markets will not mitigate the problem, since the factory has no financial incentive to reduce emissions.
Externalities, both positive and negative, are also sometimes referred to as “spillover effects.”Footnote 164 These are effects of an activity that “spill over” from that activity to affect others who are not directly involved. In addition to producing consequences for individuals, spillover effects can have broader social consequences.Footnote 165 For example, a positive effect of public education is a more informed and productive population.Footnote 166 A negative effect of a polluting factory is a lower quality of life for an entire region.Footnote 167
IV. Public Goods Created by Medicaid
Health care services provided to individual patients have the characteristics of private goods.Footnote 168 Clinicians can, and usually do, provide their services only to patients who pay, either with their own funds or those of a third-party payer, making them exclusive. Clinicians also have a limited amount of time to devote to patient care, and in the case of specialists, a limited number of procedures they can perform in a day. Since there is a finite number of clinicians, the supply of these services is exhaustible, making them rival. Similarly, use of a hospital bed is exclusive in that it can be denied to patients who do not pay, and the supply of hospital beds is limited, making them rival.Footnote 169
However, even though the provision of health care to an individual patient is a private good, it creates substantial benefits for the larger society.Footnote 170 Some are significant enough to form foundations of the overall health care system and thereby of many aspects of community and national wellbeing. These benefits are nonexclusive, being available without regard to payment, and non-rival, existing in inexhaustible supply. This leaves the private market ill-equipped to supply them. By expanding the number of people who receive health care, Medicaid makes their creation possible. This Section describes eight of the most important.
A. Health Security and Health System Sustainability
1. Hospital Viability
In supporting the financial viability of thousands of hospitals, Medicaid promotes health security for the surrounding communities.Footnote 171 This reassurance, in turn, engenders peace of mind for residents in knowing that hospital services are available in time of need even if they never actually receive those services. Beyond this psychic benefit, health security increases the livability and desirability of neighborhoods.Footnote 172 Hospitals also provide preventive services that directly protect community residents’ health, as discussed in Subsection E below.
These benefits are public goods. They are non-exclusive, as they cannot be withheld from those who do not pay, and they are non-rival, as one person’s health security does not diminish the supply available for others. Their production would be substantially reduced were it not for Medicaid’s help in enabling hospitals across the country to remain open.
Inpatient hospital capacity is especially important for health security in times of crisis. This was seen poignantly when the demand for intensive care beds exceeded the supply in many hospitals during the early months of the COVID pandemic.Footnote 173 Other kinds of emergencies, such as natural disasters, can also stress hospital resources.Footnote 174 Such crises are infrequent, but when they occur, the consequences of under-capacity can be dire. With fewer hospitals, there would be less capacity to expand when it is needed.Footnote 175
2. Emergency Services
Few of the services that hospitals provide are more vital to a community than emergency care. On an individual level, it is a private good that can be withheld from those who are not able or willing to pay, either with insurance or their own funds. It is available in limited supply, as there is a finite quantity of beds, clinicians’ time, and supplies. However, as with other aspects of hospital care, the availability of emergency services benefits a much wider population than just the patients who receive them.Footnote 176 The assurance that help is available when urgently needed enhances health security regarding a vital concern and the peace of mind that goes with it. This is an especially important concern for segments of the population with special health care needs, such as parents of young children and the elderly.
The Emergency Treatment and Active Labor Act of 1986 (EMTALA)Footnote 177 mandates that every hospital that receives Medicare reimbursement, a category that includes all but a handful, assess and stabilize all patients who come to their emergency departments regardless of ability to pay.Footnote 178 Although this law does not require treatment beyond assessment and stabilization, these services mean that an urgent threat to a patient’s life or health must be addressed. The law also prohibits delays in providing care that is time-sensitive to inquire about coverage.Footnote 179 These provisions make emergency care nonexclusive, giving it the characteristics of a common good.Footnote 180
EMTALA does not require that care be provided without payment.Footnote 181 A hospital may try to collect reimbursement from a patient’s insurance or from him or her directly after care has been rendered.Footnote 182 However, many patients lack insurance or other financial means of making payment, and they present an obvious financial drain on hospitals.Footnote 183 Medicaid makes instances of nonpayment by patients without financial resources far less frequent than it would otherwise be.Footnote 184 Without it, the burden of caring for nonpaying patients under EMTALA would present a much greater threat to hospitals’ financial stability.Footnote 185
Even with Medicaid, a growing number of hospitals have found the cost of maintaining emergency departments unsustainable and have closed them. A study of closures in nonrural areas found a decline from 2,446 in 1990 to 1,779 in 2009.Footnote 186 It found closures to be especially prevalent among hospitals that had the highest share of Medicaid patients among those within a fifteen-mile radius.Footnote 187 The authors noted that emergency department closures cause much more than just inconvenience for patients.Footnote 188 They decrease access for everyone in the community, even those with private insurance, and can disrupt hospital care in an entire region. In addition to increasing the distance to the nearest facility, they increase patient loads at those hospitals that do maintain emergency departments, which can lead to overcrowding and longer waiting times.Footnote 189 Moreover, patients who come to crowded emergency departments are more likely to leave without being seen, which is associated with higher rates of adverse outcomes.Footnote 190 Other research has found that when hospital closures increase the distance to the nearest hospital, mortality rates from medical emergencies, such as heart attacks and traumatic injuries, increase.Footnote 191
Without Medicaid, closures of emergency department would almost certainly be more frequent. There would be many more nonpaying patients, which would make their continued operation less financially sustainable.Footnote 192 Even those who never need to use emergency services would feel the effects.
3. Financial Viability of Long-Term Care Providers
Millions of people who are unable to care for themselves rely on long-term care from a range of providers. Skilled nursing facilities (SNFs) care for patients who are not sick enough to need the services of an acute-care hospital but are unable to perform basic activities of daily living and need intensive ongoing inpatient care.Footnote 193 Less intensive facilities care for patients who need a lesser level of care but are too frail to live on their own, many of whom are elderly.Footnote 194 Other providers offer outpatient care in community settings and in patients’ homes.Footnote 195 As of 2016, there were 15,600 nursing homes in the United States,Footnote 196 28,900 other long-term care facilities including assisted living facilities,Footnote 197 4,600 adult day services centers, and 12,200 home health agencies.Footnote 198 More than 8.3 million people received services from at least one of these kinds of providers.Footnote 199
Inpatient stays in nursing homes can be extremely expensive, with a cost that is beyond the means of most patients.Footnote 200 Only a small percentage of Americans have private long-term care insurance that covers the cost.Footnote 201 Medicare, which is available to almost all Americans age sixty-five and over, covers the cost of up to one-hundred days in a SNF immediately following discharge from an acute-care hospital.Footnote 202 However, it does not cover extended stays in these or in less intensive facilities. Medicaid, in contrast, provides coverage as a mandatory benefit in every state.Footnote 203 The coverage is known as “long-term services and supports” and was used by almost six million Medicaid beneficiaries in 2020.Footnote 204
As a result of this coverage, Medicaid is the primary payer for nursing home care in the United States.Footnote 205 It covers sixty percent of the 1.4 million residents in these facilities.Footnote 206 The cost amounted to almost $55 billion in 2015, representing thirty-five percent of state Medicaid spending.Footnote 207 With this level of support, Medicaid is the financial foundation for much of the industry.Footnote 208
Nursing homes do not serve as mainstays of many communities in the same way as acute-care hospitals. They do not tend to be as large, and they serve a smaller segment of the population.Footnote 209 Moreover, they are subject to frequent complaints concerning the quality of care.Footnote 210 Nevertheless, they are an important source of care not only for patients who are unable to care for themselves but also for family members who would have to find alternative sources of care without them. Moreover, many family caregivers who work outside the home would be unable to continue to do so, placing financial pressure on them,Footnote 211 as well as a potentially severe emotional toll.Footnote 212
The services rendered by long-term care providers are private goods in that they can be, and usually are, denied to those without a source of payment, and they are in limited supply. However, even with constrained availability in some areas, their existence provides reassurance for many frail residents and their families that resources for care exist. The resulting peace of mind is inexhaustible and free of charge.
B. Mitigating Health Care and Social Inequities
1. Improved Hospital Access in Poorer Communities
While entire communities benefit when everyone has access to health care, the availability of those services is not evenly or equitably distributed.Footnote 213 For example, high-end services such as specialty care are used far more by people with higher than with lower incomes, with the same health status.Footnote 214 This is in part because hospitals, physicians and other providers are often more difficult to find in poorer neighborhoods than in wealthier ones.Footnote 215 Such maldistribution in access to and use of health care can diminish not only the health of those who have difficulty finding a source of care but also the health security that a robust health care infrastructure provides.
The effects of Medicaid in increasing equity in access to health care is demonstrated by statistics cited by sociologist Paul Starr.Footnote 216 In 1964, the year before Medicaid’s enactment, Americans with incomes above the poverty line saw physicians about twenty times more frequently than those with incomes below it.Footnote 217 By 1975, the situation had reversed, with poor patients seeing physicians eighteen percent more often than those who were not poor.Footnote 218 In 1964, white people saw physicians forty-two percent more often than Black people.Footnote 219 By 1973, the difference had shrunk to thirteen percent.Footnote 220 In 1963, patients with incomes below $2,000 a year had half the number of surgical procedures per 100 people as those with incomes above $7,500.Footnote 221 By 1970, the rate for the lower income group was forty percent higher.Footnote 222 Starr attributes the change mostly to Medicaid, noting that poor people who were eligible for Medicaid used health care services that year more often than those who were not eligible.Footnote 223
Similar effects are demonstrated by studies of the effects of the ACA’s Medicaid expansion. A study comparing rates of uninsurance in states that expanded Medicaid and those that did not found that rates of uninsurance were 8.2 lower in expansion states and rates of Medicaid participation were 15.6% higher.Footnote 224 Expansion states also had 3.4% fewer reports of inability to afford follow-up care and 7.9% fewer reports of worries about paying medical bills.Footnote 225 In the first states to expand Medicaid under the ACA, primary care physicians saw an increase of twenty-nine percent in Medicaid visits.Footnote 226 By one estimate, the program’s expansion under the ACA saved the lives of 19,200 adults aged fifty-five to sixty-four in its first four years alone.Footnote 227
Medicaid is especially important in compensating for lower rates of private insurance among Blacks.Footnote 228 Ongoing disparities in employment and income have resulted in more limited access to employer coverage and more difficulty affording private coverage when it is available, making Blacks more likely to turn to Medicaid as a source of coverage.Footnote 229 In 2023, Medicaid covered 38.2% of Blacks, and employer-based insurance covered 52.1%.Footnote 230 The corresponding figures for whites were 19.8% and 73.7%.Footnote 231
Medicaid also offers states considerable flexibility to try innovative approaches to reducing health disparities through waivers. In particular, several states have requested Section 1115 waivers to address specific social determinants of health.Footnote 232 These include programs to devote funds to help with housing,Footnote 233 and to advancing health equity more broadly.Footnote 234 For example, MassachusettsFootnote 235 and VermontFootnote 236 have requested authority to direct more spending to collecting data on health disparities. In the words of Medicaid scholar Sara Rosenbaum, “There simply is no counterpart to this special legal authority, one that enables Medicaid to be fully transformational extending beyond the traditional roles of insurance.”Footnote 237
States can also leverage contracts with managed care organizations (MCOs) that administer Medicaid benefits to promote health equity.Footnote 238 Federal regulations require that states publicly post quality strategies for MCOs that include reduction of health disparities.Footnote 239 Several states also require MCOs to implement performance improvement projects that address disparities.Footnote 240 Most states require MCOs to screen new beneficiaries for social and behavioral health needs and to make referrals for social services when such needs are identified.Footnote 241
In addition to ameliorating health care disparities based on income, Medicaid has been found to reduce them between rural and urban areas, especially for children.Footnote 242 During the period from 2014 to 2015, forty-five percent of children in rural areas and small towns were enrolled in Medicaid, as opposed to thirty-eight percent in urban areas.Footnote 243 In fourteen states, more than half of the children living in rural areas were enrolled in Medicaid.Footnote 244
Everyone benefits, either directly or indirectly, when health disparities are reduced. It creates a healthier population in which illness is less prevalent, and it lessens animosities that can be caused by the unequal allocation of essential resources. State Medicaid waivers are particularly important in this regard by permitting experimentation that makes the program, in the words of one analysis, “a beacon of innovation and empowerment of local, on-the-ground voices to shape how the program runs, state by state.”Footnote 245
2. Reduction in Overall Poverty
Beyond its effect in reducing disparities in health and health care, Medicaid has been found to have even broader repercussions in reducing overall poverty. One study of the economic effects of Medicaid examined the relationship between income and affordability of essential expenses.Footnote 246 When health care was considered as one of those expenses, Medicaid was shown to reduce the rate of poverty by 2.5% among those younger than age sixty-five, the age of eligibility for Medicare, assuming they would otherwise be uninsured.Footnote 247 In fostering this reduction, it also reduced disparities in rates of poverty according to race, ethnicity, and single parenthood.Footnote 248
A study of hospital closures during the period between 1990 and 2000 found a long-term decrease in real per capita income in the surrounding communities of about $703 in 1990 dollars.Footnote 249 This was estimated to represent a decrease of four percent during the first year after closure.Footnote 250 The long-term decrease was projected to be 1.5%.Footnote 251 As discussed in Section IIA, without Medicaid, such closures would be far more frequent.
A study of the Medicaid expansion in Virginia under the ACA found that in the year following implementation in 2019, newly enrolled beneficiaries reported decreases in concerns about a range of financial needs, including housing, food, regular monthly bills, credit card debt, and loan payments.Footnote 252 The reductions were similar across all demographic subgroups, suggesting that Medicaid serves as a general antipoverty program for all members of a community.Footnote 253 In addition to the economic benefits, reduction of poverty has been shown to mitigate social factors that contribute to poorer health, such as lower socioeconomic status, lesser educational attainment, poorer neighborhood and physical environment, unemployment, and lack of social support networks.Footnote 254
When the rate of poverty declines, individuals who are no longer poor benefit in many ways, as they are more likely to have access to health care resources, stable housing, healthy foods, and safe neighborhoods.Footnote 255 They are less likely to need assistance from income-based government programs, benefiting taxpayers. Children are more likely to be adequately nourished and educated, enhancing the community’s future wellbeing.Footnote 256 Crime is likely to be lower, reducing a source of daily stress.Footnote 257 Conversely, in the absence of these benefits, higher rates of poverty can make it more difficult for businesses to thrive.Footnote 258 These are positive externalities of Medicaid’s enhancement of access to health care, available as public goods for everyone.
C. Enhancing Economic Productivity and Growth
Beyond its health and societal benefits, Medicaid is an engine for overall economic growth. Most directly, it sends large amounts of funding to a range of private businesses. In 2019, $313.5 billion in Medicaid funds flowed to managed care companies that administer the program.Footnote 259 For providers of health care services, in 2020, $53.2 billion flowed to long-term care facilities,Footnote 260 $86.8 billion to physicians and providers of related clinical services, $220.8 billion to hospitals, and $34.5 billion to drug companies and pharmacies through the purchase of prescription drugs.Footnote 261 As described below, it also enhances the economy in two important indirect ways: helping to maintain the health of the workforce, and supporting job creation by the health care facilities, most notably hospitals, that it supports.
1. Healthier Workforce
People with better access to care are likely to be healthier, a relationship that is reflected in the findings of several research studies.Footnote 262 From an economic perspective, improved health makes those who are working more likely to be productive.Footnote 263 They are less likely to miss work timeFootnote 264 and to suffer from chronic conditions that can reduce their productivity.Footnote 265 One study estimated that an employer with 10,000 workers could face almost $3.8 million in productivity loss each year from ill workers.Footnote 266 When children are the beneficiaries of a government program, for example, through a Medicaid waiver or CHIP, their parents are less likely to miss work to care for them.Footnote 267 Coworkers may also benefit from smoother work routines when there are fewer absences.Footnote 268
Healthy workers are also less likely to file health insurance claims. If their coverage is through an employer plan, this may help to reduce premiums.Footnote 269 If the insurance is through Medicare, Medicaid, or another government program, it may reduce government expenditures.
Nevertheless, many employers are unable to afford the cost of offering health insurance to their workers.Footnote 270 To obtain coverage, many of their lower-paid employees turn to Medicaid and subsidized insurance through the ACA.Footnote 271 For these organizations, the availability of these programs provides a crucial resource for maintaining employee health.
2. Hospitals as Job Creators
In addition to enhancing the health of communities, hospitals are a significant contributor to overall economic vitality, in some communities more than any other industry. The United States has about 5,000 community hospitals,Footnote 272 which admit more than 32 million patients a year.Footnote 273 They generate more than $1.8 trillion a year in spending,Footnote 274 which represents about six percent of the country’s gross domestic product of $30 trillion.Footnote 275 In 2023, Medicaid payments to hospitals accounted for nineteen percent of total hospital spending.Footnote 276
Hospitals require large workforces and, as a result, are major employers.Footnote 277 In seventeen states, they are the largest.Footnote 278 In twenty-two of Pennsylvania’s sixty-seven counties, a hospital is the biggest employer.Footnote 279 The Hospital Association of Pennsylvania estimates that hospitals contributed $186.5 billion to that state’s economy in 2023, an increase of sixty-seven percent from 2010, and they provided 627,255 jobs.Footnote 280 During the first year of the COVID pandemic, hospital employment was a stabilizing economic force in many communities, falling 8.2% compared to 14% for the rest of the economy.Footnote 281 Hospitals also help to support ancillary industries, such as construction, real estate, medical equipment, and pharmaceuticals.Footnote 282
Hospital employment is particularly important for the economies of rural communities that do not have other large employers.Footnote 283 Closure of the sole hospital in a region has been found to have a negative effect throughout the immediate area, with one study predicting a four percent decrease in per capita income within the first year after closure.Footnote 284 Within a fifteen-mile radius of a closed hospital, the study found that per capita income decreased by 0.9% and the rate of unemployment increased by 0.3%.Footnote 285 The long-term decrease was estimated to be 1.5%.Footnote 286
D. Pipeline of Medical Professionals
After new physicians graduate from medical school, they spend several years training in hospitals as residents and fellows.Footnote 287 However, the teaching and supervision involved is expensive to provide.Footnote 288 There are direct costs of salaries for physician teachers and supervisors and indirect costs of lower productivity when time is diverted from clinical care.Footnote 289 Most of this cost is funded by government programs, primarily through supplements to reimbursement under public insurance.Footnote 290 The Medicare program is the largest funder, but Medicaid plays a major role as the second largest.Footnote 291
As of 2022, forty-four states made graduate medical education (GME) payments through Medicaid to help hospitals with the cost of training future physicians.Footnote 292 Most of these funds went to teaching hospitals, but three states also made payments to medical schools, five to community-based providers with training programs, and four to individual physicians.Footnote 293 Payments in twenty-four states covered indirect as well as direct costs.Footnote 294 In twelve states, payments also covered training of nurses and other health care professionals.Footnote 295
The total amount paid nationwide for GME through Medicaid is substantial. In 2018, it was $5.58 billion, a sizeable increase over the $3.78 billion paid in 2009.Footnote 296 In thirty-nine states, funds were also paid for physician training from general revenues, and in sixteen states funds were contributed by local governments.Footnote 297
While Medicare still outspends Medicaid for GME,Footnote 298 state Medicaid programs have the advantage of being able to experiment with different approaches. One example is the use of data monitoring to identify workplace needs. This forms the basis for allocating funding among medical specialties.Footnote 299
Medicaid funding of GME helps not only the budding clinicians who receive training but also the facilities that train them. It provides many safety net hospitals with the funding needed to cover losses from providing care to Medicaid and indigent patients.Footnote 300 While teaching hospitals are not the only recipients of this funding, they are especially reliant on it.Footnote 301 If they were to close, there would be chaos not only for patients and community members but also for their trainees.Footnote 302 The closure of Hahnemann left 571 medical residents and fellows scrambling to find alternate placements.Footnote 303
An ample supply of well-trained physicians and other health care clinicians is a clear benefit for society at large.Footnote 304 It is a private good on an individual level, limited to those who meet certain qualifications. Moreover, only a predetermined number of training slots are available each year.Footnote 305 However, the intangible benefits to society of having enough well-trained clinicians and a pipeline to replenish it helps everyone.
E. Public Health Protection
Everyone is better off when a community has less illness and disability, which is the goal of public health.Footnote 306 Community members lead healthier and more productive lives, they are more likely to thrive economically, and they experience less fear that disease will strike them and those around them. Reduction of illness and disability in a community is facilitated by several factors, with access to health care prominent among them.Footnote 307 By enhancing access, Medicaid thereby creates a paradigm example of a public good — a better quality of life for everyone regardless of payment and in inexhaustible supply.
Reducing the spread of infectious diseases was one of the major accomplishments of public health during the 20th century.Footnote 308 One of the most effective tools in this regard is facilitating the widespread provision of one health care service in particular — vaccination.Footnote 309 The World Health Organization has estimated that vaccination prevents 3.5 to 5 million deaths annually worldwide.Footnote 310 More than sixty vaccines have been approved for use in the United States, and more are continually added.Footnote 311 Most are administered to children, and laws in almost every state require that they receive a panel of vaccines before entering school.Footnote 312
Vaccination on a wide scale produces an especially important secondary benefit when enough people receive it. Once the proportion of those in a population who are immune to an infectious agent reaches a critical threshold, that agent no longer has enough susceptible hosts to maintain its presence in the population.Footnote 313 Further spread then ceases, and the community achieves a state known as “herd immunity” in which the disease disappears.Footnote 314 For most diseases, the threshold is about ninety percent.Footnote 315 When herd immunity is reached, even those who remain unvaccinated are protected.Footnote 316
On an individual level, the administration of a vaccine is exclusive in that it can be limited to those who pay.Footnote 317 Once a vaccine dose has been administered to one patient, it is not available for others. However, it produces a tremendous positive externality by reducing the risk of disease for everyone with whom the vaccine recipient comes into contact and for many diseases, herd immunity.Footnote 318 This phenomenon was dramatically demonstrated by a community outbreak of measles in Milwaukee in 1990 producing 1,095 cases primarily in areas with the lowest immunization rates.Footnote 319 In making such outbreaks far less likely, vaccination produces a crucial public good.Footnote 320
Public benefits also accrue from public health efforts to prevent and manage chronic diseases. Conditions such as heart disease, high blood pressure, diabetes, obesity, and depression reduce economic productivityFootnote 321 and can make people more susceptible to infectious diseases they might then spread.Footnote 322 However, these conditions are expensive to treat and manage.Footnote 323 Medicaid covers that cost for millions.
The combined effect of all these public health activities has contributed to the production of what may be the most important health-related benefit of all — a dramatic increase in life expectancy. Average life expectancy at birth in the United States rose from 47.3 years in 1900 to 76.5 years in 1997.Footnote 324 Medicaid helps to assure that medical care improves.Footnote 325 It works alongside other longstanding government public health initiatives like sanitation and clean drinking water which have reduced the prevalence of many serious conditions, such as cholera, dysentery, and polio.Footnote 326
The benefits of public health also have a global dimension. These are recognized by several international organizations, including the World Bank, which has described one public health benefit, pandemic preparedness, as a public good that enhances health security for people in every country.Footnote 327 The task of providing this security on a global level falls largely to the World Health Organization, but that institution is perennially underfunded for the magnitude of the challenge, placing much of the burden on efforts of individual countries.Footnote 328 In the United States, a large portion of that burden is met by Medicaid, which plays a key role in pandemic response in two ways. It finances prevention in the form of vaccination and treatment of those who become ill, and it facilitates recordkeeping that public health officials use to track disease spread.Footnote 329 In this regard, it extends the program’s public health benefits globally.
F. Healthier Children
Research shows that children who are healthier are more likely to grow up to be healthier as adults.Footnote 330 The health of children has been a key objective of Medicaid since its inception.Footnote 331 It is the reason that EPSDT was added as a mandatory benefit in 1967.Footnote 332 Medicaid has grown into the source of coverage for more than forty percent of all births in the United StatesFootnote 333 and, along with CHIP, for more than forty-five million children.Footnote 334 The same premise lay behind the enactment of CHIP in 1997.Footnote 335
Medicaid coverage of children coincided with substantial improvements in child health for which it was likely a major contributing factor. In the first full decade of Medicaid’s existence (1965-1975), infant mortality declined by thirty-five percent, neonatal mortality by forty-one percent, deaths in early childhood by twenty-four percent, deaths among school-age children by twenty-six percent, and deaths among older adolescents and young adults by twenty-five percent.Footnote 336 During the same period, there was also a tremendous decline in the incidence of several childhood diseases, including measles, mumps, and rubella, which has been attributed largely to increased coverage of vaccinations.Footnote 337 One analysis of Medicaid’s role in promoting the health of children concluded:
Medicaid coverage has provided the foundation on which a comprehensive pediatric health care program is based. Without Medicaid, low-income children would not have full access to well-child visits, immunizations, lead screenings, vision and hearing services, dental care, developmental screening, adolescent counseling services, mental health care, long- term care and treatment for chronic illness. Without Medicaid, low-income females would not have full access to prenatal care and coverage of family planning and other obstetric services that are vital to the health of their newborns.Footnote 338
Research has also identified effects of Medicaid participation in early childhood on social and economic wellbeing in adulthood.Footnote 339 A study of educational attainment found that expanding health insurance coverage for low-income children increases rates of high school and college completion.Footnote 340 A study of occupational success found that children who gained coverage through expansions of Medicaid and CHIP in the 1980s and 1990s paid more in income taxes at age twenty-eight, indicating that they had higher earnings.Footnote 341 The researchers estimated that by the time these childhood beneficiaries reached age sixty, the government would have recouped fifty-six cents in taxes for every dollar spent on coverage.Footnote 342
As with other health care services covered by Medicaid, those provided to children are private goods when considered on an individual basis. Access can be restricted based on payment, and the capacity of health care providers to render them is limited. However, by funding health care for many children whose families would otherwise be unable to pay for it, Medicaid significantly reduces their exclusive nature and lends them characteristics of a common good. This, in turn, helps to extend their effect of creating a healthier adult population as a public good for all of society.
G. Promoting Health Care Innovation
In its role as a source of support for the health care system within which private providers operate, Medicaid has been a driving force for innovations to address challenges in health care delivery and finance. A notable example is the transition of thousands of disabled, frail, and developmentally disabled patients from institutional care to HCBS, which would not have been possible without the flexibility provided by the waiver provisions of the Medicaid Act discussed in Section I.Footnote 343 Among the more dramatic effects of HCBS is a substantial decrease in unmet health care needs among children with autism spectrum disorder.Footnote 344 Other research has found that HCBS reduce the odds of having unmet medical needs more among Black children than among white children, thereby helping to reduce health disparities.Footnote 345
Beyond innovation in financing, Medicaid has been crucial to innovation in the pharmaceutical industry. The most important source of direct funding for pharmaceutical innovation is the National Institutes of Health (NIH), in its support for biomedical research.Footnote 346 However, Medicaid, along with Medicare, provides important indirect support by financing the use of novel treatments and the training of clinicians who apply them.Footnote 347 This has been particularly important in the development of treatments for cancer.Footnote 348
Medicaid’s coverage of prescription drugs is a major source of program costs, leading Congress to place limits on the amounts that drug companies can charge the program.Footnote 349 Nevertheless, the value of the Medicaid market to those companies, $32 billion in 2018, is considerable.Footnote 350 That year, beneficiaries in Medicare and Medicaid accounted for forty-five percent of spending on prescription drugs in the United States.Footnote 351 By providing this large proportion of the pharmaceutical industry’s revenue, Medicaid supplies critical financial support to make the development of new products financially attractive.
H. Reducing the Societal Burden of Illness
Perhaps the most fundamental public good of all those produced by Medicaid is a reduction in the burden of illness on society. Without Medicaid and CHIP, many of the tens of millions of Americans covered by those programs would be unable to obtain health insurance, which would make it difficult to receive any health care services.Footnote 352 If they did receive services, they would be responsible for the cost, which could send many into bankruptcy.Footnote 353 Primary care might still be available in public clinics, if any existed in a patient’s area, however wait times can sometimes be substantial.Footnote 354 With the closure of most public hospitals decades ago, there would be few alternative sources of care.
The potential effects of reducing Medicaid participation can be seen in the effect of uninsurance on the millions of Americans who experience it. Most people without insurance lack a reliable source of care, which increases the risk of developing an array of chronic diseases.Footnote 355 For those who have developed one of them, it increases the chance that the disease will be managed poorly.Footnote 356 They are less likely to receive follow-up care, more likely to be hospitalized for avoidable reasons, and, if they are hospitalized, less likely to receive diagnostic and therapeutic services.Footnote 357 Because of consequences such as these, lack of coverage is also associated with shorter life expectancies.Footnote 358 Moreover, measures of health status have consistently been found to be lower for racial and other minority groups that face barriers to accessing care.Footnote 359
By one estimate, poorer health for the uninsured already creates an aggregate national cost of at least $65 billion and possibly as high as $130 billion a year.Footnote 360 Without Medicaid, the cost would almost certainly grow substantially and affect many sectors of the economy. Federal and state governments would face greater demand for whatever public health care services were available. The burden on public health programs would grow to address increased health threats. Many hospitals and clinicians would find it more challenging to care for all their patients with time and resources diverted to caring for a sicker population.Footnote 361 Premiums would likely rise for private insurance to cover the increased reimbursement that hospitals would need to fund their greater uncompensated care load. The benefits of avoiding this burden reach everyone, and they are available in unlimited supply and without regard to payment.
V. Limits of Medicaid
While Medicaid and other health care safety programs bring the numerous societal benefits discussed in Section III, their limits should also be acknowledged. Two of them are especially significant. First, despite the size of these programs, there are still substantial limits to their reach. Second, in supporting the ability of hospitals and other private providers to render care, they also enable some forms of provider abuse.
A. Limits to Medicaid’s Reach
Although Medicaid provides financial support that keeps many hospitals afloat, its reimbursement rates, even with DSH supplements, often fail to cover the actual cost of care.Footnote 362 A study of the effects of the ACA Medicaid expansion on hospital finances found that while it led to substantial reductions in expenses for providing uncompensated care, the savings were offset by the gap between Medicaid reimbursement for that care and the cost.Footnote 363 Moreover, states often set Medicaid payment rates for physicians at low levels to control costs.Footnote 364 Nationally, the rates average about two-thirds of those paid by Medicare.Footnote 365 This, along with the administrative burdens of participating in the program, has led many of them to decline to take part.Footnote 366 Federal law requires that payment rates be high enough to ensure that beneficiaries have as much access to health care services as people with private insurance, but neither states nor the federal government has consistently enforced this rule.Footnote 367 As a result, those without access to public health clinics can still encounter difficulty finding a physician whom they can afford to see.Footnote 368
Moreover, while Medicaid has substantially reduced inequalities in access to health care and in overall health, significant gaps based on social factors remain. Notably, access remains more limited for those with lower incomes in most parts of the country, resulting in diminished health status.Footnote 369 Research has also shown that while the ACA Medicaid expansion lowered uninsurance rates overall, it left rates for noncitizens substantially higher than those for citizens.Footnote 370
In terms of provider abuses, although health care providers operate with a mission to improve the wellbeing of patients and the public, self-interested behavior is rampant. Hospitals, both for-profit and nonprofit, are business entities, and as such they face incentives to maximize revenue. These incentives lead many to limit access to care based on financial considerations.Footnote 371 The availability of Medicaid reimbursement has not eliminated this practice.
In particular, it is common for hospitals to restrict or deny nonemergency care for patients who have no source of payment.Footnote 372 For emergency care, assessment and stabilization cannot be denied based on ability to pay under EMTALA, but that law says nothing about nonurgent medical needs.Footnote 373 Moreover, when emergency care is rendered and a patient lacks insurance to cover the cost, both for-profit and nonprofit hospitals routinely send bills and bring lawsuits when they are not paid.Footnote 374 It is not uncommon for patients who face such suits to be forced into bankruptcy.Footnote 375 One large midwestern health system, Allina Health, refused for a time to provide any services to patients who were in debt to it for previous care until negative publicity led it to suspend the practice.Footnote 376 Some hospitals even seek ways to avoid treating Medicaid patients because of its low reimbursement rates.Footnote 377
Aggressive business practices also characterize many nursing homes, especially those with for-profit ownership.Footnote 378 These practices include reducing staffing levels and neglecting basic patient needs.Footnote 379 There have also been numerous instances of billing fraud.Footnote 380 An additional serious quality concern is frequent physical abuse of residents.Footnote 381 Enforcement tends to be lax, and penalties are often delayed or avoided through appeals.Footnote 382
B. The Balance of Limits and Benefits
Nevertheless, acknowledging these limitations of Medicaid is not to deny that it makes substantial contributions to community and national wellbeing. Because of it, as described in Section II, facilities that are vital to public wellbeing, such as hospitals and nursing homes, enjoy a more stable financial footing, health care is more widely available, disparities in access to care are substantially reduced, and the population is considerably healthier than it would be otherwise. The shortcomings of Medicaid are reason to improve and expand it, not to doubt its value.
VI. Conclusion
Compared to citizens of many other developed countries, Americans tend to place tremendous emphasis on the values of individualism and autonomy.Footnote 383 These values support the notion that with enough drive and determination, people can “pull themselves up by their bootstraps” to gain whatever advantage they want.Footnote 384 From this perspective, rewards come to those who work hard and take responsibility for themselves, and lack of those attributes often leads to misfortune.Footnote 385
In health care at least, that notion is a gross distortion of reality. The concept of “self-reliance” when it comes to accessing life-saving services is at best a myth and at worst a justification for economically destructive and socially regressive government policies.Footnote 386 No element of American health care could exist in anything like its present size or vitality without a foundation of government support, and everyone who uses it is relying directly or indirectly on a vast web of government programs, with Medicaid at its core.Footnote 387 Even more fundamentally, everyone, regardless of what health care services they use, enjoys the social, psychological and economic benefits that Medicaid creates. These are public goods and common goods that no individual or private entity could create on its own.
In addition to its conceptual value, this framing of Medicaid enables a more powerful pushback against proposals to reduce or eliminate it.Footnote 388 Medicaid is much more than generosity for the “deserving” poor, as important and morally compelling as that generosity may be. It is a pillar of the country’s health care system and thereby of the larger social and economic fabric of our society.
Instead of focusing on ways to shrink Medicaid, policy reforms should focus on ways to enhance it. One important way is by expanding enrollment. A larger program would be a more robust program capable of spreading Medicaid’s society-wide benefits more broadly. For example, in contrast to proposals to require more frequent reenrollment as a barrier to participation, the program could help beneficiaries who remain eligible maintain coverage without interruption. An approach to doing so that has proven effective is to have enrollment remain in force for at least twelve months initially and after each redetermination.Footnote 389 Another approach to increasing participation that has a proven track record is to allow Medicaid officials to use information submitted by applicants for other safety net programs in determining eligibility, a process known as “express-lane eligibility.”Footnote 390 Other ideas that could help Medicaid grow are to enable officials to accept partial applications and to determine eligibility in real time.Footnote 391
As Medicaid kept Hahnemann afloat for several decades to the benefit of its surrounding community, it sustains health care across the country to the benefit of communities everywhere. The ripple effects of maintaining a vibrant health care system in turn enhance everyone’s life in fundamental, if not always visible, ways. We are all beneficiaries of Medicaid, and we all have a stake in supporting its survival and growth.
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