The Medicaid Program (Title XIX) (circ. 1980)

Medicaid (Title XIX of the Social Security Act) was created with little debate in 1965.  Its purpose was to provide federal financial assistance (FFP) to states in providing health care for public welfare recipients.  Similar to other state-federal public welfare program, states had to choose whether or not to participate in the Medicaid program.  Eventually all states adopted the medicaid program, but it was not until 1981 that Arizona agreed to provide Medicaid, and then only in a restricted form.

Under the terms of Medicaid, states receive federal reimbursement for 55 percent of the costs of allowable health services or products provided to eligible recipients.  States were required to offer a number of basic health services, such as in-patient and out-patient hospital care, nursing home care and physicians’ services.  Some other health services, such as eye exams, glasses and dentistry, were optional and could be reimbursed if a state chose to provide them.

Initially, the Medicaid program covered only public welfare recipients. However, soon after enactment, the federal government liberalized Medicaid by permitting federal reimbursement for health care provided by states to the “medically needy.”  With this new policy, states were able to extend coverage to individuals and families who were categorically related to public welfare (i.e., aged, blind, disabled, and families with dependent children), but whose spendable income was above the level permitted for cash assistance but that did not exceed 133 percent of the state’s standard for public assistance. As of 1980, thirty-seven states had elected to have Medicaid coverage for the medically needy.

In 1966,the costs for Medicaid were $362 million and by 1977 had grown to $17 billion, an average increase of 15 percent a year.  For 1982, Medicaid costs were estimated to be $32 billion, of which states would pay approximately $15.6 billion. Nationally, for 1980, 21.6 million persons received Medicaid assistance, including 10.5 million children and 3.4 million elderly persons over 65 years of age. The growth in Medicaid was due in large part to the fact that it was the only source of public funds available to pay the costs of health care for individuals who require lengthy stays in hospitals or nursing homes.  It was estimated 67 percent of Medicaid funds were used by only 28 percent of the recipients.  What often happened was that an elderly or frail person was placed in a nursing home because he/she was unable to live independently with no one available to care for them in their own home.  Some persons had enough income and assets to pay the full costs of care; however, many did not.  Also, it was common that an individual had the money for a limited stay in a hospital or nursing home, but their condition required them to be there a long time.  It is in such instances that the “spend down” occurs.  In the instance of a spend down, an individual’s income and assets are first applied to the cost of care, until they are “pauperized.”  After an individual’s resources have been exhausted, they become eligible to have the remainder of the actual costs picked up by the state through Medicaid.

Medicaid regulations allowed states broad discretion in determining program benefits, eligibility levels, and administrative procedures.  As a result, program administration varied widely from state to state.  Some states allowed more generous benefits; some had more sophisticated management systems. One of the greatest problem facing Medicaid was containment of costs. A number of strategies proposed to curb the growth of expenditures, primarily focused on changes in the reimbursement of providers, particularly hospitals.  Experiments in prospective reimbursement, rate review, and capital expenditure control had been undertaken–all designed to move away from the inflationary method of cost-related reimbursement (where virtually all costs are covered).   Other programs had been developed to control inappropriate utilization of services.

Another target of cost containment efforts was elimination of fraud and abuse within Medicaid.  The Office of the Inspector General/HHS and the states launched massive efforts to uncover and prosecute fraudulent providers, while at the same time attempting to deter reportedly widespread abuse.  It was generally acknowledged that one of the keys to ongoing cost containment would result from improved program management.  Numerous programs were developed to enhance state administration of eligibility determination, claims processing, fraud and abuse detection, utilization control, and data collection.

One of the most ambitious efforts to actually assure provision of health services under the Medicaid program was the Early and Periodic Screening, Diagnosis and Treatment (EPSDT) program.  EPSDT mandated that all eligible AFDC children undergo health screening and, if necessary, treatment on a periodic basis.  The requirement was initially included in the 1967 amendments to the Social Security Act. However, only several years later were broad implementation efforts undertaken.  Provisions (in 1980) required active participation of state Medicaid agencies in several EPSDT areas: outreach, scheduling, transportation, and documentation of both treatment and screening procedures.