CHAPTER THREE. AMERICAN HEALTH CARE FINANCING: THE PUBLIC PAYERS A. AN INTRODUCTION TO THIS CHAPTER While health care financing in the United States relies heavily on private third party financing arrangements -- unlike the more socialized schemes in virtually all other industrialized countries -- the role of government in financing American health care is, nonetheless, extensive. Local, state, and federal governments provide health financing for their employees, the mentally ill and other institutionalized people, various specifically-defined categories of people, and, since the enactment of Medicaid and Medicare, virtually everyone who is 65 years of age or older and a significant portion of the disabled and the poor. In addition, as discussed supra, the exclusion of employer-purchased health benefits from federal and state taxation represents an indirect government subsidy of a good portion of the privately purchased health financing arrangements. These public financing efforts have grown substantially over the last three decades. In 1965, local, state, and federal government programs combined spent only $10.3 billion on health care, 25 percent of total NHEs. A good portion of this represented state and local financing of public hospitals and clinics. Only two years later, following the implementation of Medicaid and Medicare, total government spending for health care had jumped to $19 billion, and had grown to nearly 37 percent of all health expenditures. Between 1968 and 1980, government spending continued to grow fairly rapidly, increasing at an average annual rate of over 14 percent, and bringing with it increased government involvement in virtually every aspect of health care delivery. By 1980, government was spending over $100 billion annually for health care, representing over 41 percent of all health spending and nearly 60 percent of all hospital spending. Most of the rapid growth in government spending during this time can be attributed to the implementation of Medicaid and Medicare, particularly in the first decade of those programs. The lion's share of this
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CHAPTER THREE. AMERICAN HEALTH CARE FINANCING: THE PUBLIC PAYERS
A. AN INTRODUCTION TO THIS CHAPTER
While health care financing in the United States relies heavily on private third party financing arrangements -- unlike the more socialized schemes in virtually all other industrialized countries -- the role of government in financing American health care is, nonetheless, extensive. Local, state, and federal governments provide health financing for their employees, the mentally ill and other institutionalized people, various specifically-defined categories of people, and, since the enactment of Medicaid and Medicare, virtually everyone who is 65 years of age or older and a significant portion of the disabled and the poor. In addition, as discussed supra, the exclusion of employer-purchased health benefits from federal and state taxation represents an indirect government subsidy of a good portion of the privately purchased health financing arrangements.
These public financing efforts have grown substantially over the last three decades. In 1965, local, state, and federal government programs combined spent only $10.3 billion on health care, 25 percent of total NHEs. A good portion of this represented state and local financing of public hospitals and clinics. Only two years later, following the implementation of Medicaid and Medicare, total government spending for health care had jumped to $19 billion, and had grown to nearly 37 percent of all health expenditures. Between 1968 and 1980, government spending continued to grow fairly rapidly, increasing at an average annual rate of over 14 percent, and bringing with it increased government involvement in virtually every aspect of health care delivery. By 1980, government was spending over $100 billion annually for health care, representing over 41 percent of all health spending and nearly 60 percent of all hospital spending. Most of the rapid growth in government spending during this time can be attributed to the implementation of Medicaid and Medicare, particularly in the first decade of those programs. The lion's share of this increase came from the federal budget. The state and local share of total health care spending actually declined by 25 percent from 1967 to 1983.
During the 1980s, the overall rate of growth in government spending for health care stabilized, growing at about the same rate as overall national health spending, although, again, the federal share grew more rapidly than the state share. Nonetheless, the ability -- and willingness -- of both the federal and the state governments to continue to commit resources to health care became increasingly controversial and government health spending programs became
increasingly visible targets for policymakers concerned with limited revenue bases and growing budget deficits. In the early 1990s, when the government share of NHEs again began to grow more rapidly, reaching over 46 percent in 1995, debates over the state and federal roles in health care financing in general and over the future of the Medicaid and Medicare programs in particular became even more heated than they had been in previous decades.
In the mid-1990s, the rate of growth of total spending for all government health programs slowed. In fact, in 1998, the public share of total health spending actually declined for the first time in over a decade and total Medicare expenditures, for the first time in the history of the program, declined slightly. These figures can be attributed to the robust status of the American economy in the late 1990s and to various programmatic changes mandated by the 1997 budget legislation, as will be discussed infra. Nonetheless, they also reflected a re-alignment of the political forces that had sustained programs like Medicaid and Medicare through their first 40 years.
In the first few years of the 21st century, the rate of growth of Medicare, Medicaid, and other government health spending programs continued to grow at relatively modest rates. In 2003, the last year for which good, comparative data are available, total government spending for health care increased 6.6 percent (as compared to 9.7 percent in 2002); in that same year, private sector spending rose 8.6 percent. For additional analysis of this data, see Smith et al., Health Spending Growth Slows in 2003, 24 Health Affairs 185 (2005) (updated annually); for additional statistical updates since 2003, see Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group at http://www.cms.hhs.gov/ (last visited September 2006).
The Medicaid program should be studied for a number of reasons. First and foremost, Medicaid plays a very important role in financing health care in the United States. In 2005, Medicaid was the primary source of payment for over 50 million Americans -- at a cost to the state and federal budgets of over $300 billion. But studying Medicaid is also important for another reason. To understand Medicaid, what it is and what it is not, how it has been implemented, and the problems that it has encountered, is to understand much about American political and social attitudes towards health care and American legal and governmental institutions.
But while Medicaid is very important, it is also extremely complicated. Medicaid is not one but 52 programs (50 states and 2 territories participated in 2005), varying widely from state to state and, sometimes, within a state. While some state Medicaid programs resemble traditional insurance-type schemes, other states have built programs around capitated contracts, "managed care" strategies, or other innovative arrangements. And no Medicaid program is static: the Medicaid programs are constantly adjusted by state and federal lawmakers and by the necessarily complicated network of local, state, and federal agencies that administer Medicaid programs. Even viewed in the aggregate, Medicaid is not one but several intertwined programs. Medicaid can be viewed quite differently from the perspective of those beneficiaries who rely on Medicaid for nursing home or other forms of long term care, as opposed to the perspective of those who view Medicaid primarily as a program that finances hospital, physician, and other acute care services. Conversely, for those who provide those services, Medicaid is a program of provider reimbursement and the means through which state and federal governments attempt to regulate their services. For that matter, it is difficult to view Medicaid apart from its relationship to Social Security, Medicare, and, particularly, the cash benefit and other social welfare programs to which Medicaid has been partially affixed.
For these and many other reasons, Medicaid must be studied not simply as the "government health program for the poor," but as a complicated state-federal arrangement that must be examined in considerable detail and in a manner that reflects both its complexity and its unique role in American health care financing.
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TABLE IMEDICAID EXPENDITURES AND RECIPIENTS
1967 - 2005Year Medicaid Increase Number of Medicaid
Source: data derived from estimates of personal health expenditures found at http://www.cms.hhs.gov/NationalHealthExpendData/ (last visited September 2006); and http://www.cms.hhs.gov/Medicaid/ (last visited September 2006).
1. An Introduction to Medicaid in the 21st Century
As described in Chapter 1, Medicaid evolved somewhat unexpectedly from the political debates over the enactment of the Medicare program in 1965 and was pre-designed in large part by the patchwork of state and federal social welfare programs spawned by the New Deal and its Great Society progeny. As originally structured, it was intended to be a state-administered, health care financing program for welfare recipients, providing a range of benefits that would be largely defined by each state, and financed jointly from state and federal funds. The states also were given the option of providing Medicaid benefits to people who fell into the welfare categories (the blind, the aged, the disabled, and families with dependent children) with income or resources slightly above the welfare cash grant limits.
Since 1965, Medicaid has been constantly evolving, in some cases by design and in other cases by its linkage to changes in welfare cash grants and other programs, as in the case of the 1972 Social Security Amendments and the creation of the Supplemental Security Income (SSI) program. See discussion in Chapter 1. The federal Medicaid legislation has been periodically amended to allow and, in some cases, require states to extend Medicaid eligibility to other categories of people, e.g., mandating eligibility for some specially-defined categories of children and pregnant women otherwise ineligible for welfare cash grants. The federal law also gives considerable discretion to each state in determining the income and resource standards to determine Medicaid eligibility, discretion that the states have frequently exercised. As a result, these standards vary widely from state to state, and, in any one year, few states actually cover more than one-half to one-third of the population below the federal poverty level.
Notwithstanding this discretion, the total number of Medicaid beneficiaries has grown throughout the history of the program, albeit somewhat fitfully, and, again, sometimes as a result of changes in state and federal Medicaid policies, but sometimes in response to changes in other programs, swings in the economy, and other extrinsic factors. In the late 1980s, for example, it appeared that the total number of Medicaid recipients had stabilized and in 1988 it actually declined. In the early 1990s, in response to federally mandated changes in Medicaid eligibility and an increase in the level of unemployment, the total number of recipients jumped substantially, although, again, these figures disguise considerable variations from state to state during these same years. Conversely, in 1996, the total number of Medicaid recipients declined slightly, apparently a result of changes in the welfare cash grant programs. Since that time the number of Medicaid recipients has continued to grow and grow, in some years, rather rapidly. See Table I supra. As of 2006, over 50 million Americans were receiving services through Medicaid.
The federal Medicaid legislation has always allowed each state a great deal of discretion in fashioning the scope and limits on service coverage and the terms and condition imposed on provider participation. Grossly over-simplified, at least through the Fall of 2006, a participating state is required by the federal Medicaid legislation to provide all "categorically needy" -- people who the state is required to cover if it has a Medicaid program plus a few other groups of people that the state can choose to treat as "categorically needy" -- with a basic range of services, allowed to provide them many additional services, and given wide latitude in setting various limits on the services that are covered. States opting to provide services to the "medically needy" -- people who the state can choose to cover -- have greater latitude in defining the scope and range of coverage to these beneficiaries. In many states,
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the range of services covered by Medicaid is limited to those services that are federally mandated and Medicaid eligibility is available only to the "mandatory eligibles." Other states can boast that their Medicaid programs cover a broader range of services for both the "categorically" and the "medically needy" than most private health financing plans. But in all states, both the level of benefits and the definition of who is eligible to receive them are a continuing source of controversy. Throughout the history of the program, the states have repeatedly reworked their eligibility standards and the coverage of their programs, sometimes under federal pressure to do so and sometimes under economic or political pressures from within the state. The specific results are often difficult to describe and, in some cases, difficult to rationalize. But even in the best of times, in the most generous states, one simple observation remains true: The Medicaid program only covers some, but not all, the poor for some, but not all, their needs.
Even for people whose needs are covered, Medicaid has many shortcomings. The federal law allows states considerable discretion in determining the type or level of Medicaid payments, discretion that has been frequently at the heart of state efforts to contain Medicaid costs. In exercising this discretion, the states often set provider reimbursement levels far below the rates paid by Medicare and private payers and, as a result, many providers are reluctant to accept Medicaid patients. Neither the state nor federal Medicaid laws require providers to accept Medicaid patients. For most covered services, Medicaid assures that a provider will be reimbursed only if the beneficiary can find one willing to accept Medicaid. (But see discussion of EPSDT infra.) In many areas of the country, Medicaid is a realistic source of health care financing only through public clinics and hospitals, so-called "Medicaid mills," or the efforts of some dedicated but frequently disgruntled providers. Many states have attempted to enroll their Medicaid beneficiaries in HMOs or other capitated arrangements. These efforts are generally more successful in urban areas, however, and can leave beneficiaries in rural areas with little or no access to covered services.
In the eyes of many state and federal policymakers, however, the critical problem with the Medicaid program has not been its limited eligibility, the patchwork nature of its coverage, or any of its other inadequacies, but its costs. As described in Chapter 1, virtually from the inception of the program, Congress and the states have had to struggle to find some way to keep the costs of Medicaid within politically acceptable limits. That struggle has resulted in a hodgepodge of cost-containing strategies, ranging from straightforward service and eligibility reductions to attempts to encourage more efficient and cost-effective services to a whole range of reforms and limits on Medicaid reimbursement. At times, Congress has appeared reluctant to allow the states too much discretion and, on occasion, has even required expansion of the program orcoverage of specific services or prohibited certain state practices. At other times, both Congress and the federal administration have been aggressively cost-conscious and demonstrably tolerant of state program reductions.
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TABLE II WHO IS ELIGIBLE FOR MEDICAID?
As of September 2006, to be eligible for federal Medicaid funds, a state must cover the "mandatory eligible" or "categorically needy":
-- all people who would have received AFDC (Aid to Families with Dependent Children) under the state's AFDC standards as of July 16, 1996 ((AFDC has been phased out and replaced by TANF (Temporary Aid to Needy Families) except those excluded from TANF for certain specified "penalties;"-- pregnant or postpartum women and children under age 6 with family incomes within 133 percent of Federal Poverty Level (FPL),-- all children under age 19 within 100 percent of FPL,-- recipients of adoption assistance and foster care under Title IV-E of Social Security,-- all SSI (Supplemental Security Income) recipients or, in "209(b) states," those SSI recipients who meet more restrictive income and resource standards,-- some specially-defined categories of Medicare-eligible people (for whom Medicaid pays their Part B Medicare premiums and cost-sharing under Parts A and B),-- undocumented aliens who meet other Medicaid requirements (for whom Medicaid pays only for emergency medical conditions including labor and delivery), and-- "Pickle people," (many but not all) recipients of both SSI and Social Security who have lost their SSI benefits because of Social Security cost-of-living adjustments.
A state may cover "optional eligibles" (and treat them as "categorically needy"):
-- TANF recipients who would not have qualified from AFDC on July 16, 1996, if the state's standards are higher than those on July 16, 1996-- infants up to one year of age and pregnant women above 133 percent of FPL, but below 185 percent;-- certain aged or disabled adults with incomes above the SSI level but below the FPL;-- children under 21, 20, 19, or 18 (at state's option) who meet income and resource requirements for AFDC but who are not otherwise eligible for TANF;-- caretaker relatives (of covered children) who meet income and resource standards of TANF; or-- aged, blind, or disabled receiving state-funded supplementary payments.
A state may cover the "medically needy":
-- people who would qualify under any of the optional or mandatory groups listed above except that their income and resources are too high; they may be covered after they have "spent down" excess income and resources to a state-prescribed level.
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TABLE III
WHAT DO MEDICAID RECIPIENTS GET?
As of September 2006, to be eligible for federal Medicaid funds, a state:
must cover for "mandatory eligible" and "optional eligible"-- inpatient hospital services,-- outpatient hospital services,-- rural health clinic services,-- services by a (federally qualified) health center,-- laboratory and x-ray services,-- nursing facility services for adults,-- early and periodic screening, diagnosis, and treatment for beneficiaries under age 21,-- family planning services (except abortion),-- physician services,-- medical services by a dentist,-- home health services,-- nurse midwife services, and-- pediatric nurse practitioner services;
may cover for "mandatory eligible" and "optional eligible" any of 19 other categories of services outlined in the federal statute (virtually any medical service other than abortion).
If it provides coverage for the medically needy, a state must provide:-- prenatal care and delivery services,-- postpartum services,-- ambulatory services for beneficiaries under age 18 and for institutionalized beneficiaries, and-- home health services for any individual entitled to nursing facility care.
Services provided to the "mandatory eligibles" and "optional eligibles" may not be less in amount, duration and scope than those provided to the "medically needy."
Each service must be of sufficient amount, duration, and scope to achieve the purpose of the program.
A mandatory service may not be denied or decreased in amount, scope, or duration solely because of the recipient's diagnosis, illness, or condition.
Amount, duration, and scope must be the same for all beneficiaries within "mandatory eligible" and "optional eligible" categories; and within all groups who are "medically needy."
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The net results are hard to characterize. During the late 1980s, it appeared that these efforts had been successful, at least in the sense that the total costs of the Medicaid program were growing relatively slowly and the size of the Medicaid population had virtually stabilized. On the other hand, in the early 1990s, both the total costs of the program and the number of beneficiaries jumped dramatically. But even during the 1980s, in some years and, particularly, in some states with budget deficits or declining revenue bases, the costs of even a "stabilized" Medicaid program had been increasingly controversial -- and thus became even more so following the rapid increases of the early 1990s.
At the same time, Medicaid has demonstrated repeatedly its remarkable political resilience in the face of an almost constant political onslaught. Few states have even discussed withdrawing from the program. Even when making the most draconian Medicaid reductions, policymakers have always insisted that they were containing costs, not reducing the level of benefits or number of beneficiaries. And almost as often as Congress or the states have considered reducing Medicaid, there have been public debates -- and occasional successful legislative action -- concerning the need to expand the program. Most importantly, only rarely, at either the federal or state level, has the basic notion that the government should maintain a health care financing program for the poor been directly attacked. As detailed in Chapter 1, even at the height of his popularity, Ronald Reagan was rebuffed in his efforts to overtly rework the federal government's role in Medicaid and forced to repackage his Medicaid funding cuts as cost-containing measures, not program reductions.
On the other hand, Medicaid's political resilience almost reached its breaking point in the mid-1990s. Throughout the 1990s, Congress debated a series of dramatic changes in the Medicaid program, a debate driven by both ideological and budgetary concerns. Following the Republican takeover of Congress in 1994, many of the original Reagan proposals were revived, and throughout 1995 and 1996 Congress engaged in a heated debate over various limits on the federal fiscal support of Medicaid, expansion of the discretion of each state in determining eligibility and coverage, and other changes in the federal Medicaid statute that would have totally restructured the Medicaid program and fundamentally altered its role in American health care financing. Some of the proposals that reached the floors of Congress only suggest the range of possibilities:
-- convert Medicaid to a block grant program that would award each state a fixed budget and, thereafter, annual increases (capped by various budget-driven limits);
-- federalize the Medicaid program, unbundling it from the AFDC or TANF cash grant programs, as part of a trade-off for giving the states full fiscal and administrative responsibility over the cash grant programs;
-- split Medicaid into two programs, one for long term care and the other for acute and primary care, giving the states more fiscal and administrative responsibility for long term care;
-- limit the federal match to a maximum ceiling or eliminate altogether the federal match for administrative costs;
-- make per enrollee-capitation payments to the states;
-- eliminate coverage for non-citizens.
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None of these measures was adopted, although each reached the floor of either the House or the Senate at one point during the 1990s. In fact, in the 1990s Medicaid proved, once again, to be remarkably resistant to political efforts to reduce or limit the basic federal commitment to a federally sponsored, state administered program for the poor. But Medicaid only just survived. Indeed, at one point in the mid-1990s, it appeared that Congress would include Medicaid benefits along with the cash grant, food stamps, and other social service reductions that were wrought by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 which drastically curtailed the federal support for those programs and, in the political lexicon, "ended welfare as we knew it." President Clinton vetoed the original version of the act that included Medicaid among the re-worked welfare programs. After lengthy negotiations, the final bill excluded Medicaid, as part of the political compromise that secured the final enactment of the welfare reform legislation and the President’s signature.
The political significance of the severance of the Medicaid reform
provisions from the 1996 welfare reform legislation can be read several ways. In some ways, it reaffirmed the remarkable political support that the program has maintained even when it is drawn to the center of critical ideological and budgetary controversies. On the other hand, the political story of Medicaid in the 1990s could prove to be only the penultimate chapter in a longer story to be continued and then completed in the first decade of the 21st century.
The analyses of the legal and political issues that follow in the next subsections of this chapter should be read first as descriptions of how those issues have been resolved under current law; but they should also be read for the purpose of anticipating how those issues will be addressed if proposals for Medicaid reform again take center stage.
To make some sense of what is at stake here, for Medicaid as well as other American social welfare programs, consider the distinction between a program that is an entitlement and one that is essentially a discretionary spending program. In the context of American Social Security and welfare programs, the term entitlement has had at least two meanings. First, it is a description of the statutory structure of a benefits program. Until the 1996 welfare reform legislation, all of the federal welfare programs (AFDC, SSI, and related programs that provide food stamps and social services), Social Security, Medicare, and Medicaid were structured as entitlements. That is, the authorization statute defines who is eligible for the program's benefits and requires that anyone who meets these eligibility standards be given prescribed benefits. As such, eligible beneficiaries are statutorily entitled to the benefits. There is no upper limit on the amount of benefits that can be provided in a given year, either directly set out in the authorization legislation or fixed by annual appropriation legislation. Nor is the program authorized for a fixed number of years. Under most other government spending programs, even some programs that provide health care or other social services, no one is automatically eligible for benefits and no one can demand benefits that exceed the annual appropriations for the program (or the maximum authorization levels in the program's authorization statute).
The fact that some social welfare programs are designed as statutory entitlements strongly implies that they are political entitlements as well. That is to say, there is a popular perception that there is a permanent government commitment to continue to provide the benefits to program beneficiaries. Medicare and Social Security are the classic political entitlements. As a constitutional matter, either program could be curtailed or repealed altogether
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at any time; see discussion supra. As a political matter, however, any suggestion that either program be limited or reduced would provoke a firestorm of protest. Programs like Medicaid (and AFDC until the welfare reform legislation of 1996) have not enjoyed the same degree of political invulnerability, as has been demonstrated by the repeated efforts over the years to contain their costs. But the basic notion of a Medicaid program, a federal commitment to underwrite the costs of health care for the poor and structured as a statutory entitlement program, has been and continues to be regarded as a political entitlement and, therefore, a permanent government commitment -- or at least it has through the end of the 1990s.
Consider whether Medicaid should be an entitlement program -- in either meaning of the term. Should the federal government maintain such a commitment? If there is a federal commitment, should it be open-ended, as it has been historically, or should it be in the form of a block grant to the states? Assuming there is some future limit on federal Medicaid spending, should the states consider Medicaid a political entitlement and, if so, should they structure their programs as statutory entitlements? If either level of government does so, how does this affect the manner in which legislatures set priorities and make other spending (and taxing) decisions? Obviously any program that is tied to the availability of revenue or funded exclusively out of one revenue source is something less than an entitlement. Is that sound public policy? Does it make a difference that you are talking about health benefits for the poor -- who are less likely to have effective access to political decision makers? You may want to compare your answers here to your answers to questions concerning the future of the Medicare program raised in the next subsection; your answers to questions concerning your preferences for participation in various private financing arrangements supra; and your answers to questions concerning the reform of both private and public health care financing that will be raised in Chapter 8. For that matter, your views concerning the future of the Medicaid program, whatever they may be, should be tempered by the facts that Medicaid, even as it is currently structured covers only some, not all of the nation's poor, and that if Medicaid's scope is curtailed it will only add to a problem that is already considered by many to be one of the most fundamental and perplexing questions facing American health policymakers: the number of Americans who have little or no third party financing for their health care needs -- both of which will be discussed further in the next section of this chapter.
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2. Problems in Medicaid Coverage and Eligibility
MEMORIAL HOSPITAL v. MARICOPA COUNTY, 415 U.S. 250 (1974)
Marshall, Justice.
* * *
Appellant Henry Evaro is an indigent suffering from a chronic asthmatic and bronchial illness. In early June 1971, Mr. Evaro moved from New Mexico to Phoenix in Maricopa County, Arizona. On July 8, 1971, Evaro had a severe respiratory attack and was sent by his attending physician to appellant Memorial Hospital, a nonprofit private community hospital. Pursuant to the Arizona statute governing medical care for indigents, Memorial notified the Maricopa County Board of Supervisors that it had in its charge an indigent who might qualify for county care and requested that Evaro be transferred to the County's public hospital facility. In accordance with the approved procedures, Memorial also claimed reimbursement from the County in the amount of $1,202.60, for the care and services it had provided Evaro.
Under Arizona law, the individual county governments are charged with the mandatory duty of providing necessary hospital and medical care for their indigent sick. But the statute requires an indigent to have been a resident of the County for the preceding 12 months in order to be eligible for free non-emergency medical care. Maricopa County refused to admit Evaro to its public hospital or to reimburse Memorial solely because Evaro had not been a resident of the County for the preceding year. Appellees do not dispute that Evaro is an indigent or that he is a bona fide resident of Maricopa County.
This action was instituted to determine whether appellee Maricopa County was obligated to provide medical care for Evaro or was liable to Memorial for the costs it incurred because of the County's refusal to do so. This controversy necessarily requires an adjudication of the constitutionality of the Arizona durational residence requirement for providing free medical care to indigents. The trial court held the residence requirement unconstitutional as a violation of the Equal Protection Clause. . . . [T]he Arizona Supreme Court upheld the challenged requirement. . . .
II
In determining whether the challenged durational residence provision violates the Equal Protection Clause, we must first determine what burden of justification the classification created thereby must meet, by looking to the nature of the classification and the individual interests affected. The Court considered similar durational residence requirements for welfare assistance in Shapiro v. Thompson, 394 U.S. 618 (1969). The Court observed that those requirements created two classes of needy residents "indistinguishable from each other except that one is composed of residents who have resided a year or more, and the second of residents who have resided less than a year, in the jurisdiction. On the basis of this sole difference the first class [was] granted and second class [was] denied welfare aid upon which may depend the ability . . . to obtain the very means to subsist -- food, shelter, and other necessities of life." Id., at 627. The Court found that because this classification impinged on the constitutionally guaranteed right of interstate travel, it was to be judged by the standard of whether it promoted a compelling
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state interest. Finding such an interest wanting, the Court held the challenged residence requirements unconstitutional.
Appellees argue that the residence requirement before us is distinguishable from those in Shapiro, while appellants urge that Shapiro is controlling. We agree with appellants that Arizona's durational residence requirement for free medical care must be justified by a compelling state interest and that, such interests being lacking, the requirement is unconstitutional.
III
The right of interstate travel has repeatedly been recognized as a basic constitutional freedom. Whatever its ultimate scope, however, the right to travel was involved in only a limited sense in Shapiro. The Court was there concerned only with the right to migrate, "with intent to settle and abide,” or, as the Court put it, "to migrate, resettle, find a new job, and start a new life." Even a bona fide residence requirement would burden the right to travel, if travel meant merely movement. But, in Shapiro, the Court explained that "[t]he residence requirement and the one-year waiting-period requirement are distinct and independent prerequisites" for assistance and only the latter was held to be unconstitutional. . . .
IV
. . . Appellant Evaro has been effectively penalized for his interstate migration, although this was accomplished under the guise of a county residence requirement. What would be unconstitutional if done directly by the State can no more readily be accomplished by a county at the State's direction. The Arizona Supreme Court could have construed the waiting-period requirement to apply to intrastate but not interstate migrants; but it did not do so, and "it is not our function to construe a state statute contrary to the construction given it by the highest court of a State."
V
Although any durational residence requirement impinges to some extent on the right to travel, the Court in Shapiro did not declare such a requirement to be per se unconstitutional. The Court's holding was conditioned by the caveat that some "waiting-period or residence requirements . . . may not be penalties upon the exercise of the constitutional right of interstate travel." The amount of impact required to give rise to the compelling-state-interest test was not made clear. The Court spoke of the requisite impact in two ways. First, we considered whether the waiting period would deter migration. . . . Second, the Court considered the extent to which the residence requirement served to penalize the exercise of the right to travel.
The appellees here argue that the denial of non-emergency medical care, unlike the denial of welfare, is not apt to deter migration; but it is far from clear that the challenged statute is unlikely to have any deterrent effect. A person afflicted with a serious respiratory ailment, particularly an indigent whose efforts to provide a living for his family have been inhibited by his incapacitating illness, might well think of migrating to the clean dry air of Arizona, where relief from his disease could also bring relief from unemployment and poverty. But he may hesitate if he knows that he must make the move without the possibility of falling back on the State for medical care should his
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condition still plague him or grow more severe during his first year of residence.
It is true, as appellees argue, that there is no evidence in the record before us that anyone was actually deterred from traveling by the challenged restriction. But neither did the majority in Shapiro find any reason "to dispute the 'evidence that few welfare recipients have in fact been deterred [from moving] by residence requirements.' Indeed, none of the litigants had themselves been deterred." . . .
. . . .
Thus, Shapiro . . . stand[s] for the proposition that a classification which "operates to penalize those persons . . . who have exercised their constitutional right of interstate migration," must be justified by a compelling state interest. . . . In Dunn v. Blumstein, [405 U.S. 330 (1972)], the Court found that the denial of the franchise, "a fundamental political right," . . . was a penalty requiring application of the compelling-state-interest test. In Shapiro, the Court found denial of the basic "necessities of life" to be a penalty. Nonetheless, the Court has declined to strike down state statutes requiring one year of residence as a condition to lower tuition at state institutions of higher education.
Whatever the ultimate parameters of the Shapiro penalty analysis, it is at least clear that medical care is as much "a basic necessity of life" to an indigent as welfare assistance. And, governmental privileges or benefits necessary to basic sustenance have often been viewed as being of greater constitutional significance than less essential forms of governmental entitlements. It would be odd, indeed, to find that the State of Arizona was required to afford Evaro welfare assistance to keep him from discomfort of inadequate housing or the pangs of hunger but could deny him the medical care necessary to relieve him from the wheezing and gasping for breath that attend his illness.
Nor does the fact that the durational residence requirement is inapplicable to the provision of emergency medical care save the challenged provision from constitutional doubt. As the Arizona Supreme Court observed, appellant "Evaro was an indigent person who required continued medical care for the preservation of his health and well being . . . ," even if he did not require immediate emergency care. The State could not deny Evaro care just because, although gasping for breath, he was not in immediate danger of stopping breathing altogether. To allow a serious illness to go untreated until it requires emergency hospitalization is to subject the sufferer to the danger of a substantial and irrevocable deterioration in his health. Cancer, heart disease, or respiratory illness, if untreated for a year, may become all but irreversible paths to pain, disability, and even loss of life. The denial of medical care is all the more cruel in this context, falling as it does on indigents who are often without the means to obtain alternative treatment.
. . . .
VI
We turn now to the question of whether the State has shown that its durational residence requirement is "legitimately defensible,” in that it furthers a compelling state interest. A number of purposes are asserted to be served by the requirement and we must determine whether these satisfy the
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appellees' heavy burden of justification, and insure that the State, in pursuing its asserted objectives, has chosen means that do not unnecessarily burden constitutionally protected interests.
. . . .
First, a State may not protect the public fisc by drawing an invidious distinction between classes of its citizens [citing Shapiro]. [A]ppellees must do more than show that denying free medical care to new residents saves money. The conservation of the taxpayers' purse is simply not a sufficient state interest to sustain a durational residence requirement which, in effect, severely penalizes exercise of the right to freely migrate and settle in another State.
Second, to the extent the purpose of the requirement is to inhibit the immigration of indigents generally, that goal is constitutionally impermissible. And, to the extent the purpose is to deter only those indigents who take up residence in the County solely to utilize its new and modern public medical facilities, the requirement at issue is clearly overinclusive. The challenged durational residence requirement treats every indigent, in his first year of residence, as if he came to the jurisdiction solely to obtain free medical care. . . . Moreover, "a State may no more try to fence out those indigents who seek [better public medical facilities] than it may try to fence out indigents generally." An indigent who considers the quality of public hospital facilities in entering the State is no less deserving than one who moves into the State in order to take advantage of its better educational facilities.
. . . .
The appellees also argue that eliminating the durational residence requirement would dilute the quality of services provided to longtime residents by fostering an influx of newcomers and thus requiring the County's limited public health resources to serve an expanded pool of recipients. Appellees assert that the County should be able to protect its longtime residents because of their contributions to the community, particularly through the past payment of taxes. We rejected this "contributory" rationale both in Shapiro and in Vlandis v. Kline, 412 U.S. 441, 550 n. 6 (1973), by observing:
[Such] reasoning would logically permit the State to bar new residents from schools, parks, and libraries or deprive them of police and fire protection. Indeed it would permit the State to apportion all benefits and services according to the past tax contributions of its citizens. The Equal Protection Clause prohibits such an apportionment of state services.". . .
Appellees express a concern that the threat of an influx of indigents would discourage "the development of modern and effective [public medical] facilities." It is suggested that whether or not the durational residence requirement actually deters migration, the voters think that it protects them from low income families' being attracted by the county hospital; hence, the requirement is necessary for public support of that medical facility. A State may not employ an invidious discrimination to sustain the political viability of its programs. . . .
The appellees also argue that the challenged statute serves some administrative objectives. They claim that the one-year waiting period is a convenient rule of thumb to determine bona fide residence. Besides not being
18
factually defensible, this test is certainly overbroad to accomplish its avowed purpose. A mere residence requirement would accomplish the objective of limiting the use of public medical facilities to bona fide residents of the County without sweeping within its prohibitions those bona fide residents who had moved into the State within the qualifying period. Less drastic means, which do not impinge on the right of interstate travel, are available. . . .
The appellees allege that the waiting period is a useful tool for preventing fraud. Certainly, a State has a valid interest in preventing fraud. . . . [T]he challenged provision is ill-suited to that purpose. An indigent applicant, intent on committing fraud, could as easily swear to having been a resident of the county for the preceding year as to being one currently. And, there is no need for the State to rely on the durational requirement as a safeguard against fraud when other mechanisms to serve that purpose are available which would have a less drastic impact on constitutionally protected interests. . . .
* * *
19
HARRIS v. McRAE, 448 U.S. 297 (1980)
Stewart, Justice.
* * *
. . . The current version of the Hyde Amendment, applicable for fiscal year 1980, provides:
[N]one of the funds provided by this joint resolution shall be used to perform abortions except where the life of the mother would be endangered if the fetus were carried to term; or except for such medical procedures necessary for the victims of rape or incest when such rape or incest has been reported promptly to a law enforcement agency or public health service.
This version of the Hyde Amendment is broader than that applicable for fiscal year 1977, which did not include the "rape or incest" exception, but narrower than that applicable for most of fiscal year 1978, and all of fiscal year 1979, which had an additional exception for "instances where severe and long-lasting physical health damage to the mother would result if the pregnancy were carried to term when so determined by two physicians". . . .
III
Having determined that Title XIX does not obligate a participating State to pay for those medically necessary abortions for which Congress has withheld federal funding, we must consider the constitutional validity of the Hyde Amendment. The appellees assert that the funding restrictions of the Hyde Amendment violate several rights secured by the Constitution -- (1) the right of a woman, implicit in the Due Process Clause of the Fifth Amendment, to decide whether to terminate a pregnancy, (2) the prohibition under the Establishment Clause of the First Amendment against any "law respecting an establishment of religion," and (3) the right to freedom of religion protected by the Free Exercise Clause of the First Amendment. The appellees also contend that, quite apart from substantive constitutional rights, the Hyde Amendment violates the equal protection component of the Fifth Amendment.
. . . .
The Hyde Amendment, like the Connecticut welfare regulation at issue in Maher v. Roe [432 U.S. 464 (1977)], places no governmental obstacle in the path of a woman who chooses to terminate her pregnancy, but rather, by means of unequal subsidization of abortion and other medical services, encourages alternative activity deemed in the public interest. The present case does differ factually from Maher insofar as that case involved a failure to fund non-therapeutic abortions, whereas the Hyde Amendment withholds funding of certain medically necessary abortions. Accordingly, the appellees argue that because the Hyde Amendment affects a significant interest not present or asserted in Maher -- the interest of a woman in protecting her health during pregnancy -- and because that interest lies at the core of the personal constitutional freedom recognized in [Roe v.] Wade, [410 U.S. 113 (1973)] the present case is constitutionally different from Maher. It is the appellees' view that to the extent that the Hyde Amendment withholds funding for certain medically necessary abortions, it clearly impinges on the constitutional principle recognized in Wade.
20
It is evident that a woman's interest in protecting her health was an important theme in Wade. In concluding that the freedom of a woman to decide whether to terminate her pregnancy falls within the personal liberty protected by the Due Process Clause, the Court in Wade emphasized the fact that the woman's decision carries with it significant personal health implications -- both physical and psychological. In fact, although the Court in Wade recognized that the state interest in protecting potential life becomes sufficiently compelling in the period after fetal viability to justify an absolute criminal prohibition of non-therapeutic abortions, the Court held that even after fetal viability a State may not prohibit abortions "necessary to preserve the life or health of the mother." Because even the compelling interest of the State in protecting potential life after fetal viability was held to be insufficient to outweigh a woman's decision to protect her life or health, it could be argued that the freedom of a woman to decide whether to terminate her pregnancy for health reasons does in fact lie at the core of the constitutional liberty identified in Wade.
But, regardless of whether the freedom of a woman to choose to terminate her pregnancy for health reasons lies at the core or the periphery of the due process liberty recognized in Wade, it simply does not follow that a woman's freedom of choice carries with it a constitutional entitlement to the financial resources to avail herself of the full range of protected choices. The reason why was explained in Maher: although government may not place obstacles in the path of a woman's exercise of her freedom of choice, it need not remove those not of its own creation. Indigency falls in the latter category. The financial constraints that restrict an indigent woman's ability to enjoy the full range of constitutionally protected freedom of choice are the product not of governmental restrictions on access to abortions, but rather of her indigency. Although Congress has opted to subsidize medically necessary services generally, but not certain medically necessary abortions, the fact remains that the Hyde Amendment leaves an indigent woman with at least the same range of choice in deciding whether to obtain a medically necessary abortion as she would have had if Congress had chosen to subsidize no health care costs at all. We are thus not persuaded that the Hyde Amendment impinges on the constitutionally protected freedom of choice recognized in Wade. [See footnote 19 at end of decision.]
Although the liberty protected by the Due Process Clause affords
protection against unwarranted government interference with freedom of choice in the context of certain personal decisions, it does not confer an entitlement to such funds as may be necessary to realize all the advantages of that freedom. To hold otherwise would mark a drastic change in our understanding of the Constitution. It cannot be that because government may not prohibit the use of contraceptives, Griswold v. Connecticut, or prevent parents from sending their child to a private school, Pierce v. Society of Sisters, government, therefore, has an affirmative constitutional obligation to ensure that all persons have the financial resources to obtain contraceptives or send their children to private schools. To translate the limitation on governmental power implicit in the Due Process Clause into an affirmative funding obligation would require Congress to subsidize the medically necessary abortion of an indigent woman even if Congress had not enacted a Medicaid program to subsidize other medically necessary services. Nothing in the Due Process Clause supports such an extraordinary result.
[The Court then rejected the arguments that the Hyde Amendment violates the Establishment Clause and the Free Exercise Clause.]
21
It remains to be determined whether the Hyde Amendment violates the equal protection component of the Fifth Amendment. This challenge is premised on the fact that, although federal reimbursement is available under Medicaid for medically necessary services generally, the Hyde Amendment does not permit federal reimbursement of all medically necessary abortions. . . .
The guarantee of equal protection under the Fifth Amendment is not a source of substantive rights or liberties, but rather a right to be free from invidious discrimination in statutory classifications and other governmental activity. It is well settled that where a statutory classification does not itself impinge on a right or liberty protected by the Constitution, the validity of classification must be sustained unless "the classification rests on grounds wholly irrelevant to the achievement of [any legitimate governmental] objective." . . .
For the reasons stated above, we have already concluded that the Hyde Amendment violates no constitutionally protected substantive rights. We now conclude as well that it is not predicated on a constitutionally suspect classification. In reaching this conclusion, we again draw guidance from the Court's decision in Maher v. Roe. As to whether the Connecticut welfare regulation providing funds for childbirth but not for non-therapeutic abortions discriminated against a suspect class, the Court in Maher observed:
An indigent woman desiring an abortion does not come within the limited category of disadvantaged classes so recognized by our cases. Nor does the fact that the impact of the regulation falls upon those who cannot pay lead to a different conclusion. In a sense, every denial of welfare to an indigent creates a wealth classification as compared to non-indigents who are able to pay for the desired goods or services. But this Court has never held that financial need alone identifies a suspect class for purposes of equal protection analysis. . . .
It is our view that the present case is indistinguishable from Maher in this respect. Here, as in Maher, the principal impact of the Hyde Amendment falls on the indigent. But that fact does not itself render the funding restriction constitutionally invalid, for this Court has held repeatedly that poverty, standing alone is not a suspect classification. That Maher involved the refusal to fund non-therapeutic abortions, whereas the present case involves the refusal to fund medically necessary abortions, has no bearing on the factors that render a classification "suspect" within the meaning of the constitutional guarantee of equal protection.
The remaining question then is whether the Hyde Amendment is rationally related to a legitimate governmental objective. It is the Government's position that the Hyde Amendment bears a rational relationship to its legitimate interest in protecting the potential life of the fetus. We agree.
In Wade, the Court recognized that the State has an "important and legitimate interest in protecting the potentiality of human life." That interest was found to exist throughout a pregnancy, "grow[ing] in substantiality as the woman approaches term." Moreover, in Maher, the Court held that Connecticut's decision to fund the costs associated with childbirth but not those associated with non-therapeutic abortions was a rational means of advancing the legitimate state interest in protecting potential life by encouraging childbirth.
It follows that the Hyde Amendment, by encouraging childbirth except in the most urgent circumstances, is rationally related to the legitimate
22
governmental objective of protecting potential life. By subsidizing the medical expenses of indigent women who carry their pregnancies to term while not subsidizing the comparable expenses of women who undergo abortions (except those whose lives are threatened), Congress has established incentives that make childbirth a more attractive alternative than abortion for persons eligible for Medicaid. These incentives bear a direct relationship to the legitimate congressional interest in protecting potential life. Nor is it irrational that Congress has authorized federal reimbursement for medically necessary services generally, but not for certain medically necessary abortions. Abortion is inherently different from other medical procedures, because no other procedure involves the purposeful termination of a potential life.
. . . .
Where, as here, the Congress has neither invaded a substantive constitutional right or freedom, nor enacted legislation that purposefully operates to the detriment of a suspect class, the only requirement of equal protection is that congressional action be rationally related to a legitimate governmental interest. The Hyde Amendment satisfies that standard. It is not the mission of this Court or any other to decide whether the balance of competing interests reflected in the Hyde Amendment is wise social policy. If that were our mission, not every Justice who has subscribed to the judgment of the Court today could have done so. But we cannot, in the name of the Constitution, overturn duly enacted statutes simply "because they may be unwise, improvident, or out of harmony with a particular school of thought." . . . Rather, "when an issue involves policy choices as sensitive as those implicated [here] . . . , the appropriate forum for their resolution in a democracy is the legislature." Maher v. Roe.
* * *
23
(FOOTNOTE 19 to Harris)
The appellees argue that the Hyde Amendment is unconstitutional because it "penalizes" the exercise of a woman's choice to terminate a pregnancy by abortion. See Memorial Hospital v. Maricopa County; Shapiro v. Thompson. This argument falls short of the mark. In Maher, the Court found only a "semantic difference" between the argument that Connecticut's refusal to subsidize non-therapeutic abortions "unduly interfere[d]" with the exercise of the constitutional liberty recognized in Wade and the argument that it "penalized" the exercise of that liberty. And, regardless of how the claim was characterized, the Maher Court rejected the argument that Connecticut's refusal to subsidize protected conduct, without more, impinged on the constitutional freedom of choice. This reasoning is equally applicable in the present case. A substantial constitutional question would arise if Congress had attempted to withhold all Medicaid benefits from an otherwise eligible candidate simply because that candidate had exercised her constitutionally protected freedom to terminate her pregnancy by abortion. This would be analogous to Sherbert v. Verner, where this Court held that a State may not, consistent with the First and Fourteenth Amendments, withhold all unemployment compensation benefits from a claimant who would otherwise be eligible for such benefits but for the fact that she is unwilling to work one day per week on her Sabbath. But the Hyde Amendment, unlike the statute at issue in Sherbert, does not provide for such a broad disqualification from receipt of public benefits. Rather, the Hyde Amendment, like the Connecticut welfare provision at issue in Maher, represents simply a refusal to subsidize certain protected conduct. A refusal to fund protected activity, without more, cannot be equated with the imposition of a "penalty" on that activity.
24
PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA V. WALSH, 538 U.S. 644 (2003)
Stevens, Justice.
* * *
In response to increasing Medicaid expenditures for prescription drugs, Congress enacted a cost-saving measure in 1990 that requires drug companies to pay rebates to States on their Medicaid purchases. Over the last several years, state legislatures have enacted supplemental rebate programs to achieve additional cost savings on Medicaid purchases as well as for purchases made by other needy citizens. The "Maine Rx" program, enacted in 2000, is primarily intended to provide discounted prescription drugs to Maine's uninsured citizens but its coverage is open to all residents of the State. Under the program, Maine will attempt to negotiate rebates with drug manufacturers to fund the reduced price for drugs offered to Maine Rx participants. If a drug company does not enter into a rebate agreement, its Medicaid sales will be subjected to a "prior authorization" procedure.
In this case, an association of nonresident drug manufacturers has challenged the constitutionality of the Maine Rx Program, claiming that the program is preempted by the federal Medicaid statute . . . . The association has not alleged that the program denies Medicaid patients meaningful access to prescription drugs or that it has excluded any drugs from access to the market in Maine. Instead, it contends that the program imposes a significant burden on Medicaid recipients by requiring prior authorization in certain circumstances without serving any valid Medicaid purpose. . . .
. . . .
Prior to 1990 . . . some States designed and administered their own formularies, listing the drugs that they would cover. States also employed "prior authorization programs" that required approval by a state agency to qualify a doctor's prescription for reimbursement. These programs were not specifically governed by any federal law or regulations, but rather were made part of the State Medicaid plans and approved by the Secretary because they aided in controlling Medicaid costs.
Congress effectively ratified the Secretary's practice of approving state plans containing prior authorization requirements when it created its rebate program in an amendment [in 1990]. The new program had two basic parts. First, it imposed a general requirement that, in order to qualify for Medicaid payments, drug companies must enter into agreements either with the Secretary or, if authorized by the Secretary, with individual States, to provide rebates on their Medicaid sales of outpatient prescription drugs. The rebate on a "single source drug" or an "innovator multiple source drug" is the difference between the manufacturer's average price and its "best price," or 15.1% of the average manufacturer price, whichever is greater. The rebate for other drugs is 11.1% of the average manufacturer price.
Second, once a drug manufacturer enters into a rebate agreement, the law requires the State to provide coverage for that drug under its plan unless the State complies with one of the exclusion or restriction provisions in the Medicaid Act. For example, a State may exclude coverage of drugs such as "[a]gents . . . used for cosmetic purposes or hair growth."
25
Most relevant to this case, Congress allowed States, "as a condition of coverage or payment for a covered outpatient drug” to require approval of the drug before it is dispensed. Thus . . . except for a narrow category of new drugs, "[a] State may subject to prior authorization any covered outpatient drug," § 1396r8(d)(1)(A), so long as the State's prior authorization program (1) provides a response by telephone or other telecommunication device within 24 hours of a request for prior authorization, and, (2) except for the listed excludable drugs, provides for the dispensing of at least a 72-hour supply of a covered drug in an emergency situation . . . .
In the Omnibus Budget Reconciliation Act of 1993, Congress further amended the Act to allow the States to use formularies subject to strict limitations. That amendment expressly stated that a prior authorization program that complies with the 24-hour and 72-hour conditions is not subject to the limitations imposed on formularies. . . .
In 2000, the Maine Legislature established the Maine Rx Program "to reduce prescription drug prices for residents of the State." The statute provides that "the State [shall] act as a pharmacy benefit manager in order to make prescription drugs more affordable for qualified Maine residents . . . . The program is intended to enable individuals to buy drugs from retail pharmacies at a discount roughly equal to the rebate on Medicaid purchases.
The statute provides that any manufacturer or "labeler" selling drugs in Maine through any publicly supported financial assistance program "shall enter into a rebate agreement" with the State Commissioner of Human Services (Commissioner). The Commissioner is directed to use his best efforts to obtain a rebate that is at least equal to the rebate calculated under the federal program created in 1990. Rebates are to be paid into a fund administered by the Commissioner, and then distributed to participating pharmacies to compensate them for selling at discounted prices.
For those manufacturers that do not enter into rebate agreements, there are two consequences: First, their nonparticipation is information that the Department of Human Services must release "to health care providers and the public." Second, and more importantly for our purposes, the "department shall impose prior authorization requirements in the Medicaid program under this Title, as permitted by law, for the dispensing of prescription drugs provided by those [nonparticipating] manufacturers and labelers."
The statute authorizes the department to adopt implementing rules. . . . The proposed rules also explain that Maine intends to appoint a "Drug Utilization Review Committee," composed of physicians and pharmacists who will evaluate each drug manufactured by a company that has declined to enter into a rebate agreement to decide whether it is clinically appropriate to subject the drug to prior authorization. The State represents that it "certainly will not subject any single-source drug that fulfills a unique therapeutic function to the prior authorization process" even if its manufacturer does not enter into a rebate agreement. The determination "whether a particular drug should be subjected to a prior authorization requirement will be based firmly upon considerations of medical necessity, and in compliance with the State's responsibilities as the administrator of the Maine Medicaid Program."
. . . .
[Petitioners argue that this will affect] the companies' methods of
26
distribution . . . . "Imposition of a prior authorization (PA) requirement with respect to a particular drug severely curtails access to the drug for covered patients and sharply reduces the drug's market share and sales, as the PA causes a shift of patients to competing drugs of other manufacturers that are not subject to a PA. Because a PA imposes additional procedural burdens on physicians prescribing the manufacturer's drug and retail pharmacies dispensing it, the effect of a PA is to diminish the manufacturer's goodwill that helped foster demand for its drug over competing drugs produced by other manufacturers, and to shift physician and patient loyalty to those competing drugs, perhaps permanently."
Respondents . . . do not dispute the factual assertions concerning the impact of prior authorization on the drug companies' market shares, but instead comment on the benefits of prior authorization for patients. The State's Medicaid Medical Director, Dr. Clifford, explained that "[p]hysicians in Maine are already well acquainted with the extensive prior authorization programs of the four HMO/Insurance programs which collectively cover nearly half the state's residents" and that the State had taken steps to "ensure that physicians will always be able to prescribe the safest and most efficacious drugs for their Medicaid patients."
. . . [T]he District Court . . . held that the Medicaid Act preempted Maine's Rx Program insofar as it threatened to impose a prior authorization requirement on nonparticipating manufacturers. . . .
The Court of Appeals disagreed . . . . The question before us is whether the District Court abused its discretion when it entered the preliminary injunction.
The centerpiece of petitioner's attack on Maine's Rx Program is its allegedly unique use of a threat to impose a prior authorization requirement on Medicaid sales to coerce manufacturers into reducing their prices on sales to non-Medicaid recipients. Petitioner argues, and the District Court held, that the potential interference with the delivery of Medicaid benefits without any benefit to the federal program is prohibited by the federal statute.
. . . .
The Court of Appeals identified two Medicaid-related interests that will be served if the program is successful and rebates become available on sales to uninsured individuals. First, the program will provide medical benefits to persons who can be described as "medically needy" even if they do not qualify for AFDC or SSI benefits. There is some factual dispute concerning the extent to which the program will also benefit non-needy persons, but even if the program is more inclusive than the Secretary thinks it should be, the potential benefits for non-needy persons would not nullify the benefits that would be provided to the neediest segment of the uninsured population. Second, there is the possibility that, by enabling some borderline aged and infirm persons better access to prescription drugs earlier, Medicaid expenses will be reduced. If members of this borderline group are not able to purchase necessary prescription medicine, their conditions may worsen, causing further financial hardship and thus making it more likely that they will end up in the Medicaid program and require more expensive treatment.
A third rather obvious Medicaid purpose will be fostered whenever it is necessary to impose the prior authorization requirement on a manufacturer that refuses to participate. As the record demonstrates, private managed care
27
organizations typically require prior authorization both to protect patients from inappropriate prescriptions and "to encourage the use of cost-effective medications without diminishing safety or efficacy." No doubt that is why Congress expressly preserved the States' ability to adopt that practice when it passed the Medicaid amendments in 1990. The fact that prior authorization actually does produce substantial cost savings for organizations purchasing large volumes of drugs is apparent both from the affidavits in the record describing the impact of such programs on manufacturers' market shares . . . .
The fact that the Maine Rx Program may serve Medicaid-related purposes, both by providing benefits to needy persons and by curtailing the State's Medicaid costs, would not provide a sufficient basis for upholding the program if it severely curtailed Medicaid recipients' access to prescription drugs. Cf. 42 U.S.C. § 1396a(a)(19). (State Medicaid plan must assure that care and services are to be provided "in a manner consistent with . . . the best interests of the recipients"). It was, however, incorrect for the District Court to assume that any impediment, "[n]o matter how modest," to a patient's ability to obtain the drug of her choice at state expense would invalidate the Maine Rx Program.
We have made it clear that the Medicaid Act "gives the States substantial discretion to choose the proper mix of amount, scope, and duration limitations on coverage, as long as care and services are provided in 'the best interest of the recipients.' "[citation to Alexander v. Choate].
. . . .
The fact that a State's decision to curtail Medicaid benefits may have been motivated by a state policy unrelated to the Medicaid Act does not limit the scope of its broad discretion to define the package of benefits it will finance. [citation to the abortion funding decisions] Maine's interest in protecting the health of its uninsured residents also provides a plainly permissible justification for a prior authorization requirement that is assumed to have only a minimal impact on Medicaid recipients' access to prescription drugs. The Medicaid Act contains no categorical prohibition against reliance on state interests unrelated to the Medicaid program itself when a State is fashioning the particular contours of its own program. . . .
At this stage of the proceeding, the severity of any impediment that Maine's program may impose on a Medicaid patient's access to the drug of her choice is a matter of conjecture. To the extent that drug manufacturers agree to participate in the program, there will be no impediment. To the extent that the manufacturers refuse, the Drug Utilization Review Committee will determine whether it is clinically appropriate to subject those drugs to prior authorization. If the committee determines prior authorization is required, that requirement may result in the delivery of a less expensive drug than a physician first prescribed, but on the present record we cannot conclude that a significant number of patients' medical needs -- indeed, any patient's medical needs -- will be adversely affected.
The record does demonstrate that prior authorization may well have a significant adverse impact on the manufacturers of brand name prescription drugs and that it will impose some administrative costs on physicians. The impact on manufacturers is not relevant because any transfer of business to less expensive products will produce savings for the Medicaid program. The impact on doctors may be significant if it produces an administrative burden that affects the quality of their treatment of patients, but no such effect has been
28
proved. . . .
* * *
29
FREW V. HAWKINS, 540 U.S. 431 (2004)
Kennedy, Justice.
* * *
In this case we consider whether the Eleventh Amendment bars enforcement of a federal consent decree entered into by state officials.
Medicaid is a cooperative federal-state program that provides federal funding for state medical services to the poor. State participation is voluntary; but once a State elects to join the program, it must administer a state plan that meets federal requirements. One requirement is that every participating State must have an Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program. EPSDT programs provide health care services to children to reduce lifelong vulnerability to illness or disease. The EPSDT provisions of the Medicaid statute require participating States to provide various medical services to eligible children, and to provide notice of the services.
The petitioners here are mothers of children eligible for EPSDT services in Texas. In 1993 they filed a civil action pursuant to 42 U.S.C. § 1983 seeking injunctive relief against the Texas Department of Health and the Texas Health and Human Services Commission, as well as various officials at these agencies charged with implementing the Texas EPSDT program. The named officials included the Commissioners of the two agencies, the Texas State Medicaid Director, and certain employees at the Texas Department of Health. The individuals were sued in their official capacities and were represented throughout the litigation by the office of the Texas attorney general.
The petitioners alleged that the Texas program did not satisfy the requirements of federal law. They asserted that the Texas program did not ensure eligible children would receive health, dental, vision, and hearing screens; failed to meet annual participation goals; and gave eligible recipients inadequate notice of available services. The petitioners also claimed the program lacked proper case management and corrective procedures and did not provide uniform services throughout Texas.
After the suit was filed, the two Texas state agencies named in the suit moved to dismiss the claims against them on Eleventh Amendment grounds. The petitioners did not object, and in 1994 the District Court dismissed the state agencies as parties. The state officials remained in the suit, and the District Court certified a class consisting of children in Texas entitled to EPSDT services, a class of more than 1 million persons. Following extensive settlement negotiations, the petitioners and the state officials agreed to resolve the suit by entering into a consent decree. The District Court conducted a fairness hearing, approved the consent decree, and entered it in 1996.
Judicial enforcement of the 1996 consent decree is the subject of the present dispute. The decree is a detailed document about 80 pages long that orders a comprehensive plan for implementing the federal statute. In contrast with the brief and general mandate in the statute itself, the consent decree requires the state officials to implement many specific procedures. An example illustrates the nature of the difference. The EPSDT statute requires States to "provid[e] or arrang[e] for the provision of . . . screening services in all cases where they are requested," and also to arrange for "corrective treatment"
30
in such cases. The consent decree implements the provision in part by directing the Texas Department of Health to staff and maintain toll-free telephone numbers for eligible recipients who seek assistance in scheduling and arranging appointments. According to the decree, the advisors at the toll-free numbers must furnish the name, address, and telephone numbers of one or more health care providers in the appropriate specialty in a convenient location, and they also must assist with transportation arrangements to and from appointments. The advisers must inform recipients enrolled in managed care health plans that they are free to choose a primary care physician upon enrollment.
Two years after the consent decree was entered, the petitioners filed a motion to enforce it in the District Court. The state officials, it was alleged, had not complied with the decree in various respects. The officials denied the allegations and maintained that the Eleventh Amendment rendered the decree unenforceable even if they were in noncompliance. After an evidentiary hearing, the District Court issued a detailed opinion concluding that certain provisions of the consent decree had been violated. . . .
. . . The Court of Appeals assessed the violations identified by the District Court and concluded that none provided a valid basis for enforcement. Regardless of whether the EPSDT program complied with the detailed consent decree, the Court of Appeals reasoned, the program was good enough to comply with the general mandates of federal law. The Court of Appeals concluded that because the petitioners had not established a violation of federal law, the District Court lacked jurisdiction to remedy the consent decree violations.
Other Circuits have reached a contrary result, holding that the Eleventh Amendment does not bar enforcement of consent decrees in like circumstances. . . .
The petitioners advance two reasons why the consent decree can be enforced without violating the Eleventh Amendment. First, they argue the State waived its Eleventh Amendment immunity in the course of litigation. Second, they contend that enforcement is permitted under the principles of Ex Parte Young, 209 U.S. 123 (1908). . . .
This case involves the intersection of two areas of federal law: The reach of the Eleventh Amendment and the rules governing consent decrees. The Eleventh Amendment confirms the sovereign status of the States by shielding them from suits by individuals absent their consent. To ensure the enforcement of federal law, however, the Eleventh Amendment permits suits for prospective injunctive relief against state officials acting in violation of federal law. This standard allows courts to order prospective relief . . . as well as measures ancillary to appropriate prospective relief . . . Federal courts may not award retrospective relief, for instance money damages or its equivalent, if the State invokes its immunity.
Consent decrees have elements of both contracts and judicial decrees. A consent decree "embodies an agreement of the parties" and is also "an agreement that the parties desire and expect will be reflected in, and be enforceable as, a judicial decree that is subject to the rules generally applicable to other judgments and decrees." Consent decrees entered in federal court must be directed to protecting federal interests. . . . [A] federal consent decree must spring from, and serve to resolve, a dispute within the court's subject-matter jurisdiction; must come within the general scope of the case made by the pleadings; and must further the objectives of the law upon which the complaint was based.
31
This brings us to the intersection of the principles governing consent decrees and the Eleventh Amendment. As we understand their argument, the state officials do not contend that the terms of the decree were impermissible under Ex parte Young. . . . The officials challenge only the enforcement of the decree, not its entry. They argue that the Eleventh Amendment narrows the circumstances in which courts can enforce federal consent decrees involving state officials.
. . . The officials reason that Ex parte Young creates a narrow exception to the general rule of Eleventh Amendment immunity from suit. Consent decrees involving state representatives threaten to broaden this exception, they contend, because decrees allow state officials to bind state governments to significantly more commitments than what federal law requires. Permitting the enforcement of a broad consent decree would give courts jurisdiction over not just federal law, but also everything else that officials agreed to when they entered into the consent decree. A State in full compliance with federal law could remain subject to federal court oversight through a course of judicial proceedings brought to enforce the consent decree. To avoid circumventing Eleventh Amendment protections, the officials argue, a federal court should not enforce a consent decree . . . unless the court first identifies, at the enforcement stage, a violation of federal law such as the EPSDT statute itself.
We disagree with this view of the Eleventh Amendment. The decree is a federal court order that springs from a federal dispute and furthers the objectives of federal law. The decree states that it creates "a mandatory, enforceable obligation." In light of the State's assertion of its Eleventh Amendment immunity, the state officials lacked the authority to agree to remedies beyond the scope of Ex parte Young absent a waiver, as the petitioners concede. We can assume, moreover, that the state officials could not enter into a consent decree failing to satisfy the general requirements of consent decrees . . . . The petitioners' motion to enforce, however, sought enforcement of a remedy consistent with . . . a remedy the state officials themselves had accepted when they asked the District Court to approve the decree. Enforcing the agreement does not violate the Eleventh Amendment.
. . . [T]he order to be enforced is a federal decree entered to implement a federal statute. The decree does implement the Medicaid statute in a highly detailed way, requiring the state officials to take some steps that the statute does not specifically require. The same could be said, however, of any effort to implement the general EPSDT statute in a particular way. The decree reflects a choice among various ways that a State could implement the Medicaid Act. As a result, enforcing the decree vindicates an agreement that the state officials reached to comply with federal law.
. . . .
The state officials warn that enforcement of consent decrees can undermine the sovereign interests and accountability of state governments. The attorneys general of 19 States assert similar arguments as amici curiae. The concerns they express are legitimate ones. If not limited to reasonable and necessary implementations of federal law, remedies outlined in consent decrees involving state officeholders may improperly deprive future officials of their designated legislative and executive powers. They may also lead to federal court oversight of state programs for long periods of time even absent an ongoing violation of federal law.
32
When a federal court has entered a consent decree under Ex parte Young the law's primary response to these concerns has its source not in the Eleventh Amendment but in the court's equitable powers and the direction given by the Federal Rules of Civil Procedure. . . . [T] district courts should apply a "flexible standard" to the modification of consent decrees when a significant change in facts or law warrants their amendment. . . .
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GREENERY REHABILITATION GROUP, INC. v. HAMMON, 150 F.3d 226 (2d Cir. 1998)
Miner, Judge.
* * *
Medicaid is a federal program that provides health care funding for needy persons through cost-sharing with states electing to participate in the process. Undocumented aliens or aliens not otherwise permanently residing in the United States under color of law generally are not entitled to full Medicaid coverage. See 42 U.S.C. § 1396b(v)(1) ("no payment may be made to a State under this section for medical assistance furnished to an alien who is not lawfully admitted for permanent residence or otherwise permanently residing in the United States under color of law"); 42 C.F.R. § 435.406. The only exception to this exclusion is payment for medical assistance that is "necessary for the treatment of an emergency medical condition." 42 U.S.C. § 1396b(v)(2)(A). An "emergency medical condition" is a medical condition (including emergency labor and delivery) manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in --
(A) placing the patient's health in serious jeopardy,(B) serious impairment to bodily functions, or(C) serious dysfunction of any bodily organ or part.
42 U.S.C. § 1396b(v)(3).
The corresponding regulation is found at 42 C.F.R. § 440.255(b)(1), which provides that aliens are entitled to Medicaid coverage for [e]mergency services required after the sudden onset of a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in:
(i) Placing the patient's health in seriousjeopardy;(ii) Serious impairment to bodily functions; or(iii) Serious dysfunction of any bodily organ or part.
. . . New York has chosen to participate in the Medicaid program and has enacted regulations that are substantially the same as those found in 42 U.S.C. § 1396b(v) and 42 C.F.R. § 440.255(b)(1).
Plaintiff-appellee The Greenery Rehabilitation Group, Inc., ("GRG") operates nursing homes and rehabilitation facilities where specialized programs are offered for the care of individuals who have suffered brain injuries. GRG operates facilities in several states. Care was and is being provided to the patients involved in this case, following their initial treatment, stabilization and transfer, at facilities located in Brighton, Middleboro, and Hyannis, Massachusetts.
GRG has entered into agreements with defendant-third-party-plaintiff New York City Human Resources Administration ("NYCHRA") to admit into GRG's specialized brain injury care programs New York City residents who are in need of its services and are eligible for Medicaid. GRG admitted into its Massachusetts facilities three New York City residents who were in need of such
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services, but for whom NYCHRA has refused payment because of their alien status. Two of the three patients, Izeta Ugljanin and Leon Casimir, are undocumented aliens. The third, Yik Kan, was granted legal residency in the United States but had not yet met the residency requirements necessary to qualify for Medicaid benefits.
All three patients suffered sudden and serious head injuries that necessitated immediate treatment and ultimately left the patients with long-term debilitating conditions requiring ongoing care and daily attention. On June 16, 1991, nineteen-year-old Ugljanin was thrown from a vehicle during an automobile accident and sustained head injuries that caused severe brain damage. Due to her injuries, Ugljanin required immediate care for which she was admitted to Nassau County Medical Center. After being stabilized, Ugljanin was transferred to GRG's Brighton facility in 1991, and was subsequently transferred to GRG's Middleboro facility. Bed-ridden and quadriplegic, she continues to require a feeding tube, continual monitoring and extensive nursing care. At the time this litigation arose, Ugljanin, an immigrant from what is now known as the Republic of Macedonia, fulfilled the criteria for Medicaid coverage but for her alien status.
On March 9, 1990, thirty-eight-year-old Casimir, an immigrant from Trinidad, was shot in the head and suffered brain damage. He was initially treated at Goldwater Memorial Hospital in New York City and, after being stabilized, was transferred to GRG's Brighton facility in 1991 and is currently receiving care at GRG's Hyannis facility. Casimir is unable to walk, requires monitoring and medication for seizures and behavioral problems related to his injury and needs assistance with daily tasks such as bathing, dressing, eating and toileting. Casimir was also eligible for Medicaid coverage but for his alien status.
In October of 1990, forty-six-year-old Yik Kan, an immigrant from Hong Kong, was attacked and beaten, resulting in cerebral contusions and a hematoma to his right eye. Yik Kan initially received treatment at Harlem Hospital in New York City and was later transferred to GRG's Middleboro facility and has been receiving care at GRG's Hyannis facility since May of 1993. Although he is legally blind as a result of his injuries, he is ambulatory and can function if instructed to accomplish a given task. For example, he can feed himself if instructed to eat and is able to dress or use the toilet if directed to do so. He also suffers from behavioral and psychiatric problems that require medication and monitoring. Like the others, Yik Kan was eligible for Medicaid coverage but for his alien status.
. . . .
GRG admitted Ugljanin, Casimir and Kan, believing them to be eligible beneficiaries under the Medicaid program in New York State. After Medicaid payment for the treatment of these individuals was denied, GRG commenced the instant action . . .
. . . The district court noted, among other things, that although GRG treating physicians believed that the patients satisfied the statutory definition of an emergency medical condition because the patients would be put at risk without the care provided by GRG, they also concluded that the patients were stable and suffering from chronic conditions rather than what they commonly understood to be emergency medical conditions. . . .
. . . .
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With respect to the "emergency medical condition" issue, the district court in its findings of fact summarized the testimony of attending physicians, Drs. Michael Randon and John Berry, and the State Appellant's expert, Anne Budin. The court noted that these witnesses generally explained that the patient's initial injuries had been treated and the patients were stabilized prior to being moved to GRG facilities. It also took note of the testimony regarding the extent of the continuing care required by each patient as explained by the witnesses, including the total dependence of Ugljanin and Casimir on nursing care and Ugljanin's reliance on a feeding tube. The injury-related behavioral problems of Kan and Casimir were also discussed, as were the three patients' medication requirements and the necessity for continuous care with respect to activities such as getting out of bed, moving or walking, dressing, feeding, bathing and toileting.
The district court concluded that § 1396b(v)(3)'s definition of an emergency medical condition is not the same as the common understanding of what an emergency condition is, and that HHS' adoption of 42 C.F.R. § 440.255 did not narrow the meaning of § 1396b(v)(3). The court relied on a statement released by HHS officials in response to comments concerning § 440.255's adoption to support its conclusion that "emergency medical condition" must be construed broadly. That statement reads:
[W]e believe the broad definition [of emergency medical condition] allows States to interpret and further define the services available to aliens covered . . . which are any services necessary to treat an emergency medical condition in a consistent and proper manner supported by professional medical judgment. Further, the significant variety of potential emergencies and the unique combination of physical conditions and the patient’s response to treatment are so varied that it is neither practical nor possible to define with more precision all those conditions which will be considered emergency medical conditions.
Crediting the testimony of the treating physicians, the district court analyzed each patient's situation under its expansive reading of § 1396b(v)(3). The district court found that the circumstances surrounding the patients' head injuries satisfied the "sudden onset" requirement of 42 C.F.R. § 440.225. The court also found that GRG was treating Ugljanin for an emergency medical condition because she required "continuous care" without which her health would be placed in "serious jeopardy and seriously impair her bodily functions." The court concluded that Casimir was receiving emergency medical care because he required "immediate" nursing care, without which "he would be left without food, in his own waste, unable to move." The district court found that Yik Kan did not satisfy the statutory requirement because the court could not "reasonably find that without immediate medical attention [Yik Kan] would be in peril."
The district court was also persuaded by an opinion of the Arizona Court of Appeals holding . . . that a statutory "emergency medical condition" can include a long-term condition resulting from the initial injury even though there are no longer any acute symptoms evidencing that injury. Concluding that Ugljanin's and Casimir's care was being given to treat emergency medical conditions and thus was covered by Medicaid, the district court ruled on the third-party complaint and found that HHS was required to pay a portion of the costs of their care.
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. . . The State Appellants and third-party-defendant-appellant timely appealed the judgment with respect to Ugljanin and Casimir. GRG does not appeal the judgment with respect to Yik Kan.
The issue on appeal is . . . simply whether chronic debilitating conditions that result from sudden and serious injuries, such as those suffered by the patients herein, are "emergency medical conditions" as provided under § 1396b(v)(3).
. . . .
As noted above, aliens who otherwise meet Medicaid requirements but who are not lawfully admitted for permanent residence in the United States, or otherwise permanently residing in the United States under color of law, are not eligible for full federal Medicaid coverage. Congress did carve out one exception by providing that aliens are entitled to Medicaid coverage only for "such care and services [as] are necessary for the treatment of an emergency medical condition of the alien."
An emergency medical condition is a medical condition (including emergency labor and delivery) [defined by 42 U.S.C. § 1396b(v)(3)].
The appellants argue that the district court erred by failing to heed the plain language of this provision and finding that an "emergency medical condition" includes a condition requiring daily and regimented care for chronic conditions, such as that offered by GRG. We agree.
In the medical context, an "emergency" is generally defined as "a sudden bodily alteration such as is likely to require immediate medical attention." Webster's Third New International Dictionary 741 (1981). The emphasis is on severity, temporality and urgency. We believe that 42 U.S.C. § 1396b(v)(3) clearly conveys this commonly understood definition.
An "acute" symptom is a symptom "characterized by sharpness or severity . . . having a sudden onset, sharp rise, and short course . . . [as] opposed to chronic." Moreover, as a verb, "manifest" means "to show plainly." In § 1396b(v)(3) this verb is used in the present progressive tense to explain that the "emergency medical condition" must be revealing itself through acute symptoms. Thus, contrary to the district court's finding, the statute plainly requires that the acute indications of injury or illness must coincide in time with the emergency medical condition. Finally, "immediate" medical care means medical care "occurring . . . without loss of time" or that is "not secondary or remote." In sum, the statutory language unambiguously conveys the meaning that emergency medical conditions are sudden, severe and short-lived physical injuries or illnesses that require immediate treatment to prevent further harm.
The statutory definition is also consistent with the general concept of a medical emergency as commonly understood by those in the medical professions. . . . Moreover, both of the treating physicians from GRG testified to their general understanding of the concept of care for an emergency medical condition. Dr. Randon defined such care as usually short-lived, care that is given to prevent death or some significant consequence of injury or disease or accident. . . . “The care you g[i]ve to stabilize the patient, I could consider that up to the stabilization as emergency care. To stop [the] bleeding, to put an airway in, that type of care.”
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Dr. Randon testified that Ugljanin was receiving "chronic skill care" from GRG as opposed to what is commonly understood to be emergency medical care.
Dr. Berry testified that "[e]mergency treatment is immediate treatment needed to stabilize a patient." He also testified that Kan and Casimir had suffered no “physical emergencies” while at GRG and that they were receiving chronic rather than emergency care. In addition, Ms. Budin testified that her understanding of the concept of an emergency was that it involved a life threatening situation that necessitated urgent medical treatment.
The patients’ sudden and severe head injuries undoubtedly satisfied the plain meaning of § 1396(b)(v)(3). However, after the patients were stabilized and the risk of further harm from their injuries was essentially eliminated, the medical emergencies ended. That is not to say that the patients could not suffer from a true emergency medical condition while being cared for by GRG. For example, it seems clear that if one of these patients suffered a sudden heart attack, treatment to stabilize the patient would be covered by Medicaid . . . . The district court believed that Ugljanin and Casimir were suffering from emergency medical conditions because it found that the absence of continuous medical attention could reasonably be expected to place their health in serious jeopardy. Although Ugljanin and Casimir undoubtedly require ongoing maintenance care, we have some doubt as to whether their health would be jeopardized by the absence of “immediate medical attention. . . .” In any event, however, it is clear that the stable, long-term problems suffered by Ugljanin and Casimir do not meet the additional, independent requirement that the medical condition be manifested “by acute symptoms.”
Although our review of the plain meaning of § 1396b(v)(3) ends our inquiry, we note that we do not believe that 42 C.F.R. § 440.255 or its history provide any support for the conclusion that the statutory definition of an emergency medical condition must be given a distinct and more liberal meaning than what is commonly understood to be a medical emergency. . . .
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Notes and Questions on Medicaid Coverage and Eligibility
1. As illustrated by Memorial Hospital and its predecessor, Shapiro v. Thompson, 394 U.S. 618 (1969), there can be rather severe constitutional limits on the government's discretion to condition or limit social welfare benefits, but only where the limit or condition either "penalizes" or otherwise "affects" a constitutionally protected interest or, alternatively, is based on a "suspect classification" such as race. (See discussion infra.) Under such circumstances, the courts must "closely scrutinize" the governmental classification, and find that a "compelling government interest" is served by a means that does not unduly burden the constitutionally protected interest or the protected class. In the rhetoric of modern constitutional analysis, this is the "first tier" of equal protection analysis. A government classification rarely survives "close scrutiny;" saving money, easing the administration of the program, or, in the case of Memorial Hospital, deterring people from migrating from state to state for the purpose of receiving better benefits are insufficient justifications under this analysis.
In the mid-1990s, California tested the continuing viability of this analysis by enacting a durational residency requirement for its welfare cash-grant program that offered benefits to new residents, but limited those benefits for one year to the level that they would have received in the state of their prior residence. Despite the state’s argument that this was not an outright denial of benefits, the Supreme Court again found that the state program penalized aspects of the “right to travel, applied “close scrutiny,” and invaldated the durational residency requirement. Saenz v. Roe, 526 U.S. 489 (1999).
As illustrated by Harris, however, most limits or conditions imposed on spending programs such as Medicaid do not "penalize" or "affect" a constitutionally protected interest -- even if the net result is to deny funding for such an interest. Consequently, the courts apply the "second tier" of equal protection analysis and ask only whether the limit or condition is "rational" to satisfy the requirements of equal protection. And under this "second tier," saving government funds or promoting a policy such as that claimed by the federal government in Harris is sufficiently "rational." The underlying notion is that a government decision to fund some benefits but not those that may involve a constitutionally protected interest leaves the individual "no worse off" than if the government chose to fund no benefits at all. Thus, virtually all state and federal cash grants, health benefits, or social service programs that merely exclude an individual or limit or deny benefits need only survive the "rationality" standard of equal protection analysis and will almost always be upheld. See Rust v. Sullivan, 500 U.S. 173 (1991)(federal family planning "gag rule" regulations do not affect either the privacy of women seeking abortions or the First Amendment rights of providers who counsel them); Webster v. Reproductive Health Services, 492 U.S. 490 (1989)(state law prohibiting use of public facilities for abortion does not affect privacy of women seeking abortion); cf. Department of Agriculture v. Moreno, 413 U.S. 528 (1973) (limit on food stamp program to exclude households with unrelated people irrational).
Note, however, that while the implications of the abortion funding cases for the governmental discretion to limit or deny health and welfare benefits are rather clear, the abortion funding issue continues to be controversial. Several states have attempted to place even greater restrictions on abortions funded by both Medicaid and other publicly funded programs. See, e.g., Dalton v. Little Rock Family Planning Services, 516 U.S. 474 (1996).
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The important element that distinguishes Memorial Hospital from other cases involving social welfare classifications -- and makes it the very rare exception to the general rule -- is that the government program did more than refuse to fund the exercise of Evaro's constitutional interest; it "penalized" him by denying him eligibility for government-funded benefits because he had exercised, at his own expense, his constitutional right to travel -- or, to use a better term, his right to take up residence in any state. Thus, "close scrutiny," not "rationality" was the standard of review. Note, however, that the Memorial Hospital decision left open the possibility that some durational residency requirements might survive constitutional scrutiny. Presumably the state can deny some benefits of lesser importance to new residents and some burdens on the right to travel may have a sufficiently compelling justification.
2. In addition to circumstances where a social welfare program "penalizes" or otherwise impinges on a constitutionally-protected interest, one other exception to the general rule of "rationality" is where a benefit denial or limit -- even one that merely denies funding and does not "penalize" a constitutional interest -- involves a "suspect classification." Such classifications trigger the highest level of judicial scrutiny and, as a practical matter, are virtually per se unconstitutional. Race and national origin have been consistently recognized as "suspect classifications." The Court has occasionally considered whether other classifications should be "suspect," and even attempted to treat certain classifications as "quasi-suspect;" but the Court has refused to recognize that classifications based on age, disability, sexual orientation, or virtually any other characteristic should be treated as "suspect" for purposes of equal protection analysis. The major exception involves government programs that discriminate on the basis of gender. In a rather inconsistent line of cases the Court has attempted to review such programs under a standard that is much more rigorous than "rationality," but somewhat less demanding than "close scrutiny," conceding that the government's discretion to recognize differences between males and females is somewhat broader than its discretion to make distinctions based on race or national origin. For its most recent effort, see United States v. Virginia, 518 U.S. 515 (1996). See also Califano v. Goldberg, 430 U.S. 199 (1977) (preferential treatment of widows for purposes of determining level of Social Security benefits does not violate equal protection).
Note that the Court has generally insisted that "close scrutiny" is applicable only where a "suspect" classification (or "quasi-suspect" classification) is overtly expressed or intentional, or, at least where such intent can be inferred. Government distinctions that result in de facto discrimination against "suspect classifications" or that have only a disproportionate impact on such classes are not subject to higher scrutiny.
3. Given the dictates of these decisions, consider the constitutionality of the following:
-- A severely ill child moves with his mother from Alabama to the State of Washington. They declare their intent to become residents of the state and apply for Medicaid. They are rejected solely because the state imposes a one-year residency requirement as a condition on Medicaid eligibility.
-- The same family is visiting relatives in the State of Washington, the mother goes into premature labor, and she is rushed to the emergency room at a public hospital. She is told that the hospital only offers services to residents.
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-- The same family is recognized as a resident of the State of Washington but has income and resources slightly above the state Medicaid standards. Even though they "spend down" to below those standards, they are denied Medicaid eligibility because the state does not have a "medically needy" program.
-- After the family takes up residence in the state and is declared eligible for Medicaid, the state repeals the program.
-- The state adopts a "rationing scheme" for Medicaid (similar to the one enacted by Oregon in 1993, discussed infra). The new plan offers Medicaid coverage only for (a) recipients under 55 years of age, (b) recipients who are likely to become "productive citizens," or (c) recipients who have no outstanding child support payments.
-- The state adopts a rationing scheme and the covered list of services includes only 12 days of hospital care per year.
-- Congress denies Medicaid coverage for all abortions, including those to save the life of the mother.
-- Congress denies all Medicaid benefits to women who have abortions (with private funds).
Which of these cases should be closely scrutinized? Which, if any, would survive that analysis? Which need only be rational? Are any of these state or federal laws irrational, constitutionally or otherwise?
4. The basic premise of all the cases in this subsection is implied in the "no worse off" language of Harris. Government can refuse to fund health benefits in most situations because it can choose to provide no benefits at all. The Court has long insisted that the federal Constitution does not require any level of government to provide for or maintain the health of the population as a whole or any portion of it. See, e.g., Suffolk Parents of Handicapped Adults v. Wingate, 101 F.3d 818 (1996), cert. denied, 520 U.S. 1239 (1997). Under this view, the Constitution is essentially a document of discretionary power; neither the federal nor the state governments are constitutionally required to provide any social welfare or other domestic programs or, for that matter, to do anything at all. Thus, only where the federal or state government chooses to provide health benefits to some but deny them to others can a constitutionally based claim for benefits be made. Moreover, even when that claim can be made, it is likely to be unsuccessful. If Harris is correct in holding that the government may "rationally" choose to deny funding for services that involve constitutionally protected interests -- and to do so when the health of the denied beneficiary is jeopardized -- then the government must be free to deny or limit benefits in any way that it chooses, even, presumably, where life is at stake. In short, there is no constitutional right to health or health care or, at least, the term has a very narrow meaning.
Suppose you wanted to change what appears to be the constitutional status quo and create a judicially enforceable, constitutional right to health care or, at least, constitutional mandate that the federal or state government finance life-saving care. What would you have to add to the Constitution -- and how would you draft that language?
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5. While the Constitution has imposed few limits on federal and state discretion to limit benefits or deny eligibility for Medicaid and other social welfare programs, there are substantial statutory limits on the discretion of each state in determining eligibility, level of benefits, reimbursement, and other matters. See, e.g., Salgado v. Kirschner, 179 Ariz. 301, 878 P.2d 659 (1994), cert. denied, 513 U.S. 1151 (1995). Indeed, most judicially-contested Medicaid controversies involve matters of statutory and administrative law, not constitutional law. In this regard, the PHARMA decision is only a more complicated variation of the same themes: The state Medicaid law must comply with the federal Medicaid requirements (as well as other federal constitutional requirements, such as those of the dormant commerce clause). But PHARMA goes one step further than most other cases comparing the state’s Medicaid program to the requirements of the federal Medicaid statute: It allows that the state can achieve non-Medicaid-related objectives in fashioning its state Medicaid program and not violate the federal law (or, presumably, the federal Constitution).
The state also must establish a state plan that meets federal requirements and is approved by the Department of Health and Human Services (DHHS). Medicaid beneficiaries (and Medicaid providers) may challenge the state's administration of its Medicaid program if the program is inconsistent with the plan or if the plan is not approved by DHHS. Also, states must comply with their own state administrative and statutory requirements in administering their programs. See, e.g., Meusberger v. Palmer, 900 F.2d 1280 (8th Cir. 1990) (state cannot refuse to cover pancreas transplant if state law generally requires funding of non-experimental transplants).
There are, however, some very important jurisdictional limits on the enforceability of the federal Medicaid statute in actions against state Medicaid programs. If a private litigant brings a lawsuit in federal court under the federal civil rights laws, the federal court’s jurisdiction is limited to the enforcement of “federal rights.” 42 U.S.C. § 1983. The Supreme Court has held that while this allows for the enforcement of both constitutional and statutory rights, any claim based on a federal statute must be examined to determine whether Congress intended that the specific provision of the federal law be enforceable, that the standards for its enforcement be sufficiently specific to allow for judicial determinations, and must not reflect a “mere congressional preference.” See discussion in Suter v. Artist M., 503 U.S. 347 (1992); Blessing v. Freestone, 520 U.S. 329 (1997). In Wilder v. Virginia Hospital Association, 496 U.S. 498 (1990), while the Court recognized that some provisions of the federal Medicaid statute satisfy the requirements of § 1983, the Court also indicated that these requirement must be satisfied on a case-by-case basis.
The lower federal courts have had some difficulty following the Court’s guidance. For example, the Eleventh Circuit has held that the provisions of the federal Medicaid statute that require the state Medicaid plan to offer transportation for Medicaid beneficiaries were not intended to create a private right of action under § 1983. Harris v. James, 127 F.3d 993 (11th Cir. 1997). The Sixth Circuit examined the same provision, applied the same test, and came to exactly the opposite conclusion. Boatman v. Hammons, 164 F.3d 286 (6th Cir. 1998). For more recent cases, see San Lazaro Association, Inc. v. Connell, 286 F.3d 1088 (9th Cir. 2002); Kai v. Ross, 336 F.3d 650 (8th Cir. 2003)(enforcing provisions of the federal law requiring certain categories of people to be eligible); Bryson v. Shumway, 308 F.3d 79 (1st Cir. 2002) (enforcing provisions of the federal statute that require covered services be provided to eligible recipients with reasonable promptness and that notice of eligibility for services be given); Rolland v. Romney, 318 F.3d 42 (1st Cir. 2003) (enforcing requirements for services to "dual need" nursing home residents).
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Note that these potential limits are only on privately initiated lawsuits and those brought in federal court. None of these cases should be read to limit the federal government’s discretion to take administrative action to enforce any of the provisions of the federal Medicaid statute. Nor do these limitations apply to lawsuits brought in state court to enforce state statutory obligations. They are, nonetheless, serious obstacles to the enforcement of the states’ obligations under the federal Medicaid laws by private parties, particularly individual Medicaid beneficiaries (and especially since § 1983 lawsuits provide for the recovery of attorney’s fees if successful).
6. Another important limit on the enforcement of the federal Medicaid requirements by individual recipients and other private parties (such as providers seeking reimbursement) involves the limitations embodied in the 11th amendment. As discussed in Frew, the 11th amendment has always been considered a bar to actions brought against the states in federal courts for monetary damages. As such, private litigants denied Medicaid or other federal welfare benefits administered by the states were generally limited to injunctive or prospective relief, and suits that were nominally pursued against state officials and not the states themselves. See, e.g., Edelman v. Jordan, 415 U.S. 651 (1974). But until the 1990s the 11th amendment principles were generally viewed as applicable only to suits brought against states or state officials in federal courts. In Alden v. Maine, 527 U.S. 706 (1999), however, the Supreme Court, in only one of a series of ground-breaking 11th amendment cases, held that the limits on privately initiated lawsuits against the state were applicable in both state and federal law, and even implied that the exceptions allowed by Ex parte Young may no longer be recognized. As such, the decision in Frew may be an important qualification of the expanding reach of the 11th amendment principles: At least under the facts in this case, individual Medicaid recipients can still pursue judicial enforcement of the federal Medicaid statute against the states -- despite the limits of the 11th amendment. Moreover, that includes enforcement of consent decrees that purport to settle lawsuits claiming that the state has violated the federal Medicaid statute. Whether this is limited to the facts -- the state had voluntarily negotiated a settlement decree -- is not clear. On the other hand, it appears that the Court held that the 11th
amendment did not bar the enforcement of this type of lawsuit.
The broader reach of the 11th amendment should not be overlooked: While the decree is Frew apparently fit under the narrow exception created by Ex parte Young, Medicaid recipients are still barred from suing the state itself or from seeking retrospective relief or virtually and kind of monetary damages. (A beneficiary or a provider can, however, file a claim and pursue whatever administrative or judicial remedies are provided under the state’s Medicaid laws.) Consider, for example, what that means for the beneficiary who is trying to seek reimbursement from Medicaid for services that have already been received. Consider, as well, the practical implications of limiting Medicaid beneficiaries -- who are, by definition, poor -- to lawsuits that cannot recover damages or, in many cases, cannot be brought under § 1983 or some other lawsuit that allows for the recovery of attorney fees. Most broadly: Consider the difference between a federal “entitlement” program that is not, in many or most circumstances, enforceable in either federal or state courts by the people who are the direct recipients of the program’s benefits.
7. Greenery Rehabilitation is a typical Medicaid case, determined largely by an interpretation of the state and federal Medicaid statutes (A constitutional
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argument might have been raised, but in light of the prior case law, it was unlikely to be successful.) Note that the type of “medical necessity” issue analyzed in Greenery is distinguishable from the private “medical necessity” cases discussed in the previous section. As the case demonstrates, the “medical necessity” line in Medicaid cases is drawn by the statute and its interpretive regulations -- unless either exceeds the broad constitutional limits discussed in the notes supra; in the private financing cases, “medical necessity” disputes are determined largely by an interpretation of the contractual agreement between the parties, although those contracts are subject in some cases to state or federal regulatory statutes and some common law principles. In more basic terms, and in terms that would be absolutely critical if a viable constitutional argument were involved, the former involve “state action;” the latter involve only “private action.” Later subsections of these materials will examine similar disputes under the Medicaid and Medicare programs and disputes that arise in managed care programs. These too will turn on matters of statutory and administrative law as did Greenery, but the line between “state action” and “private action” will be somewhat harder to discern, especially where the decision that is being disputed is made by some private actor. For present purposes, it is important first to understand that disputes can be settled by different sources of law -- and can therefore have different outcomes -- depending upon their characterization as either “state action” or private action. Disputes such as the one involved in Greenery are easy to characterize; they are clearly state action and are, therefore, governed exclusively by statutory and administrative law principles.
Greenery is also typical in that it does what most state and federal courts do: It reads the federal Medicaid law to give the states rather broad discretion to limit, deny, or condition benefits or eligibility (or to limit or deny provider reimbursement; see discussion in Chapter 4). For other good illustrations, see Atkins v. Rivera, 477 U.S. 154 (1986) (state use of six-month computation period for determining eligibility for "medically needy" while using a one-month computation period for determining eligibility for "categorically needy" did not violate "comparability," "same methodology," or other requirements of federal statute); Alexander v Choate, 469 U.S. 287 (1985) (14-day maximum for inpatient hospital services is not a violation of federal Medicaid statute or federal law prohibiting discrimination against the handicapped).
8. In theory, a "medically needy" program that uses a broadly defined "spend down" mechanism to determine eligibility works like a catastrophic health insurance program -- at least for those people who meet the categorical and other requirements of the program. Anyone whose medical bills are high enough can "spend down" their income, meet the "medically needy" standard, and receive Medicaid coverage for all subsequent medical expenses. In practice, however, the result has been much more limited. The 1967 amendments to the federal Medicaid statute capped the discretion of the states to expand their "medically needy" programs and ensured that "medically needy" eligibility would only be extended to some, but not all, of those who might legitimately claim that they are needy because of their medical bills.
Schweiker v. Hogan, 457 U.S. 569 (1982), provides a good illustration of how the "medically needy" program works, as well as some of the inherent problems in such a scheme. At the time of the lawsuit, SSI recipients in Massachusetts were receiving a total of $513 a month. Since Massachusetts was not a "209(b)" state, these recipients were also automatically eligible for Medicaid. Massachusetts also chose to offer Medicaid to the "medically needy."
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As described in Hogan, the "medically needy" income limits are capped at 133 percent of the AFDC cash grant level which at that time was $300 in Massachusetts. Even if an applicant for "medically needy" Medicaid met all of the categorical and other requirements, the applicant would have to "spend down" by incurring expenses for medical benefits to a net income level of $400. (The applicant would be subject to similar "spend down" requirements for property, savings, and other assets as well.) Hogan, a retired worker, received $534 a month from Social Security. For purposes of SSI eligibility, $20 a month was disregarded, but his net income was still just over the SSI level. As such, he was not "categorically needy." Hogan had to "spend down" $114 per month -- on medical bills -- to qualify for Medicaid, which would then pay for all subsequent bills for Medicaid covered services. If his Social Security payment had been one dollar less, he would have been eligible for SSI and automatically eligible for Medicaid. The Supreme Court held that it was constitutionally "rational" to require Hogan to "spend down" to the $300 level -- even if the reason he had to do so was a $1 increase in his Social Security benefits. The Court reasoned that, even if this was unfair to Hogan, the "spend down" requirement did benefit most people affected by the federal law.
Ironically, such situations frequently occur when retirees receive cost-of-living increases to their Social Security payments, adjusting their income up but resulting in a loss of Medicaid eligibility. The "Pickle Amendment," adopted in 1976, protects some people who were eligible for Medicaid as SSI recipients but who lost their eligibility as a result of a Social Security cost-of-living increase. 42 U.S.C. § 1396a. However, "Pickle" protection does not extend to "medically needy" eligibles.
Consider the various policy choices made by Massachusetts and, alternatively, those made by Congress that created Hogan's circumstances. Apart from people like Hogan, what other groups are treated inequitably? Are there any policy justifications for the disparate treatment of the "categorically needy" and the "medically needy"? Of the AFDC and SSI populations? Who else is denied benefits but arguably in greater need for government assistance under these factual circumstances? Conversely, if you wanted to reduce or eliminate the inequities suffered by Hogan or others denied benefits, how could you do so -- given fiscal and political constraints?
9. The federal poverty guidelines are used to establish a ceiling beneath which states can establish their standards for determining Medicaid eligibility. The 2000 poverty guidelines for the 48 contiguous states and the District of Columbia are as follows:
Size of Family Unit Poverty Guideline 1 $ 9,570 2 12,830 3 16,090 4 19,350 5 22,610 6 25,870 7 29,230 8 32,390
For family units with more than 8 members, add $3,260 for each additional member. See 70 Fed. Reg. 8373 (2005). (Note that there are separate guidelines for Alaska and Hawaii.)
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10. In order to be eligible as either "categorically needy" or "medically needy," a Medicaid applicant must meet stringent and complicated income and resource standards: either the state determined AFDC standards, the federal SSI standards, the federally determined standards for the various categories of "optional categorically needy," or the state determined standards for the "medically needy" (or, in "209(b) states, the state standards for SSI recipients.) Virtually all cash income, including all Social Security and private pension benefits, and many forms of "in kind" income (e.g., food or shelter provided while living in someone else's residence) can be considered "available" income for purposes of determining Medicaid eligibility. All cash and virtually anything else that has a cash value -- an automobile, bank account, parcel of land, or personal effects -- may be considered an "available" resource. The federal law mandates that some resources be "disregarded," such as a personal residence; the federal requirements are narrowly defined and the states are still allowed considerable discretion in defining "disregards," available resources, and other matters. See, e.g., Hazard v. Shalala, 44 F.3d 399 (6th Cir. 1995) (state imposed $1500 limit on exemption for automobile does not violate federal law). Determining eligibility under these standards is further complicated by "deeming" requirements that define the extent to which the income or resources of a parent, sibling, or a spouse are considered "available" to the applicant. Again the states are given considerable discretion in "deeming." See, e.g., Ford v. Iowa Department of Human Services, 500 N.W.2d 26 (Iowa 1993) (federal law does not prohibit state from using annuity-based calculations in determining resources available to a "community spouse"); L.M. v. New Jersey, 140 N.J. 480, 659 A.2d 450 (1995) (state law does not permit the state to consider the pension benefits granted to beneficiary's former wife in divorce settlement as available income).
Medicaid eligibility requirements pose particularly difficult problems for applicants seeking eligibility primarily for the purpose of financing nursing home services. See Problem infra.
11. As discussed in Frew, a participating state is required to provide early, periodic, screening, diagnosis and treatment (EPSDT) for all Medicaid-eligible children under age 21. States have an affirmative obligation to seek out and inform Medicaid eligible children that EPSDT is available. See 42 U.S.C. § 1396a(a)(43). A participating state also must engage in a variety of efforts to encourage beneficiaries to utilize EPSDT and is specifically required to "provide or arrange for" separate medical, vision, hearing, and dental screens, 42 U.S.C. § 1396d(r)(1)(B), and arrange for corrective treatments. 42 U.S.C. § 1396a(a)43(c).
The EPSDT requirements create a program within a program. Because of the EPSDT requirements, children eligible for Medicaid are eligible for a much broader range of services than other Medicaid beneficiaries. See, e.g., Pittman v. Secretary, Florida Department of Health & Rehabilitative Services, 998 F.2d 887 (11th Cir.), cert. denied, 510 U.S. 1030 (1993) (state must cover medically necessary liver-bowel transplant for EPSDT even if the state does not opt to cover such services for other Medicaid recipients). The federal EPSDT requirements also impose unique, affirmative obligations on a participating state, in contrast to the state's role in ensuring that covered services are available to other Medicaid eligibles. In practice, however, few states have ambitiously pursued their EPSDT obligations and many states have virtually ignored them altogether. The courts have consistently recognized the EPSDT obligations, but have had difficulty finding effective ways to enforce them.
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See, e.g., Clark v. Kizer, 758 F. Supp. 572 (E.D. Cal. 1990), aff'd sub nom. Clark v. Coye, 967 F.2d 585 (9th Cir. 1992), aff'd in part & rev’d in part, 8 F.3d 26 (9th Cir. 1993). The limitations on federal jurisdiction under § 1983 and on all judicial remedies sought by private litigants imposed by the 11th amendment principles discussed supra only make the gap between EPSDT in theory and EPSDT in fact all the greater.
12. For a more detailed description of Medicaid program expenditures and beneficiaries and other Medicaid-related research, see generally Kaiser Commission on Medicaid and the Uninsured, http://www.kff.org/medicaid/kcmu (last visited September 2005); National Health Law Program, http://www. healthlaw.org/pub/ (last visited September 2005).
Note: The State Children's Health Insurance Program (SCHIP)
In 1997, one year after the Personal Responsibility and Work Opportunity Reconciliation Act was adopted, Congress created SCHIP, providing over $20 billion in federal matching funds over five years for state-administered programs of health insurance for uninsured children. The basic purpose of the program is to expand insurance coverage for children under age 19 who are within 200 percent of the federal poverty level and are not otherwise eligible for Medicaid or other publicly funded health programs. Annual allocations for each state is determined by the state's proportionate share of low income and uninsured children, but the states do not receive their allocation automatically. The Secretary of HHS must approve each state's plan under the SCHIP statute, much in the manner of the Medicaid program. Nonetheless, the states that choose to participate are given wide discretion in determining the scope of benefits, the use of beneficiary premiums, and the program's design. States must also finance their share of SCHIP under a complicated formula, again not unlike Medicaid, although the federal match for SCHIP programs is somewhat more generous than it is under Medicaid.
If states choose to have a separate insurance SCHIP program, rather than use their SCHIP funds to expand their Medicaid program, then the federal law allows the state to fund part of the program by charging beneficiary premiums, subject to certain caps and other restrictions in the federal law. This has both fiscal and political advantages -- allowing the state to present the program as an "insurance" program rather than one fully funded by state taxpayers. But it also risks limiting eligibility for those children in the lowest income groups, arguably the most in need of SCHIP type benefits.
At least initially, many states appeared eager to participate -- and share in the $20 billion allocation. Other states were either slow to respond or concerned that if they initiated a new program with SCHIP funds that they would be left holding the monetary bad when the SCHIP program expired. The original legislation authorized $20.3 billion through the year 2002; and then a slightly lower amount for a second five-year cycle. Congress, of course, has to make annual appropriations of the scheduled amounts and there is no legal barrier to their refusal to do so or to a decision to lower the funding for any year or for either five-year period. In any event, it is not permanently authorized (such as Medicaid and Medicare) and, at some point, unless it is re-authorized and then re-funded in each budget cycle, the money will run out. Congress must make a series of affirmative decision to continue federal support for SCHIP programs or the states must refinance their programs out of state funds.
A lot is at stake. As of December 2004, nearly 4 million low income children were receiving SCHIP funded benefits. About one-third were in Medicaid-expansion programs, the remainder in separate SCHIP-funded programs.
For a description of the program, see Genevieve M. Kenney & Deborah Chang, The State Children’s Health Insurance Program: Successes, Shortcomings, and Challenges, 23 Health Affairs 51 (2004); see also reports at http://www.kff.org/medicaid/index/ (last visited September 2005).
PROBLEM FOR DISCUSSION: NURSING HOME CARE, MEDICAID, AND ESTATE PLANNING FOR LOW TO MODERATE INCOME FAMILIES
States that participate in Medicaid are required to cover nursing home services for the "categorically needy." Virtually all states opt to provide nursing home services for the "medically needy" as well. Since many nursing home patients are either poor or quickly "spend down" to the Medicaid income and resource levels, Medicaid has become the primary source of nursing home financing in the United States, funding nearly 50 percent of all nursing home services in the United States. Medicare pays for an additional 10-15 percent. the remainder is paid privately and, since most private insurance does not cover long term care, out-of-pocket. Viewed somewhat differently, payments for nursing home services and for the other health care needs of Medicaid beneficiaries while they are in nursing homes can represent as much as 30-40 percent of a state's total Medicaid costs. Thus, for many states, containing the costs of their Medicaid program means, in large measure, containing the costs of Medicaid-funded nursing home care. For a good overview of Medicaid’s role in long term care (of which nursing home care is the largest part), see Kaiser Commission on Medicaid and the Uninsured, Medicaid and Long Term Care (2005) found at http://www.kff.org/medicaid (last visited September 2005). See also discussion of long term care in Chapter 4.
Yet Medicaid can be both a blessing and a curse for program beneficiaries. For many people, their first encounter with their state's complicated income, resource, and other limits on Medicaid eligibility comes when they first seek financing for nursing home services for themselves, a spouse, or a family member. The experience can be daunting if not overwhelming. One particularly troubling problem occurs when one spouse enters a nursing home and the other stays in the community. Faced with nursing home bills that could exceed $80,000 a year, qualifying for Medicaid may be their only available financing option. Yet the interplay of the "deeming" requirements (defining what resources are “deemed” available to the institutionalized spouse) with Medicaid's income and resource standards can leave the community spouse with a Hobson's choice: become impoverished in order to secure the institutionalized spouse's Medicaid eligibility, or officially separate from that spouse to avoid the loss of income or resources necessary to continue to live in the community.
Some of the issues involved can be illustrated by examples from the case law. In Mistrick v. Division of Medical Assistance and Health Services, 154 N.J. 158, 712 A.2d 188 (1998), the New Jersey Supreme Court upheld the validity of a state law that defined the total value of a community spouse’s IRA as a resource, rather than treating the payments from the IRA as income to that spouse. As a result, the community spouse had to “cash in” the IRA and deplete the entire amount before the institutionalized spouse could qualify for Medicaid, eliminating the retirement income available to the community spouse. On the other hand, in Wisconsin Department of Health & Family Services v. Blumer, 534 U.S. 473 (2002) invalidated a state’s interpretation of the federal Medicaid law which used an “income-first rule” in transferring assets from an institutionalized spouse. (A “resource-first” approach makes it more likely that the institutionalized spouse will qualify for Medicaid -- or at least makes it more likely that the institutionalized spouse can spend down excess income). For other examples, see Omar N. Ahmad, Medicaid Eligibility Rules for the Elderly Long-Term Care Applicant: History and Developments, 1965-1998, 20 Journal of Legal Medicine 251 (1999).
Confused? You should be. This is as complex as any area of the law. To fully appreciate both the issues and their complexity, however, requires a more specific illustration. Suppose you are the legal adviser to an extended family unit that includes at least one member who is elderly or disabled and may expect to enter a nursing home in the next five to ten years. Since levels of income, property values, and other matters differ by jurisdiction, you should base your analysis on the circumstances of a family with which you are familiar. And since Medicaid varies from state to state, you will also have to assemble the relevant state laws concerning Medicaid eligibility in your jurisdiction. Note also that many of the state eligibility requirements will be in the state regulations and other administrative documents (and, in some jurisdictions, very difficult to obtain).
The obvious first task is to determine the income, resource, and other standards that must be met in your jurisdiction, including the spousal and other "deeming" requirements and compare them to those of your potential applicant. Can an applicant "spend down" to eligibility in your state? If the applicant has a spouse, which assets and what income will still be available to the non-institutionalized spouse if Medicaid eligibility is granted? Are there steps that can be taken to avoiding treating the income or assets as "available" for purposes of Medicaid eligibility? If other members of the family would like to help the potential Medicaid applicant, for either current or future financial needs, what can be done that will not jeopardize future Medicaid eligibility or at least not duplicate Medicaid coverage? Are there any assets of special value to the family? Some personal items may have a modest market value but "keeping them in the family" may have tremendous emotional value to the potential Medicaid applicant.
Planning this “estate” may involve more than writing a will, creating a trust, or advising the client-family about the need to save for future needs. Medicaid eligibility requirements place some additional "wrinkles" in traditional estate planning strategies, at least for those people who anticipate a need for Medicaid funded nursing home services or, for that matter, other Medicaid covered services. Investing or saving funds for future needs can merely accumulate "available resources" that have to be "spent down." Efforts by family or other third parties to assist a potential applicant can have a similar effect. For example, if a trust fund is created for the benefit of an elderly person, the income or corpus of the fund, if available to a Medicaid applicant, is considered "available" for determining eligibility. There are specific federal rules defining "Medicaid qualifying trusts," essentially requiring that various types of trusts be considered "available" even if they were structured in an effort to avoid that result. Your state may place additional “wrinkles” in any or all of these.
Note as well that a state is allowed under federal law to disqualify applicants for Medicaid coverage for nursing home services (but not all Medicaid eligibility) for a specified period of time if the state finds that the applicant's assets have been transferred for less than full market value up to 36 months prior to the application (and even longer in some circumstances.) States may even disqualify applicants if the "transfer" is merely a refusal to accept an asset. If your research of your jurisdiction’s law did not uncover these complicated but important restrictions on this type of estate planning, this should bother you. You should be equally concerned if your preliminary research did not reveal another complicated but important legal restriction: The federal law imposes criminal sanctions on the applicant’s legal counsel for giving certain types of improper advice concerning these matters, although the
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constitutionality of the federal law that created this criminal has been questioned.
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3. Medicaid and Managed Care
Kaiser Commission on Medicaid and the Uninsured, Medicaid and Managed Care (Kaiser Family Foundation June 2001)
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. . . As a purchaser of health services for low-income families, Medicaid increasingly relies on managed care to deliver services. Over half of Medicaid beneficiaries, predominantly poor children and their parents, now receive health care services through a broad array of managed care arrangements. . . .
MEDICAID MANAGED CARE ENROLLMENT
In 2001, over 18 million Medicaid beneficiaries were enrolled in managed care, up from 2.7 million in 1991, more than a six-fold increase. All states (except AK and WY) were pursuing some managed care initiatives. As of June 2001, 43 states and D.C. had more than one-quarter of their Medicaid population enrolled in managed care. Of these, 12 states had more than 75 percent of their Medicaid beneficiaries enrolled in managed care.
MODELS OF MEDICAID MANAGED CARE
Managed care is designed to reduce costs by eliminating inappropriate and unnecessary services and relying more heavily on primary care and coordination of care. Managed care arrangements are characterized by formal enrollment of individuals in a managed care organization (MCO); contractual agreements between the provider and a payer; and some gate-keeping and utilization control.
The major Medicaid managed care models include:
-- Risk-Based Plans: Under a fully capitated plan, a health plan is paid a fixed monthly fee per enrollee and assumes full-risk for the delivery of a comprehensive range of services. Some plans contract on a more limited basis (i.e., ambulatory care only).
-- Fee-For--Service Primary Care Case Management (PCCM): In a PCCM plan, a provider, usually the patient’s primary care physician, is responsible for acting as a “gatekeeper” to approve and monitor the provision of services to beneficiaries. These gatekeepers do not assume financial risk for the provision of services, and are paid a per-patient monthly case management fee.
As of 2001, 556 Medicaid managed care plans, primarily full-risk HMOs, were in operation -- more than double the number of plans in 1993. There has been significant growth in the number of full-risk Medicaid plans, increasing from 196 in 1994 to 339 in 1997. In recent years, these numbers have stabilized. The most growth has occurred in commercial plan participation, as well as in Medicaid plans targeted predominantly or exclusively to the Medicaid population.
In 1999, 43 percent of Medicaid enrollees in fully capitated arrangements were enrolled in “Medicaid-dominated” plans, comprised of safety net providers, commercial plan subsidiaries, provider-sponsored plans, and others.
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STATE MANAGED CARE OPTIONS
States have long had the option to voluntarily enroll Medicaid beneficiaries in managed care plans, but now have broader authority to mandate enrollment.
. . . .
The Balanced Budget Act (BBA) of 1997 gave states new authority to mandate enrollment in MCOs for Medicaid beneficiaries without obtaining a federal waiver (except for special needs children, Medicare beneficiaries and Native Americans). Furthermore the new law permitted the establishment of Medicaid-dominated plans by eliminating the 75/25 rule, which required that 25 percent of a plan’s enrollment be privately insured. The BBA also established certain new managed care consumer protections for Medicaid beneficiaries. Finally the law required states to develop and implement a quality assessment and improvement strategy and called for external independent review of MCO performance.
TRENDS IN MEDICAID MANAGED CARE
Although Medicaid managed care enrollment has continued to grow, recent analysis has shown that the number of commercial plans entering the Medicaid market has begun to slow, while the number leaving has increased.
. . . This will become increasingly important as more vulnerable beneficiaries such as the disabled enroll in Medicaid managed care. Currently, about one in four non-elderly persons with disabilities in Medicaid are enrolled in managed care primarily under mandatory, capitated arrangements. Managed care is attractive because of its potential to reduce spending and better coordinate care, but may actually under-serve this population if not carefully monitored.
ISSUES IN MANAGED CARE
Medicaid beneficiaries are economically disadvantaged, frequently reside in medically underserved areas, and often have more complex health and social needs than do higher-income Americans. Early evidence on the implementation of Medicaid managed care shows some improvement in access to a regular provider but more difficulties obtaining care and dissatisfaction with care for managed care enrollees compared to those in Medicaid fee-for-service.
Medicaid provider payment rates are often substantially below market rates, contributing to access problems. Capitation rates need to be sufficient to assure that plans are able to adequately care for Medicaid enrollees. Medicaid-only MCOs, wholly dependent on Medicaid, do not have other payers to compensate for shortfalls, which can lead to instability in access to care for enrollees. . . .
Broadened use of managed care for low-income children and families is unlikely to accomplish large overall savings for Medicaid. Low-income children and adults account for only 25 percent of program spending; 65 percent of spending is for the elderly and the disabled. Enrollment of elderly and disabled populations into managed care is increasing, but is complicated by difficulties in setting appropriate capitation rates, limited plan experience in providing
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specialized services, and lack of systems to coordinate Medicare and Medicaid benefits for “dual eligibles.”
The future success of Medicaid managed care depends on the adequacy of the capitation rates and the ability of state and federal government to monitor access and quality. The BBA provides new standards to assure plan capacity and enforce consumer protections. However, the development of access and quality performance standards for Medicaid MCOs and the measurement of compliance with those standards are evolving. Assuring access and quality of care in a managed care environment will require fiscally solvent plans, established provider networks, education of providers and beneficiaries about managed care, and awareness of the unique needs of the Medicaid population.
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Notes and Questions on Medicaid and Managed Care
1. As the Kaiser Commission article indicates, the number of beneficiaries enrolled in managed care plans has been growing fairly rapidly since the early 1990s. While most experts applaud this as a “success,” some critics have argued that the expansion of Medicaid managed care plans has largely involved the enrollment of relatively healthy adults and children. Fewer elderly and, in particular, disabled Medicaid beneficiaries are enrolled in managed care.
Whether the enrollment in managed care plans will continue to increase as states are faced with the prospect of including these other subcategories of the Medicaid population is difficult to predict. Nonetheless, managed care, rather than programs structured around fee-for-service reimbursement, appears to be one of the predominant models for the future configuration of the Medicaid program.
2. Even if they do not expand, many states argue that their Medicaid managed care programs are already a success, both in terms of their total enrollment and in terms of the relative costs of these programs. Some states publicized their efforts as a “win-win” scenario: Because of their use of managed care plans, more people are covered by Medicaid at a lower cost than they would have been under traditional fee-for-service programs. Some states have even claimed that they have both expanded their programs and reduced the costs of their programs. Tennessee received a great deal of national attention in the mid-1990s when it created a program with the intention of enrolling both its Medicaid beneficiaries and a large portion of the state’s non-Medicaid uninsured in a statewide system of managed care organizations: TennCare. They argued that TennCare could do so at a cost that would be lower than the projected Medicaid budget had it continued as a traditional fee-for-service program and only covered the Medicaid population.
In fact, TennCare lived up to these claims, at least in the early years of the program. By the year 2001, the number of uninsured people in the state had dropped markedly and by such measures as immunization rates, infant mortality, and trips to the emergency room, Tennesseans could claim to be healthier and happier. For a description of the program in its early years, see Sidney D. Watson, Medicaid Physician Participation: Patients, Poverty, and Physician Self-Interest, 21 American Journal of Law & Medicine 191 (1995); for a more recent assessment of TennCare, see Lorenzo Moreno & Sheila D. Hoag, Covering the Uninsured Through TennCare: Does it make a Difference?, 20 Health Affairs 231 (2001). For a critical analysis of TennCare, see James F. Blumstein & Frank A Sloan, Health Care Reform Through Medicaid Managed Care: Tennessee (TennCare) As a Case Study And a Paradigm, 53 Vanderbilt Law Review 125 (2000).
In later years and despite its success, TennCare became increasingly controversial as state budget shortfalls made the program an easy target for budget-cutting politicians. In 2002, the governor of the state announced plans to reduce the scope of TennCare’s eligibility and coverage and to try to divert some of the non-Medicaid enrollees into a privately financed program. These initial plans were delayed by a series of plaintiff-initiated lawsuits and political maneuvers. As of 2005, efforts were still being made to reduce the cost -- and the scope -- of the program. For updates, see http://tennessee.governor/tenncare (last visited September 2005).
3. How should a Medicaid managed care program be evaluated? In most political debates, the "success" of a managed care program is defined in terms of the overall cost of the program or the total number of enrollees. But presumably the objective of a managed care program, once undertaken, is to provide enrollees with an adequate level of quality services. How, in concrete terms, should those objectives be defined and how should the performance of managed care programs be measured? If the financial incentives in managed care programs "encourage" underutilization, monitoring the performance of managed care providers and defining and enforcing standards for quality and accessibility of care become critically important.
Since the early 1980s, a number of private purchasers of health care and various managed care organizations have attempted to develop standardized performance measures that could be used to evaluate the services provided by managed care plans. One product of those efforts was HEDIS -- the Health Plan Employer Data and Information Set -- originally designed as a set of standards to help employers evaluate the performance of the benefits they were purchasing for their employees. As Medicaid, Medicare, and other public payers became more involved in purchasing and evaluating services provided in a managed care setting, they have relied heavily on the HEDIS standards to do so. In 1997, the Member Satisfaction Survey (MSS) was added to the information collected by plans participating in HEDIS. MSS was replaced by CAHPS, Consumer Assessment of Health Plans, essentially a revised and more sophisticated version the predecessor MSS. The HEDIS standards have been developed by a private nonprofit group, the National Committee on Quality Assurance (NCQA) which collects and analyzes HEDIS data through a program called Quality Compass. The HEDIS standards have been updated several times and presumably will continue to evolve.
NCQA? HEDIS? CAHPS? So what’s all this really mean? One thing is clear and undeniable: This sort of data can be extremely useful. Indeed, it has the potential -- not fully realized -- of becoming a powerful tool for consumers, buyers, state and federal legislators, and anyone else who wants to get beyond the “who is covered?” and “how much does it cost?” questions. Stripped of the acryonyms, what HEDIS means for Medicaid beneficiaries and Medicaid program administrators is that there are some measurable standards by which managed care plans can be compared and their performance evaluated. For that matter, HEDIS and other performance measures can be used by employers, their employees, or virtually anyone who wants to evaluate a plan -- if the data is accessible, understandable, and accurate.
That’s a big “if” in that last sentence. There are some real problems with this type of data and its collection, not the least of which is that many plans either don’t report the data or report data that isn’t accurate. Some of the HEDIS measures are rather straightforward and involve rather familiar measures, e.g., the number of beneficiaries of a plan who get scheduled vaccinations for children. Other measures can be rather sophisticated. Few consumers -- public or private -- have any idea what percentage of a plan’s enrollees should be receiving retinal eye exams or whether three to seven days in the hospital per beneficiary are indicators of good or bad medicine. On the other hand, this is exactly the sort of information many critics of American health care think consumers should learn to understand, assuming that it is accurately reported and made publicly available.
The kicker in all this, however, is the availability of the data. The NCQA is a private organization offering its services and standards to private plans. Private plans are not required by law to collect the data and NCQA is not required to publish it, nor are plans required to publish how they rate in
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comparison to the HEDIS measures. Some employers require HEDIS data as part of their negotiations with various plans. But many employers don’t have the bargaining power to do so. By requiring plans to collect and submit HEDIS data, Medicaid and Medicare have become a kind of testing ground for the managing of this data collection and the utility of this information. Much of what has been made available thus far is largely a first effort, to be followed in future years by more refined and, hopefully, more useful, efforts.
For more information about the HEDIS data, see http://www.ncqa.org/Programs/HEDIS (last visited October 2005).
4. As described in the Kaiser Commission article, prior to 1997, states had to receive individual authorization or “waivers” from HHS to implement managed care programs. Under provisions included in the Balanced Budget Act of 1997, the requirements of the federal Medicaid statute were loosened to encourage the states to expand their programs. But even under the liberalized standards introduced by the Balanced Budget Act of 1997, the federal law still imposes some limits on the states’ discretion in structuring their Medicaid managed care plans, including a variety of what could be regarded as beneficiary protections. These include assurances for monitoring the accessibility and quality of care available, collecting data (such as HEDIS data), and establishing an internal, state monitored grievance procedure. See 42 U.S.C. § 1396u-2(a)-(b). These beneficiary protections should be compared to those that are available to Medicare beneficiaries enrolled in managed care, as discussed infra.
Whether the federal government will enforce these requirements or, alternatively, the states will rigorously pursue efforts to monitor compliance by the plans they contract with are open questions; federal and state program administrators have little incentive to look beyond the “who is enrolled?” and “how much does this cost?” questions. Indeed, one key to understanding the attractiveness of Medicaid managed care lies in the fundamental way in which most state Medicaid managed care programs alter the relationship between the state and the beneficiaries. Under traditional fee-for-service programs, the state is essentially an insurer: It offers coverage to beneficiaries and reimbursement to providers who treat them. The state has both fiscal and administrative on-going responsibilities for the program. Under managed care, the state is purchasing an insurance arrangement. At least in comprehensive programs, the state’s primary responsibility is to negotiate with the plans over the level of payments for enrolling beneficiaries and the other terms of the contract between the plan and the state. But once those negotiations are settled, the deal is made, and the state is no longer directly involved in the delivery of services by the plans. Not only is this administratively simpler, once the capitation rate has been negotiated, the state can more easily predict what its Medicaid budget will be through the term of the contracts. Under traditional fee-for-service, the cost of the state’s Medicaid budget depends upon the utilization of services by beneficiaries and the behavior of providers -- neither of which is predictable or easy to control.
Some state Medicaid policymakers even take the position that all of their responsibilities end once they have purchased enrollment for a Medicaid beneficiary in a managed care plan. “Once you are enrolled in a plan, if there is a problem with what you do or do not receive, talk to (or sue) your plan.” But even for those who do not endorse this view, it is clear that there is little incentive for state program administrators to protect the contracted-for rights of Medicaid beneficiaries or even to monitor whether they receive the services for which the plan has contracted. After all, why rock the boat -- or
upset a contractor with whom the state must annually negotiate? For this and other reasons, legitimate questions can be raised as to the rigors with which a state will pursue the enforcement of the terms of managed care contracts or even the types of consumer protections that the state is obligated by federal law to enforce.
As such, one important line of legal issues which will evolve over the next several years will be the ability of Medicaid managed care beneficiaries to enforce the requirements of the federal Medicaid statute and even the terms of the contracts that have been negotiated on their behalf by the state Medicaid programs. Will the courts treat the requirements of the Balanced Budget Act of 1997 and other federal statutory protections as enforceable through private lawsuits, or only as matters that can be enforced by administrative action by the federal government?
Alternatively, can individual beneficiaries sue their plans as third party beneficiaries to the contracts negotiated between the state and the beneficiary’s managed care plan or, alternatively, will the courts allow only the state to initiate legal action against an individual plan?
Perhaps most importantly, if there is a dispute between the plan and the beneficiary over a beneficiary’s eligibility or treatment -- e.g., a plan’s denial of coverage for a particular treatment -- is the beneficiary entitled to the same statutory and constitutional protections that would have been available to the beneficiary under traditional fee-for-service Medicaid? If the same eligibility or treatment dispute arises for a beneficiary who is not enrolled in managed care, the denial would be by an agency of the state and, under federal law, the beneficiary would be entitled to the extended procedural protections outlined in the federal law (and in the state law and the state’s plan as well.) The beneficiary also would be allowed to claim the protections of the Due Process Clause and any state constitutional protections as well. The decision maker, the state agency denying that the beneficiary is eligible or that the treatment is covered, is a state actor and clearly operating within the limits of the federal statute, the state statute, and the state and federal constitutions.
The decision maker for the beneficiary enrolled in managed care is a private managed care plan under contract to a public program -- making the kind of decisions traditionally made by a state actor. There are statutory questions concerning whether the private managed care plan has to comply with the procedural requirements that are imposed on the state when the state makes the same type of decision. There is a second set of issues concerning the application of any constitutional requirements, over and above the statutory requirements, to the private plan. In essence, are certain decisions of the managed care plan to be treated as “state action” for purposes of applying constitutional principles? Obviously the states can address these issues administratively or make compliance with any or all statutory or constitutional principles part of the plan’s contractual obligations. For that matter, states could write their contracts to explicitly recognize the plan’s enrollees as third party beneficiaries to the plans. But as noted above, the states are not always eager to “rock the boat” in their dealings with managed care plans.
For some judicial efforts to sort out these important statutory and constitutional issues, see Daniels v. Menke, 145 F.3d 1330 (6th Cir. 1998) (vacating a district court decision that MCOs participating in TennCare are state actors when making treatment or service denial decisions); Catanzano v. Wing, 103 F.3d 223 (2d Cir. 1996)(applying due process requirements to home
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health agencies under contract to the Medicaid program). See also Grijalva v. Shalala, 152 F.3d 1115 (9th Cir. 1998), vacated and remanded, 526 U.S. 1096 (1999).
5. As reviewed in the Kaiser Commission article, almost all observers agree that managed care strategies can potentially contain the costs of providing Medicaid without necessarily cutting the program and, in some cases, even with significant expansion of enrollment. On the other hand, there is no assurance that this potential will be realized. There are obviously good and bad ways to structure Medicaid managed care programs. And what works in some states in some years may not work in others. But even if it reaches its full cost-saving potential, the result will not be the kind of short term, "big dollar" savings that would resolve the budgetary problems that plague many states. As all state officials repeatedly insist, the "bottom line" for measuring the need for Medicaid cost containment is not simply the costs of the Medicaid program, whatever its rate of growth, but the growing costs of Medicaid as compared to the growth in available state revenue to pay the state's share of those costs. For that matter, some managed care programs may actually increase Medicaid costs in the long run if the overall strategy includes a major expansion of the number of people enrolled in the state-sponsored program. For some states, disavowing that responsibility might be very difficult, even if program costs exceed expectations. Conversely, in some states, if managed care fails to contain Medicaid costs, then there may be little choice but to reduce spending by the only methods certain to have immediate "big dollar" impact: heavy-handed restrictions on provider reimbursement or, more simply, drastic reductions in the number of program beneficiaries or in the scope of services for which they are covered.
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C. MEDICARE
When Medicare was enacted in 1965, it was presented to the nation as a program of historic significance and ambitious proportions. By expanding the benefits available to the nation's elderly under the Social Security program to include financing for hospital and medical care, the federal government would provide them with the kind of health insurance that was available to many Americans during their working years but that was unavailable or unaffordable once they retired. In the words of President Johnson as he signed the Medicare legislation:
No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings they have so carefully put away over a lifetime so that they might enjoy dignity in their later years. No longer will young families see their own incomes, and their hopes, eaten away simply because they are carrying out their deep moral obligations to their parents. . . . And no longer will this nation refuse the hand of justice to those who have a given a lifetime of service and wisdom and labor to the progress of this progressive country.
Remarks by Lyndon B. Johnson July 30, 1965, 2 Pub. Papers 394 at 811, 812-14 (1965).
Unlike many other programs of that era, Medicare has lived up to the rhetoric with which it was unveiled. For over 35 years, Medicare has provided its beneficiaries with exactly what they were promised: financing for hospital, physician, and related services -- publicly sponsored health insurance with coverage at least as broad as all but the most comprehensive private health insurance policies. And eligibility for those benefits has been generously defined to include virtually everyone 65 years of age or older and many disabled Social Security recipients, as well as people with end-stage renal disease. In 2006, over 40 million Americans will rely on Medicare as the primary source of financing for their health care needs, with the expectation that their Medicare benefits will continue to be available throughout their lifetime.
But extending the "hand of justice" to so many people has proven to be an expensive social commitment. The total costs of the Medicare program have risen rapidly over the last four decades -- and, with some notable exceptions (see discussion infra) more rapidly than the costs of health care for the general population. Prospects for both the short term and the long term future are sobering. Estimates indicate that the costs of the Medicare program will continue to rise relatively rapidly through the next decade and could -- unless "something is done" -- skyrocket as the "baby boom" generation matures in the second decade of the 21st century. Equally if not more important, the costs of the Medicare program also are predicted to grow at rates much higher than those of available government revenues. Unless the growing gap between Medicare expenditures and Medicare revenues can be closed, the financial bases for Medicare, as currently structured, will collapse.
Thus, the Medicare program, like the Medicaid program, is at a critical juncture. Whether the federal government can or will continue to provide what many Americans have come to regard as their entitlement is now open to question on both financial and political grounds. And much is at stake: Medicare is the largest single source of American health care financing and the primary source of health care financing for the nation's elderly and many of its disabled.
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Moreover, as documented in Chapter 1, changes in Medicare have often foreshadowed changes in other private and public financing schemes, and, in fact, federal policymakers have often used Medicare as a vehicle for directing reforms that affect virtually every aspect of American health care financing and delivery. In the next decade, the debates over the future scope of Medicare eligibility, the nature of the commitment to those who are eligible, and, in particular, the manner in which revenues will be raised to support the program, will tell us much about the present and future status of American health care, its relationship to government, and the attitudes and values of Americans concerning both of them.
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1. An Introduction to Medicare in the 21st Century
The original Medicare legislation created two new programs: a compulsory program of basic hospital insurance, Medicare Part A; and a voluntary medical benefits program, Medicare Part B. (A new Part D, a voluntary program financing program financing prescription drugs, was scheduled to be implemented in January of 2006; see discussion infra.)
Medicare Part A, for which all Social Security beneficiaries are automatically eligible, provides reimbursement for inpatient hospital services, skilled nursing home services (following at least three days of hospitalization), home health services, and hospice care, subject to various cost-sharing requirements, exclusions, and durational limits, as described infra. People who have received Social Security disability payments for more than 24 months are also eligible for Medicare Part A (as are people with end-stage renal disease).
The importance of Part A benefits could hardly be overstated, especially for those in need of hospital services. In 2004, Medicare Part A purchased nearly $170 billion in services, primarily inpatient hospital services. Indeed, once the initial first-day deductible is satisfied, Part A pays virtually 100 percent of the beneficiary's bill for inpatient hospital care. For that matter, Medicare's significance goes far beyond the beneficiary population. Medicare Part A is the nation's largest single payer for hospital services, public or private, financing nearly half of all inpatient hospital care in the United States.
To receive Medicare Part B, an eligible beneficiary must pay a monthly premium ($89.20 starting in 2006). Virtually all Part A recipients do so. Part B provides reimbursement for physician services, diagnostic and laboratory services, and various hospital outpatient services, again subject to exclusions and limits and substantial cost-sharing requirements. As with Part A, it would be hard to understate the value of Part B benefits to enrolled beneficiaries or the significance of Part B in the health care system generally. In 2004, Part B purchased over $135 billion in physician and related services for Part B recipients, roughly two-thirds of all physician services provided to the elderly and about one-fourth of all physician services.
Taken together, Parts A and B provide Medicare beneficiaries with protection that is fairly comprehensive, although clearly not complete, and not unlike that of the private health financing arrangements available to many non-elderly Americans through employment-based plans or other group policies. It is very unlikely that anything comparable would be available through private financing mechanisms, or at least affordable for most Medicare beneficiaries, if Medicare or some other publicly financed program did not exist and these benefits had to be supported entirely out of beneficiary premiums.
To fully appreciate Medicare, it is important to delineate what Medicare does not cover, the limits on and exclusions from covered services, and Medicare's substantial cost-sharing requirements. Neither Part A nor Part B provide coverage for most nursing home or other long term care expenses, most routine check-ups or preventive care, or such items as dental work, eyeglasses, or hearing aids (or, prior to 2006, prescription drugs). The cost-sharing and durational limits of Medicare coverage are complicated but equally significant in understanding Medicare's limitations. Part A payments for inpatient hospital coverage expire after 90 days, although a beneficiary can use an additional,
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once-in-a-lifetime "60 day reserve." Similarly, Part A coverage of skilled nursing services under Part A expires after 100 days. The Part A beneficiary is also responsible for a deductible, roughly equivalent to the cost of the first day of hospital care for each spell of hospitalization ($912 in 2006), a co-payment equivalent to 1/4 the per diem cost for each day from the sixty-first to the ninetieth day of hospitalization ($228 in 2006), and a co-payment equivalent to 50 percent of the per diem cost for each day of the life time reserve used. Likewise, skilled nursing home coverage under Part A is limited to 100 days a year and the beneficiary must pay a co-payment equivalent to one-eighth of the cost of a day in the hospital for each day from the twenty-first to the hundredth day ($114 in 2006).
Medicare Part B also imposes significant cost-sharing obligations on the Medicare beneficiary. As of 2006, the beneficiary must pay the first $110 of the costs of covered Part B services each year and 20 percent of the Medicare approved charge for most covered services. In addition, unless a Part B physician "accepts assignment," the beneficiary may be liable for the amount of the physician charge above the Medicare level of payment.
Obviously the service limits and durational exclusions from Medicare's coverage, combined with the cost-sharing requirements, can result in substantial out-of-pocket liability for some Medicare beneficiaries. It has been estimated that in the aggregate, Medicare pays less than half of the total costs of the medical bills of the nation's elderly. In some individual cases the results are particularly harsh: The cost-sharing liability of the very sickest patients, those institutionalized for long periods of time, balloons as their care is extended and there is no upper limit on total out-of-pocket liability under either Part A or Part B. Even granting Medicare's relatively broad coverage, and taking into account the other sources of health financing available to some but not all in the Medicare population -- Medicaid for the very poor and private health insurance provided as part of retirement benefits for some workers -- Medicare beneficiaries must still pay out-of-pocket for a considerable portion of their health care needs and some truly face "catastrophic" medical bills despite their Medicare eligibility. The 1989 "catastrophic" legislation attempted to provide some additional coverage for Medicare beneficiaries with the highest bills, but it was repealed in 1990. Medicare beneficiaries who can afford to do so purchase supplemental or "Medi-Gap" policies, some of which are legitimately tailored to mesh with the potential out-of-pocket liability of Medicare beneficiaries; other policies offer only duplicative or worthless coverage. All are relatively expensive.
Notwithstanding its exclusions and limitations, Medicare has always been an extraordinarily expensive government undertaking. As indicated in Table VI, the total Medicare budget increased from $5 billion in 1967 to over $100 billion by the 1980s, to over $200 billion annually by the end of the 1990s, and was approaching $400 billion by 2006. As with other cost estimates, the rate at which Medicare costs have been growing is as important as the aggregated total of those costs. Through the early 1980s, the rate of growth of Medicare expenditures generally equaled or exceeded the rate of growth of health care costs. In the mid-1980s, however, Medicare's rate of growth somewhat moderated. In particular, the rate of growth of Medicare Part A spending slowed dramatically in the mid-1980s, apparently as a result of the implementation of prospective, diagnosis-related group reimbursement (DRGs) for inpatient hospital services. (See discussion in Chapter 3.) Economists have estimated that in "constant dollars," Part A expenditures per recipient actually declined for a few years in the 1980s. Starting in 1988 and through the first half of the
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1990s, however, the rate of increase in Part A expenditures began growing again, as indicated on Table VII.
In the late 1990s, the growth of Medicare Part A expenditures again began to slow. Most of these program savings have been attributed to the changes mandated by the 1997 budget legislation which introduced a new prospective reimbursement scheme for skilled nursing home services, tight limits on the annual increases in payments to all Part A providers, and a shift in the cost of home health services from Part A to Part B (scheduled over a six-year period.) Nonetheless, in the first several years of the 21st century, however, Part A expenditures began to rise again, although at relatively moderate levels.
Medicare Part B expenditure increases also have followed several waves of rapid, then slowing, increases in response to various economic and programmatic changes. Significantly, the most recent long term projections suggest that Part B costs will continue to rise rapidly well into the 21st century and virtually equal expenditures for Part A by the second decade, assuming, somewhat hypothetically, that Medicare will continue as currently structured through those years.
There are several trends that should be given special attention in understanding Medicare costs and the problems they pose for the future of the program. First, in some regards, Medicare Part A costs have been successfully contained already. The use of inpatient hospital services by Medicare beneficiaries declined markedly during the mid-1980s and remained at these lower levels in the 1990s (when use of inpatient services by non-Medicare patients also began to decline.) There has not been an expansion of Part A coverage since 1972; the scope of services has remained essentially unchanged for several decades. Over 90 percent of Part A expenditures are for inpatient hospital services, services that have been covered since the inception of the program. Moreover, at least since the implementation of Medicare DRGs, the rate of increase in reimbursement per hospital admission has been determined by a "hospital input price index," or, more simply, mandated by Congress. See Chapter 3. The net result has been that the annual increases in Medicare reimbursement for inpatient hospital services have been significantly lower than the increases in rates of hospital reimbursement by other payers. Said differently, the rate of increases in Medicare Part A expenditures, at least in the last two decades, are not driven by increases in Part A coverage, increases in utilization of covered services, or, relatively speaking, rapid increases in Part A "prices." Current government projections assume that these trends will not change significantly in the coming years.
Some, but not all, of these trends characterize Part B expenditures as well. Until the creation of the new prescription drug benefit in 2006, there had been no expansion of part B coverage in the prior two decades of the program, with the exception of the short-lived "catastrophic" legislation in 1989. Various reimbursement reforms during the 1980s and, in particular, the adoption of "resource-based relative value scales" (RB-RVS) in the 1990s slowed the growth in levels of reimbursement for most Part B services. In contrast to Part A services, however, rates of utilization for Part B services have been increasing during the last decade, particularly utilization of outpatient hospital services, perhaps for the very reason that use of inpatient hospital services has declined. This is one main reason why Part B expenditures are expected to continue to rise more rapidly than Part A expenditures.
The other primary reason for the continuing increase in Part B expenditures in the 1990s, and the primary reason why Part A expenditures are
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also continuing to increase, is the growth in the size of the Medicare population. Obviously the number of beneficiaries has been growing in absolute terms since the inception of the program and growing even more rapidly in recent years. In 1980, there were 28.5 million Medicare beneficiaries; by 1991, there were over 35 million. By 2005, there were over 40 million Medicare beneficiaries. The impact of this "graying factor" on current levels of NHEs is relatively small, as discussed in Chapter 8, but the impact on Medicare spending is significant and will continue to be so. Even with the declines in rates of utilization of some Medicare services and the relative slow rate of increases in the "prices" paid for those services, this growing population will continue to fuel Medicare expenditure increases.
This growth in the Medicare population is also creating another related problem for the Medicare program. As the national birth rate has slowed and life expectancy has gradually increased, not only has the number of Medicare beneficiaries increased, but also Medicare beneficiaries have become a larger proportion of the American population. In 1967, Medicare beneficiaries represented 9.7 percent of the population; by 1991, they were 13.5 percent of the population. By the year 2006, they will be over 15 percent of the population. This trend is expected to continue into the next century, especially as the post-World War II "baby boom" generation matures. At the same time that the increase in the absolute number of Medicare beneficiaries is driving increases in Medicare expenditures, this increase in the proportion of the population that are Medicare beneficiaries is undermining the revenue structure of the program, as explained infra.
Thus Medicare in the 21st century poses much the same sort of dilemma as Medicaid. On the one hand, Medicare plays an essential role in financing American health care for millions of Americans. Indeed, as often as the nation's policymakers lament the growing costs of maintaining Medicare as currently structured, voices are heard claiming that Medicare inadequately provides for the needs of the elderly and other beneficiaries and therefore should be expanded. On the other hand, as outlined above, Medicare is already an extraordinarily costly governmental undertaking, and it soon will become even more costly, in both absolute and relative terms, if it is to be continued in its present form. As both its supporters and its critics agree, in the course of three decades, Medicare has become the quintessential political entitlement, a program that must be regarded as a political given in any outline of the future of federal domestic policy. But whether these financial and political pressures will erode Medicare's political status and, therefore, force a restructuring of Medicare is one of the most critical public policy issues of the coming decade.
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TABLE IV.TOTAL MEDICARE EXPENDITURES (PARTS A AND B) 1967 - 2010
Year Medicare $ Increase Number of Medicare (billions) Recipients (millions)
Source: cost data from 2005 Annual Report of the Boards of Trustees of the Federal Hospital Insureance and Federal Supplemental Medical Insurance Trust Funds at 177 (found at http://www.cms.hhs.gov/publications/trusteesreport/ (last visited October 2005); beneficiary data from http://www.cms.hhs.gov/researchers/datacompendium/ (last visited October 2005).
* Data prior to 1996 are based on earlier data set that used calendar year instead of fiscal year.** These data are projections based on “intermediate” economic assumptions and on the implementation of Part D as originally designed.
SIDEBAR: THE ELDERLY, OUT-OF-POCKET LIABILITY, AND "MEDI-GAP" INSURANCE
Notwithstanding the financing provided by Medicare, Medicaid, and, in some cases, their former employers, many people age 65 or older face substantial out-of-pocket health care costs. For this reason, many elderly Americans purchase one or more private insurance policies to supplement their Medicare coverage. Indeed, the market for so-called "Medi-Gap" policies is highly competitive, as evidenced by the full-page newspaper endorsements, glossy mass mailings, and telemarketing efforts that attempt to attract the attention -- and play on the fears -- of the nation's elderly. Correctly tailored, of course, a "Medi-Gap" policy can be exactly what a Medicare beneficiary needs and wants: an insurance policy that pays for the costs of services not covered by Medicare and for the beneficiary's cost-sharing liability. The problem is that many such policies are not so tailored, and in fact, many are just short of fraudulent.
In 1990 Congress enacted legislation in an attempt to make "Medi-Gap" policies more uniform and easier to understand. See generally 42 U.S.C. § 1395ss. The 1990 legislation delegated to the National Association of Insurance Commissioners the responsibility for drafting ten model "Medi-Gap" policies with standardized benefits, cost-sharing, and other features, starting with a basic core plan at a low cost and including additional plans with broader coverage and higher cost. The 1990 legislation set out a timetable for each state to adopt legislation allowing only the sale of policies certified as one of the ten (or, at the option of the state, fewer) "Medi-Gap" standard policies. In states that failed to do so (by January 1, 1992 with some exceptions), all "Medi-Gap" policies must be certified in compliance with the federal standards issued by the DHHS. Furthermore, any insurer that offers any certified "Medi-Gap" plan must also offer the core plan. For implementing regulations, see 42 C.F.R. §§ 403.300-403.258.
The federal "Medi-Gap" legislation also includes: (a) a requirement that policies be renewable; (b) a requirement that a "Medi-Gap" policy be suspended during a period of Medicaid eligibility; (c) a requirement that insurers meet certain profit/loss ratios or refund a portion of the premium to the policyholder; (d) a prohibition on pre-existing exclusions and a requirement of open enrollment periods; (e) a prohibition on the sale of duplicative insurance to Medicare beneficiaries; (f) an authorization of the sale of "Medicare SELECT" policies, supplemental policies that meet the standards for "Medi-Gap" policies except that they limit the freedom-of-choice of the beneficiary.
Whether all of this helps Medicare beneficiaries purchase the kind of supplemental coverage they want is not clear. And, as should be clear, even with the standardization and uniformity required by the federal law, supplemental insurance policies, as all insurance policies, are difficult to evaluate, particularly when they must be measured against the coverage available through Medicare, and in some cases, other financing arrangements. The enrollment of Medicare beneficiaries in various types of managed care only adds to the complexity of evaluating Medi-Gap options.
For updates on Medi-Gap, see Choosing a Medigap Policy: A Guide to Health Insurance for People With Medicare (2005) http://www.medicare.gov/publications (last visited October 2005).
1. Unlike Medicaid eligibility, Medicare eligibility can be easily outlined. Virtually everyone who is 65 years or older is eligible. A very few elderly people who have not paid into Social Security have to pay a monthly premium for Medicare Part A (as well as for Part B). Social Security recipients who have been disabled for more than 24 months are also eligible for Medicare. People with end-stage renal disease are eligible for Medicare (but not Social Security cash grants). See generally 42 U.S.C. § 1395c. Medicare eligibility is also fairly simple to outline because there is only one Medicare program -- unlike the fifty-plus Medicaid programs, each with slightly different eligibility standards. Medicare is also significantly different from Medicaid in that there is no "means testing," i.e., Medicare eligibility is not limited by income, resources, or any other measure of ability to pay or "medical need." As a consequence, many issues that make Medicaid eligibility determinations so convoluted and controversial do not arise in the Medicare program.
Whether Medicare eligibility will continue to be so broadly defined in the future is not clear. See discussion infra.
2. One exception to the rule involves the complications of determining eligibility of the elderly and the disabled for both Medicaid and Medicare benefits. Roughly 45 percent of Medicare beneficiaries have incomes within 200 percent of the federal poverty guidelines; another 15 percent fall below the poverty guidelines. As Medicare pays for only some of their health care needs, many enroll in Medicaid as well as Medicare to receive the full range of Medicaid benefits for non-Medicare services (particularly long term care and prescription drugs) and for coverage of their cost-sharing liability. Some qualify automatically and some spend down. Others are potentially eligible under several Medicaid programs that offer limited coverage but more generous eligibility standards. Qualified Medicare Beneficiaries (QMBs), beneficiaries within 100 percent of the poverty line, receive Medicaid payments for their Part B premiums and Medicare cost-sharing; Specified Low-Income Beneficiaries (SLMBs) receive support for their Part B premiums. States may also choose to offer support for all or part of the Part B premium to Medicare beneficiaries below 175 percent of the poverty line.
Because these programs blur the distinctions between Medicare and Medicaid and make the complicated rules of Medicaid eligibility even harder to decipher, many elderly and disabled Medicare beneficiaries may potentially qualify as “dual-eligibles” but are not enrolled in the state’s “dual-eligible" options. On the other hand, they represent people who have both high needs for extended coverage and represent an expensive commitment on the part of the state. Experts have estimated that “dual-eligibles” cost roughly twice as much per beneficiary for both the Medicare and Medicaid programs -- largely because of the high number of "dual eligibles" that use expensive long term care. For that reason, some states are reluctant to fully implement their “dual eligible” options. See Kaiser Commission on Medicaid and the Uninsured, Dual Eligibles: Medicaid’s Role for Low Income Medicare Beneficiaries (July 2005) found at http://www.kff.org/Medicare/duals (last visited October 2005). States with managed care programs generally enroll proportionately fewer “dual eligibles” in managed care plans -- again because of their relatively higher needs.
3. At least when compared to Medicaid, Medicare coverage is also relatively straightforward, primarily, again, because there is only one Medicare program. Moreover, for the most part, Medicare coverage has generated relatively few legal controversies. There have been occasional challenges to the adequacy of the program's coverage on constitutional grounds, but, as with the constitutional challenges to state and federal discretion to limit the scope of Medicaid coverage, the courts generally have held that there are few judicially enforceable, constitutionally based limits on the scope of federal discretion to limit or condition Medicare. And, of course, there is no comparable line of Medicare coverage decisions that parallel the Medicaid decisions that question whether the state Medicaid programs comply with various federal Medicaid standards. In essence, Congress decides what Medicare will cover, and Congress's discretion in doing so is virtually unlimited. Providers have frequently challenged congressionally imposed limits or conditions on provider reimbursement on constitutional grounds, as will be discussed more thoroughly in Chapter 3. But the sheer volume of these cases should not overshadow the fact that the judicial response to these claims has only reaffirmed the same message: There are very few judicially enforceable limits on the government's discretion to limit or condition the Medicare program.
More frequently, disputes over Medicare coverage and eligibility have involved the interpretation of the Medicare statute itself. Again, the courts tend to allow the federal agency broad discretion, particularly where the controversy involves the interpretation of the terms of the federal statute. See, e.g., Chipman v. Shalala, 90 F.3d 421 (10th Cir. 1996) (exclusion of coverage for dental crown not arbitrary and capricious even where it is medically necessary for successful jaw surgery); Lewin v. Shalala, 887 F. Supp. 74 (S.D.N.Y. 1995) (plaintiff denied reimbursement for "post-hospital extended care services" following hospitalization because of the statutory requirement that the requisite hospitalization be for no less than three days).
Another and more frequently litigated statutory problem involves the discretion delegated to DHHS by the Medicare statute to decide whether services received by Medicare beneficiaries are reasonable and necessary. That discretion is broadly defined, but, nonetheless, the courts have not infrequently overturned agency decisions. For examples see Friedman v. Secretary, Department of Health & Human Services, 819 F.2d 42 (2d Cir. 1987) (Secretary's finding that "extended care services" received by beneficiary were not reasonable and necessary upheld where it is based on medical testimony concerning the beneficiary's overall conditions and needs); cf. New York, ex rel. Bodnar v. Secretary of Health & Human Services, 903 F.2d 122 (2d Cir. 1990) (beneficiary entitled to coverage where record shows that agency did not consider relevant facts and, therefore, its decision to deny was not supported by substantial evidence); Hurley v. Bowen, 857 F.2d 907 (2d Cir. 1988) (beneficiary entitled to coverage for inpatient hospital services where uncontroverted evidence indicates that "extended care services" were reasonable and necessary and hospital was unable to transfer patient to a more appropriate facility).
Note the parallels here to the "medical necessity" decisions made by private insurers as discussed in section B supra. Again there is some question as to the exact nature of the substantive decision, i.e., what exactly is "reasonable and necessary" and what should be considered in making such a determination? But, as with those earlier cases, the ultimate outcome is more a matter of designating who -- the payer, the provider, or the court -- gets to decide those issues. There are, however, some clear differences between the judicial role in these cases and that taken in most of the private "medical necessity" cases, primarily because the delineation of the authority to make
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Medicare coverage decisions is defined by the federal statute, whereas the authority to make private "medical necessity" decisions depends in large part on the interpretation of contractual terms that vary somewhat from contract to contract.
The Medicare statute allows relief for some beneficiaries who receive services that are later found to be not reasonable or necessary, not properly certified, or otherwise not covered under Medicare. See 42 U.S.C. § 1395pp. If both the beneficiary and the provider do not know or have no reason to know that the service is not covered, then Medicare may pay for the service or indemnify the beneficiary for any payment made to the provider. If only the beneficiary has no actual or imputed knowledge, the provider can only bill the beneficiary for any cost-sharing liability, but not the remainder of the bill that would have been paid by Medicare. See 42 C.F.R. § 411.40.
4. One set of issues that has sparked some important judicial controversies involves the complicated processes through which various administrative appeals must be pursued. A Medicare beneficiary often must sort through several administrative decisions by a provider, generally as a prerequisite to receiving services, and then must sort through one of several administrative processes within HHS if the agency denies Medicare coverage -- usually after the services are rendered. All this can be time consuming, expensive, and, simply, confusing. The following outline may be useful in understanding both some of the technical legal issues as well as the "big picture" issues:
Part A Appeals
As of 2005, most decisions regarding individual coverage and reimbursement for hospital services, extended care services, or home health services under Medicare Part A are first made by fiscal intermediaries (FIs): private organizations (frequently Blue Cross plans) that have contracted with DHHS to carry out the agency's administrative functions at the local level. Some decisions relating to hospital reimbursement are also delegated to Professional Review Organizations (PROs) as discussed further in Chapter 3. A Medicare beneficiary can request that the FI reconsider a coverage or reimbursement decision; expedited reconsiderations of decisions regarding initial admission to a facility are available. Providers can also request a reconsideration of a coverage or reimbursement decision, but a provider cannot seek further review of a coverage decision -- only of a reimbursement decision.
Following a reconsideration by the FI, a beneficiary can request a judicial-type, de novo hearing before an administrative law judge (ALJ) (if the matter in controversy exceeds $100). An ALJ decision can be further appealed to the Appeals Board, essentially a special quasi-judicial commission within DHHS. Again, there are provisions for expedited appeals for certain types of cases. An Appeals Board decision is final unless overturned on discretionary appeal to the Secretary of DHHS.
A beneficiary can seek judicial review of a final agency decision if the amount in controversy is more than $1000. The federal law requires judicial review of evidentiary decisions under a substantial evidence rule.
Part B Appeals
Part B appeals are somewhat different than those for Part A, reflecting the original design -- now largely abandoned -- to structure Part B as much like
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a private insuring arrangement as possible. Initial Part B decisions concerning coverage or reimbursement are made by Part B carriers, private contractors who perform administrative functions for HHS at the local level (frequently private insurers or Blue Shield organizations). A beneficiary can request a "fair hearing" before the carrier if the amount in controversy exceeds $100. Since 1987, a beneficiary can appeal a Part B "fair hearing" to an ALJ within DHHS if the matter concerns more than $500. A beneficiary can seek judicial review of an ALJ decision if the matter in controversy exceeds $1000, again under a substantial evidence rule.
For references and further description, see CCH, Medicare/Medicaid Guide, §§ 13460-13540.
5. Efforts to seek direct judicial review (without go through the administrative appeals required under the Medicare statute) of Medicare eligibility and coverage decisions and other related matters have been largely unsuccessful. The Supreme Court has read the language of 42 U.S.C. § 405(h), which applies to all Social Security Act programs including Medicare and Medicaid, to require that an appeal of any "findings of fact or decision" be pursued exclusively through the administrative procedures outlined in the federal Medicare statute, even if that appeal is based on a constitutional challenge. As a consequence, judicial review is only available after those procedures have been exhausted. For a full discussion, see Weinberger v. Salfi, 422 U.S. 749, 760-62 (1975); see also Heckler v. Ringer, 466 U.S. 602 (1984).
The primary significance of this requirement of administrative exhaustion lies in the resulting delay. The denied beneficiary may have to wait months or even years for a final administrative decision and before judicial remedies can be pursued. Some claims for reimbursement will be "exhausted" in the more general sense of the term long before their claims are exhausted administratively. Claims such as those made by the named plaintiff in Ringer -- the provider would not provide the services until Medicare coverage could be confirmed -- may be effectively precluded by this ruling. Under Ringer, an administrative appeal cannot be pursued until a claim for reimbursement is made (which only happens after the service is provided). For a recent decision reaffirming Ringer and Salfi, see Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1095 (2000) (providers must pursue administrative remedies to raise constitutional and statutory challenge to Medicare regulation specifying health and safety requirements) Cf. Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986) (§ 405(h) limitations on judicial review do not apply to issuance of regulations defining methodology for determining levels of physician reimbursement).
There are exceptions to this rule. The Court has held that where the agency waives the exhaustion requirement or where the claim is based on a constitutional argument wholly collateral to the agency's decision, § 405(h) does not apply and the courts may take independent jurisdiction over these coverage and reimbursement issues (at least after the "nonwaivable" requirement of a claim has been satisfied). See, e.g., Mathews v. Eldridge, 424 U.S. 319 (1976); O'Bannon v. Town Court Nursing Center, 447 U.S. 773 (1980).
Note, however, as discussed supra, there are virtually no constitutional bases for challenging most Medicare coverage or reimbursement decisions. For that matter, Mathews and O'Bannon considered and settled most of the possible procedural due process challenges that might be made to the existing Part A and
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Part B administrative procedures. Hence, exhaustion, of both the claim and the claimant is the norm.
6. Another coverage-related issue that is both important and complicated involves the issuance of national standards for determining whether new or controversial types of treatment are considered “reasonable and necessary.” For the most part, each Medicare carrier or FI makes determinations on a case by case basis, but they occasionally issue local coverage determination rulings (LCDs) -- which may differ from region to region, or even conflict with the rulings of other carriers or FIs. The DHHS also issues national coverage determinations (NCDs) which are binding on all carriers and FIs. Individual beneficiaries or providers can request that NCDs be issued or amended. Both the Medicare Amendments of 2000 and those of 2003 included provisions intended to clarify the factors that are considered by the agency when it issues NCDs and the process by which NCDs can be sought. Interim regulations were issued in 2003. See 70 Fed. Reg. 11420-1; amendments were issued later in that same year. See 70 Fed. Reg. 37,700-1. As of October 2005, final regulations had not been issued.
7. Another dimension of Medicare coverage that is potentially controversial is the requirement that, in some circumstances, Medicare be a "second payer". The Medicare statute excludes coverage for services if payment has been made or "reasonably can be expected to be made" under a workers compensation program, or an automobile or other liability insurance plan. 42 U.S.C. § 1395y(b)(2)(A). For a discussion, see Estate of Washington v. United States, 53 F.3d 1173 (10th Cir. 1995). The Medicare statute also requires employers with more than twenty employees to provide coverage to their Medicare-eligible employees, as well as their Medicare eligible spouses, that is the same as the coverage provided to their other employees. 42 U.S.C. § 1395y(b)(1). Medicare is a "second payer" to these employer group health plans, i.e., Medicare will only pay for services not covered by such plans or, in some cases, for the difference between reimbursement under such plans and Medicare-determined reimbursement. These requirements do not, however, apply to retired employees who receive health benefits from their former employers.
Most other private insurance schemes that do not fall under this provision typically include "coordination of benefits" clauses that exclude payments for Medicare covered services. The obvious intent of § 1395y(b)(1) is to prevent large employer-purchased group plans from writing such provisions into their insuring agreements.
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3. Medicare Part D: The New Prescription Drug Benefit
Beginning in January of 2006, Medicare beneficiaries will be eligible for the first major expansion of Medicare benefits in nearly four decades: a new, oddly configured prescription drug benefit. Elderly and disabled beneficiaries will be given in the option of enrolling in private plans offering federally subsidized benefits that meet minimum requirements sent out in the federal law. The projected cost of the program reflects its significance. The total cost to the government will be over $37 billion in 2006 and may represent nearly $800 billion in expenditures over the following ten years.
There will be no basic types arrangements: Beneficiaries can join a prescription drug plan (PDP) for drug coverage only and get their Part A and Part B benefits separately. Alternatively, they can join an Medicare Advantage Plan (MA)(see discussion in the next subsection) such as an HOM and receive their new drug benefits along with their other benefits from that plan.
To receive these benefits, the enrollees will pay the plan a monthly premium (in addition to their Part B premium payment) that is adjusted to represent roughly 25 percent of the costs of the benefits. The average monthly payment for 2006 will be $32.20 although that amount will vary depending upon the particular plan. Enrollees also will be subject to annual deductible and coinsurance or co-payments, again, much like the fee-for-service Part B scheme. Plans can either offer the standard benefit or an alternative benefit structure that is actuarially equivalent to the standard benefit and does not increase the standard deductible or change the catastrophic threshold.
Unlike the Part B structure, however, the new plans will offer partial coverage for a limited amount of coverage ($2,250 in 2006); virtually no coverage for a “gap” of coverage (from $2,250 to $2,290 in 2006) and then almost complete coverage beyond that amount (forming the so-called “doughnut” hole of coverage).
The deductibles, benefit limits, and catastrophic thresholds are indexed to rise with the growth in per capita Medicare drug benefit costs.
Under the federal law, the new plans must cover at least two drugs in each therapeutic class or category of covered Part D drugs; the CMS in its pre-2006 marketing of the Part D program predicted that most plans will provide coverage for a broader range of drugs including, antidepressants, antipsychotics, anticonvulsants, antiretrovirals, immunosupressants, and antineoplastics. Regardless of the breadth of their coverage, plans can use tiered cost sharing arrangements, prior authorization, and other cost managing tolls, so long as they do not violate the requirement in the federal law that they do not “substantially discouragement enrollment.”
The plans are expected to negotiate directly with drug companies for discounts and other cost savings, but the federal law forbids the CMS or any other federal agency from negotiating discounts or attempting to affect drug prices.
Medicare will provide additional premium and cost-sharing assistance to beneficiaries will limited incomes and resources. Medicare beneficiaries who are also eligible for Medicaid drug coverage, QMBs and SLMBs (see explanation in the discussion of Medicaid eligibility supra) automatically qualify for the new
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benefits. Others are subject to both an asset and income test and must separately apply for the new benefits through either the Social Security administration or their state’s Medicaid program for assistance in purchasing a Part D plan.
Medicaid drug coverage for eligible Medicaid beneficiaries expires on January 1, 2006, and all Medicaid beneficiaries will be automatically enrolled in PDPs with premiums at or below the regional average (if they do not sign up on their own for an alternative plan).Note, however, that the federal law requires the states to reimburse the federal government for the costs of providing prescription drugs to Medicaid beneficiaries -- an incentive for some states to reduce the eligibility of their “dual-eligibles.”
The federal law does attempt to encourage employers who prior to 2006 were providing prescription drug benefits to their retired employees to continue to do so. Medicare will provide tax-free subsidies equal to 28 percent of the costs between $250 and $5,00 in drug expense per retiree to employers providing drug coverage that is on average at least as good as the standard Part D benefit.
Medicare beneficiaries who have other sources of drug coverage, may continue with that coverage, but those who join a Part D plan after the initial enrollment period will have to pay a one percent penalty on their monthly premium for each month of delayed enrollment -- a penalty that will continue as long they are enrolled in Part D.
Whether this all will work or not, remains to be seen. The structure and potential benefits of this new scheme are complicated enough in the abstract; clearly the new law anticipates a great deal of private marketing as various plans compete to enroll (or, in some cases, avoid) Medicare beneficiaries. Beneficiaries in turn will have to learn how to evaluate the plans and make judgments as to the relative worth of participating in the scheme and in various options. It is clearly an effort to add a dose of privatization to a public benefits program, one that may or may not sit well with Medicare beneficiaries and/or American taxpayers.
For updates and additional information, see generally http://www/kff.org (last visited November 2005). To view the Medicare agency’s attempt to assist beneficiaries in locating and evaluating plans, see http://www.medicare.gov/ (last visited November 2005). For estimates on the costs of the new benefits, see http://www.coms.hhs.gov/publications/trusteesreport/ (last visited November 2005).
To view the federal requirements, see 42 C.F.R. Parts 400, 403, 411, 417, & 423; see also 70 Fed. Reg. 4194 (2005).
MINNESOTA SENIOR FEDERATION, METROPOLITAN REGION V. U.S., 273 F.3d 805 (8th Cir 2001), cert. denied, 536 U.S. 939 (2002)
Loken, Judge.
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The "Medicare+Choice" program was enacted as part of the Balanced Budget Act of 1997 . . . The program includes reimbursement provisions that encourage managed health care organizations to be cost-effective and to pass cost savings on to their members in the form of additional benefits or reduced charges. As under prior law, cost effectiveness is measured by a formula based primarily on "fee-for-service" health care costs in each local community, an approach that results in substantial geographic variations. Though Congress intended to reduce these disparities, the Medicare+Choice formula still produces wide variations in the payments Medicare provides to managed health care providers. Because "excess" payments may be passed on to Medicare beneficiaries, the end result is that Medicare benefits are more generous in some communities than in others.
In this case, the Minnesota Senior Federation and Mary Sarno, a Florida resident who would like to live with her daughter in Minnesota, seek a declaratory judgment that the Medicare+Choice formula violates their constitutional rights to travel and to equal protection of the law. . . .
Medicare was established in 1965 and presently serves some thirty-nine million elderly and disabled Americans. Uniform benefits were initially provided under Medicare Part A and Medicare Part B, and these programs continue today. For beneficiaries who enroll in Parts A and B and elect to obtain benefits on a "fee-for-service" basis, Medicare payments are made for each service rendered. Amounts Medicare pays to providers vary in part because of geographic differences in the fees charged for providing those services.
In 1972, Congress enacted Medicare Part C, a program that permits managed health care organizations to enter into "risk contracts" under which the organization provides a full range of Medicare services and receives a single monthly capitation payment for each enrollee. Capitation payments are determined by a formula that is based upon the projected cost of treating beneficiaries under the traditional fee-for-service system. Thus, the formula incorporates wide geographic variations in health care costs. But under Medicare Part C, the variations can result in different benefits to Medicare beneficiaries because, when a managed care organization receives more in capitation payments from Medicare than it costs to provide Medicare services to its enrollees (an "excess" that is determined by a complex formula), it may pass this cost saving on to enrollees in the form of reduced premiums, reduced co-payments, or additional health care benefits. 42 U.S.C. § 1395mm(g)(2); 42 C.F.R. § 417.592.
Medicare+Choice, which is the new Medicare Part C, was enacted in 1997 to "allow beneficiaries to have access to a wide array of private health plan choices in addition to traditional fee-for-service Medicare . . . [and] enable the Medicare program to utilize innovations that have helped the private market contain costs and expand health care delivery options." Medicare+Choice includes a modified capitation payment formula intended to reduce the prior geographic payment variations. But the government concedes that substantial discrepancies
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remain. For example, Mary Sarno is a Medicare Part C enrollee who lives in Broward County, Florida. In 1999, the managed care reimbursement rate for Broward County, Florida, was $676.64. Sarno's daughter lives in Minnesota. In 1999, the managed care reimbursement rate for Dakota County, Minnesota, was $394.92. The generous reimbursement rate in Broward County enabled Sarno's plan to offer unlimited prescription drugs, no co-payments for physician visits and various services, and no annual premium. By contrast, Medicare Part C enrollees in Dakota County paid an annual premium of $1,137, were charged higher co-payments, and received virtually no prescription drug coverage. Such disparities are the basis for appellants' claims that the Medicare+Choice formula violates their travel and equal protection rights.
. . . Appellants mount two constitutional challenges to this federal statutory regime. First, they argue that because the formula implicates the constitutional right to travel, it is subject to strict scrutiny and fails that standard of review because it is not narrowly tailored to meet a compelling government interest. Second, they argue in the alternative that the formula does not withstand even deferential rational basis review and therefore violates their right to equal protection guaranteed by the Due Process Clause of the Fifth Amendment.
. . . When a federal economic or social welfare program is challenged on equal protection grounds, and no suspect class or fundamental constitutional right is implicated, the proper standard of judicial review is rational basis, the "paradigm of judicial restraint." Congress does not violate the right to equal protection "merely because the classifications made by its laws are imperfect," (citing Dandridge v. Williams) or because in practice a classification results in some inequality. In areas of social and economic policy, a statutory classification . . . must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification.
Distributing Social Security and Medicare benefits is a massive undertaking which requires Congress to make many distinctions among classes of beneficiaries while making allocations from a finite fund. . . . [T]he Supreme Court has rejected numerous equal protection challenges to the ways in which these benefits are distributed. Congress adopted the Medicare+Choice program as a means of containing costs and expanding health care delivery options. These are legitimate objectives. Appellants argue that the Medicare+Choice formula is irrational because it discriminates against Medicare beneficiaries enrolled with efficient providers, like those in Minnesota. We reject this argument for the reasons stated by the district court:
[T]his decision -- to allow managed care organizations to share "savings" with Medicare beneficiaries instead of requiring them to return the difference to the Medicare program itself -- hardly renders the Medicare+Choice program unconstitutional on equal protection grounds. . . . The Medicare+Choice program increases the health care options of a number of elderly Americans while reducing the strain on the public fisc. The fact that not all elderly Americans . . . enjoy the same windfall as others is unfortunate, but not unconstitutional. Perhaps there are better solutions or solutions that are more fair, but the Medicare+Choice payment method is certainly "rational" in a constitutional sense. It was not irrational or arbitrary for Congress to devise a payment formula based on local health care costs and then to encourage cost-efficient managed care providers to increase benefits for their Medicare enrollees. Though the resulting geographic benefit discrepancies may seem
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unfair, equal protection is not a license for courts to judge the wisdom, fairness, or logic of legislative choices.
No doubt fearing that the Medicare+Choice formula would survive rational basis review, appellants primarily contend that it must be subjected to, and cannot survive, strict scrutiny because it impinges upon the constitutional right to travel. . . .
Although the word travel is not found in the Constitution, the Supreme Court has frequently recognized "the constitutional right to travel from one State to another." Because travel is a fundamental right, any classification which serves to penalize the exercise of that right, unless shown to be necessary to promote a compelling governmental interest, is unconstitutional. . . . [T]he Court recently reviewed its many right-to-travel cases and concluded that this right embraces at least three different components. It protects the right of a citizen of one State to enter and to leave another State, the right to be treated as a welcome visitor rather than an unfriendly alien when temporarily present in the second State, and, for those travelers who elect to become permanent residents, the right to be treated like other citizens of that State. [citing Saenz v. California, 531 U.S. 98 (1999).]
Appellants' right-to-travel claims do not fall within the three components identified in Saenz. Rather, in arguing that the Medicare+Choice formula must be subjected to the strict scrutiny applied in right-to-travel cases, appellants rely primarily on dicta from the plurality opinion in an earlier case stating that "[a] state law implicates the right to travel when it actually deters such travel . . . ." The constitutional right to travel is implicated in this case, appellants argue, because Mary Sarno and others are deterred from moving to a community they would prefer by the reduced Medicare benefits they would receive from a managed care provider in that other community. We reject this right-to-travel theory for several reasons.
First, and most importantly . . . the Court's other modern cases have applied the federal constitutional right to travel to state legislation that had a negative impact on travel between the various States. Here, on the other hand, appellants attack a federal statutory regime because it allegedly deters interstate travel. In effect, appellants argue that a federal program that fails to achieve nationwide uniformity in the distribution of government benefits is subject to strict scrutiny because it will deter travel to unfavored locales. Such a contention is clearly too broad. Not surprisingly, it finds no support in the Supreme Court's right-to-travel cases. Instead, the Court has emphasized time and again that rational basis review is appropriate in considering the constitutionality of federal social welfare programs such as Medicare.
Second . . . cases such as Shapiro and Memorial Hospital spoke of state restrictions that "served to penalize the exercise of the right to travel." In Saenz, the Court summarized its right-to-travel jurisprudence . . . rejected an "actual deterrence" analysis, focusing instead on "the citizen's right to be treated equally in her new state of residence. Here, Sarno would be treated equally with other Minnesotans if she moved there; she is deterred from moving because she would be voluntarily giving up more generous benefits available in Florida. In these circumstances, the Medicare+Choice formula is not affirmatively penalizing her right to travel. We conclude the Supreme Court would not extend the constitutional right to travel to governmental disincentives of this type, provided of course that they withstand rational basis review.
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. . . However unfairly the current Medicare Part C funding mechanism may seem to impact some classes of Medicare beneficiaries, the fact the line might have been drawn differently at some points is a matter for legislative, rather than judicial, consideration.
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HOFLER V. AETNA U.S. HEALTHCARE OF CALIFORNIA, INC., 296 F.3d 764 (9th Cir. 2002)
Per Curiam.
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Louis Hofler died of esophageal cancer that metastasized to his brain. At the time of his death, he was a 75 year-old retired bus driver, insured by Aetna's Medicare health care maintenance organization ("HMO") plan. Appellee Lucy Diane Hofler is his widow. She sued his health care provider, Aetna, and his doctors in state court alleging that the defendants "withheld and denied Mr. Hofler medically necessary diagnostic exams, treatments, and referrals because these services undercut the defendants' profit margins." Aetna removed the case to federal court, claiming that Ms. Hofler's state law claims "arose under" the Medicare Act. The district court remanded the case to state court and awarded $9,750 in attorneys' fees to Ms. Hofler. . . .
Medicare provides health benefits primarily to people 65 years old or older. In 1997, Congress added the Medicare+Choice ("M+C") program to its Medicare plan. Under M+C, Medicare beneficiaries receive their Medicare benefits through private managed health care programs such as HMOs. . . . The regulations implementing M+C contain two preemption provisions:(1) a general preemption provision providing that inconsistent state laws are preempted, and specific preemption provisions superseding state standards in three areas including:(a) "Benefit requirements;" (b) "Requirements relating to inclusion or treatment of providers and suppliers;" and (c) "Coverage determinations (including related appeals and grievance processes for all benefits included under an M+C contract)."
Aetna's HMO operates under the capitated system of payment, i.e., providers are paid a fixed amount per month for each enrolled patient regardless of how much care the patient receives. In return the plan is to provide the patients all necessary covered care. . . .
Mr. Hofler enrolled in Aetna's Medicare HMO which promised "more benefits than Medicare and most Medicare Supplements combined." Ms. Hofler alleged, however, that the care Mr. Hofler received "did not match Aetna's promises." As stated by the district court, she claimed that under Aetna's plan Mr. Hofler's doctors:
(1) left untreated for seven years an unstable aortic aneurysm which grew to nearly twice the size at which surgical intervention was appropriate; and (2) ignored his rising Prostate Specific Antigen level, which is an indication of prostate cancer, and refused to perform [various diagnostic tests] even when this index rose to six times the normal level; and (3) failed to diagnose his esophageal cancer in its treatable stages, despite symptoms such as weight loss and expectoration of blood.
When Mr. Hofler asked for financial clearance for a second opinion about his esophageal cancer three months before he died, his doctor told him that although he was entitled to a second opinion, the clinic was unlikely to pay for it.
This combination of events allegedly caused Mr. Hofler's death: the late stage diagnosis of esophageal cancer meant that surgery was no longer
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practicable; the growth of his aneurysm meant that he was not a good candidate for aggressive chemotherapy; and his advanced prostate cancer foreclosed other treatments for his esophageal cancer.
After Mr. Hofler died, Ms. Hofler filed a complaint against Aetna in California state court alleging 12 state law causes of action. Aetna removed the action to federal district court, claiming that Ms. Hofler's action arose under and was completely preempted by Medicare. Ms. Hofler moved to remand to state court. The district court granted the motion and awarded attorneys' fees to Ms. Hofler. Aetna timely appealed the award of attorneys' fees.
. . . .
Aetna argues that the M+C program's specific preemption provision completely preempts state law. Complete preemption is a narrow exception to the “well-pleaded complaint rule.” It applies when Congress so completely preempt[s] a particular area that any civil complaint raising this select group of claims is necessarily federal in character. Most federal statutes do not fall in this category. Even when federal statutes supersede certain state laws, they usually do not preempt state laws to such an extent that removal is proper.
. . . Aetna has not shown that Congress intended to preempt all state law claims. In the interim final rule for the M+C program, the agency stated that it was adopting a "narrow interpretation" of the specific preemption provisions and that state tort or contract claims relating to coverage determinations were not preempted. Because Congress did not clearly manifest any intention to convert all state tort claims arising from the administration of Medicare benefits into federal questions, we hold that the Medicare program does not completely preempt state tort law claims.
Aetna also argues that Ms. Hofler's claims pertain to the treatment of health care providers and are therefore expressly preempted by the specific preemption provisions relating to requirements for inclusion or treatment of providers. Even if Ms. Hofler's claims could be interpreted as relating to the requirements for inclusion or treatment of providers, a point upon which we express no opinion, Aetna asserts this argument as a defense to Ms. Hofler's state law claims. It is well-established that, when Congress has not completely preempted the field, removal cannot be based on the assertion of a federal preemption defense, "even if the defense is anticipated in the plaintiff's complaint, and even if both parties admit that the defense is the only question truly at issue in the case." Therefore, we reject Aetna's attempt to circumvent the requirements of the well-pleaded complaint rule through the assertion of a federal preemption defense.
Aetna also argues that Ms. Hofler's complaint arises under federal law because it was in actuality a complaint asking for benefits under the Medicare Act. The district court rejected this argument, relying on our decision in Ardray v. Aetna Health Plans of California in which we held that a plaintiff's state law claims did not "arise under" Medicare and therefore could not be brought in federal court. Hofler now alleges that the district court misapplied Ardary. We disagree.
Ardary looked to Heckler v. Ringer, focusing on two inquiries. First, whether the state law claims relied on the Medicare Act for both standing and substance. Second, whether the state law claims were "inextricably intertwined" with the denial of benefits.
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Because Ardary's claims were based on state common law theories, the court found that Medicare did not provide standing and did not form the substance of the claims. Similarly, because Ms. Hofler relies on state statutory and common law causes of action, some of which are identical to Ardary's, Medicare does not provide standing or substance for her state law claims.
The Ardary court also concluded that Ardary's state law claims were not inextricably intertwined with a claim for benefits. The court found that the harm the Ardarys suffered would not be remedied by payment of benefits and therefore the harm was not inextricably intertwined with such a claim. Here also, it is too late for the deceased Mr. Hofler to get a second opinion about his esophageal cancer, have a biopsy to diagnose his prostate cancer, or receive treatment for his aneurysm.
After applying the two-part test derived from Ringer, the Ardary court went on to consider whether Congress intended Medicare to preempt state law causes of action. It noted the strong presumption that Congress does not intend to preempt state law causes of action with a federal statute. Considering the legislative history of Medicare, the court concluded that Medicare was not designed to abolish all state remedies which might exist against a private Medicare provider for torts committed during its administration of Medicare benefits.
Aetna argues that Ardary is distinguishable because of the addition of the M+C program. Although M+C was added after Ardary was decided, Aetna pointed to no evidence in the legislative history to demonstrate that Congress intended, through the adoption of M+C, to completely preempt all state law causes of action. We find the reasoning of Ardary applicable here, and agree with the district court that Hofler's state law claims do not arise under the Medicare Act.
The district court awarded fees because Aetna's removal argument was wrong as a matter of law . . . . Numerous courts have applied Ardary to state law claims and have concluded that there was no removal jurisdiction. Even if Aetna's argument was colorable because of the addition of the M+C preemption provisions, attorneys' fees may be awarded. Such fees are proper when removal is wrong as a matter of law, even though the defendant's position may be "fairly supportable." . . . .
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Kaiser Family Foundation, Fact Sheet: Medicare Advantage (Sept. 2005)
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Overview
. . . [Most Medicare beneficiaries] have their health care bills paid by the traditional fee-for-service program, while 12 percent are covered by private health plans, primarily health maintenance organizations (HMOs).
HMOs have been an option under Medicare beneficiaries since the 1970s.The Balanced Budget Act of 1997 expanded the role of private health plans under Medicare+Choice program to include preferred provider organizations (PPOs), provider-sponsored organizations (PSOs), private fee-for-service plans (PFFS), and medical savings accounts coupled with high deductible insurance plans. Private plan options have been offered primarily at the county level. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) renamed the program “Medicare Advantage,” created new regional PPOs, “special needs plans” for dual eligibles, the institutionalized, or those with severe and disabling conditions, and new private drug plans that will go into effect in January 2006.
Plan participation and enrollment have fluctuated over the past decade. After a period of rapid growth from 1992-1996, the number of plans declined by half. In July 2005, there were 247 plans (mostly HMOs) with 4.9 million enrollees (12 percent of the Medicare population), down from a high of 6.3 million in 2000.
In 2004, over three-fourths of beneficiaries had access to a private Medicare plan . . . . By 2013, the Administration estimates that 30 percent of Medicare beneficiaries will enroll in Medicare Advantage plans, while the Congressional Budget Office (CBO) projects an enrolment rate of 16 percent.
Enrollment varies widely across states. Less than one percent of Medicare beneficiaries are enrolled in HMO plans in 16 states . . . while at least 20 percent are enrolled in [five states]. Nationwide, more than one in four Medicare Advantage enrollees are in California . . . . Beneficiaries have historically had an option to enroll in a plan (as long as the plan is accepting new enrollees) and disenroll at any time during the year. Beginning in 2006, beneficiaries will be able to disenroll or change plans only once during a six-month period, shortened to a three-month period in later years.
Medicare Advantage plans are generally required to provide all Medicare- covered benefits. Plans with costs below the Medicare payments must distribute savings to beneficiaries as lower premiums and co-payments, additional benefits, or a reduction in Part B premiums or plans can contribute to a reserve fund.
In 2005, over a quarter of Medicare Advantage enrollees are in plans that do not provide drug coverage (up from 16 percent in 1999). While the majority of enrolless have drug coverage, some face restrictions on these benefits: 54 percent with drug benefits have an annual cap of $1,000 or less for brand-name drugs, and 39 percent are in plans that cover only generic drugs.
In 2006, MA plans (excluding PFFS and cost plans) must offer at least one plan with basic drug coverage or a plan with enhanced alternative drug coverage (for no additional payment). These plans will receive additional payments for
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providing drug coverage. Medicare MSAs are prohibited from offering drug coverage.
Beginning in 2006, regional PPO plans will be added to existing county-based private plans participating in Medicare Advantage. There will be 26 Medicare Advantage regions comprised of single states or groups of states. The regions are designed to maximize beneficiary choice, particularly in rural areas where beneficiaries have not historically had many plan options. Regional PPOs are required to offer a single Part A/B deductible and a catastrophic cap on out-of-pocket spending.
PPOs entering the market are required to serve at least one Medicare Advantage region in its entirety and must offer the same benefits across the region. To facilitate the start-up of regional PPOs, there will be a two-year moratorium on new “local” PPO plans and expansion of existing local PPO service areas. Also, Medicare will share risk for medical expenses with all regional plans during the two-year period and many draw upon a $10 billion stabilization fund to promote PPO participation on a regional basis.
Payments to Plans
Medicare pays plans a capitated rate to provide Part A and B benefits to each enrollee, totaling a projected $48.1 billion in 2005. For many years, Medicare payments to HMOs were generally set at 95 percent of FFS costs in each county. In order to reduce deficits in the late 1990s, overall growth in Medicare was constrained leading to limited increases in payments to plans. In the years that followed, plan participation and enrollment declined.
To stabilize the program, the MMA increased aggregate payments to plans by $1.3 billion for 2004 and 2005. In 2005, Medicare pays plans the highest of:-- A minimum of “floor” for rural ($592/month) or urban ($854/month) counties-- A minimum update over 2004 rates by the national growth rate percentage (6.6 percent in 2005)-- A blended payment rate which combines a local rate and the national average rate-- 100 of average 2004 FFS costs in the county-- 100 percent of average FFS costs for “rebased” counties, that is, counties in which CMS recalculated the average per capita FFS costs for 2005.
A number of studies have shown that HMOs have been paid more than the average FFS costs in their area. A recent study . . . found average payments to MA plans in 2005 exceed average FFS costs by 7.8 percent for a national total of $2.7 billion. CBO projects Medicare payments for beneficiaries who enroll in regional PPOs in 2006 will be larger than they would be if the same individuals remained in FFS Medicare.
Beginning on 2006, county-based plans will be paid under a new bidding process based on a county benchmark set at the 2005 payment level increased by the Medicare national growth rate percentage in FFS expenditures (4.8 percent). Payments to regional PPOs will also be based on a bidding-process, although the benchmark will be determined separately. If a plan’s bid is higher than the applicable benchmark, the enrollee will pay the difference. If lower, 75 percent of the difference will go to the enrollee as extra benefits or as a rebate and the government will retain the 25 percent.
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By 2006, 75 percent of plan payments are to be adjusted so that Medicare pays plans appropriately based on their enrollees’ risk profiles. By 2007, 100 percent will be risk-adjusted. Current policy holds plans harmless in the aggregate for the effect of implementing a risk adjustment system based on hospital inpatient and ambulatory data rather than demographic information.
Future Issues
Private plans are expected to play a greater role in Medicare in the future. Higher payments to plans and the addition of prescription drug benefits may increase enrollment, but such changes will increase costs to Medicare, according to CBO. Striking the right balance between controlling spending growth, setting payments to plans fairly, and meeting beneficiaries’ health care service needs will be an on-going challenge.
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Notes and Questions on Medicare and Managed Care
1. For updated information on enrollment and the number of plans participating in Medicare managed care arrangements, see Kaiser Family Foundation, Medicare Health Plan Tracker (2005) at http://www.kff.org/medicare/HealthPlanTracker/ (last visited October 2005).
For a recent, critical analysis of Medicare Advantage including the incentives in the 2003 amendments that encourage the expansion of regional PPOs, see Marsha Gold, Private Plans in Medicare: Another Look, 24 Health Affairs 1302 (2005).
2. From the perspective of the individual HMO or other managed care plan, the major advantage of a Medicare contract is fairly obvious: It's an opportunity to make money and, in some cases, lots of money. Medicare beneficiaries, after all, use health services at rates that are two to three times higher than younger consumers. So long as the capitation rate is tied to the actual costs of the services that are provided, a risk contract can be quite lucrative. If HMOs can do what they claim they can do -- provide services more effectively and efficiently within their plan arrangements -- they should be able to provide the same services as their fee-for-service counterparts at a lower average cost and make a profit in the bargain.
But beneath the surface of this rosy scenario lies a never-never land of actuarial nightmares. Even if an HMO can calculate how much it will cost to provide the services used by the average Medicare beneficiary, how can the plan know that the particular beneficiaries it enrolls are average beneficiaries? A particular plan may enroll a high proportion of people who become very ill or who have chronic disabilities (just as another, more fortunate plan may enroll people who are particularly healthy). Medicare, in fact, does allow for adjustments in the capitation rate for a plan based on the characteristics of the enrolled beneficiaries and the location of the HMO. Additional risk-adjustment efforts are in the bureaucratic works. But aside from some fairly obvious factors, e.g., age, sex, institutionalization, and other factors, it is very difficult in advance to identify high cost enrollees. Consequently, under a risk contract, even with generously defined capitation rates, the individual plan is at risk of losing money in any given year, even if it is statistically likely to make money. The risk of losing money is part of the incentive for the plan to provide cost-effective services. In theory, however, plans should not profit or lose based on who they enroll but rather how they manage the care their enrollees receive. This is, of course, an issue for privately financed capitated arrangements as well, but it is a particular problem in designing Medicare (and Medicaid) managed care programs since the program wants to encourage HMOs and other managed care arrangements to participate and to enroll all the program's beneficiaries -- not just the healthiest.
Understandably, the calculation of the capitation rates to be paid and the annual adjustments permitted under the federal law are controversial and closely watched decisions. Prior to the 1997 amendments, the capitation rate was based on an average of the costs of services to Medicare beneficiaries under fee-for-service financing. One of the cost containing measures of the 1997 law was to sever this link and to base payment rates on a blend of national and local rates, increased annually by a minimum amount. After the 2003 amendments, as discussed in the article supra, the payment rates are now much more complicated, based in part on a plan’s actual costs, in part on the average costs of
providing services to Medicare patients under the fee-for-service program, and in part on various incentives to encourage the expansion of Medicare Advantage enrollment.
3. From the perspective of the beneficiary, there are several incentives to enroll in HMOs: as noted, qualifying plans often offer physicals, preventive care, or other services not covered by Medicare. Alternatively, plans may reduce or eliminate the cost-sharing required when a Medicare beneficiary receives services on a fee-for-service basis, although many HMOs collect the Part A and Part B cost-sharing (either at the time of service or as part of a premium or membership fee) and also charge premiums for coverage of non-Medicare services (subject to certain limits in the federal law). The major disadvantage for a beneficiary is the loss of their freedom-of-choice. Enrollees in managed plans are "locked-in" to the plan they choose and must receive all Medicare services through the plan, except for certain emergency services and other "urgently needed services." The HMO in which the beneficiary is enrolled must pay for these services by other providers. The plan also must pay for services by other providers if the HMO or CMP refuses to provide services and it is later established through administrative appeal (described supra) that the services were necessary and within the plan’s contractual obligation.
4. From the perspective of the Medicare program, the major advantage of the enrollment of Medicare beneficiaries in a managed care contract is the potential for slowing the growth of the cost of the program. Much as with the enrollment of Medicaid beneficiaries in managed care plans, the potential savings from enrolling beneficiaries of the Medicare program in managed care plans has been hotly debated. Managed care proponents claim that that the potential is great, although they rely heavily on the literature concerning HMO performance with other populations, not Medicare beneficiaries in particular. Virtually all observers agree that thus far, as the Kaiser Commission report indicates, to date Medicare program costs have not been reduced by managed care contracting and the future savings for the Medicare program are likely to be modest at best.
5. From all perspectives, the linchpin issue is whether HMOs and other managed care plans provide Medicare beneficiaries with services that are of acceptable quality. Obviously some sources -- particularly those within the managed care industry -- are more than enthusiastic about the quality of care rendered by HMOs. There are many anecdotal accounts of HMOs that provide free physicals, vaccinations and other preventive care to their enrollees on the theory that such services are both good medicine and good, money saving business practices. As the Kaiser Commission report indicates, most research is more equivocable in its assessments. In the long run, much will depend upon the ability and willingness of the Medicare program to secure compliance with the statutory and contractual obligations of qualifying plans. See discussion of HEDIS and other performance measures supra. See also discussion of administrative enforcement of Medicaid managed care obligations supra.
6. While the 1997 and 2003 legislation greatly expanded the managed care options available to Medicare beneficiaries, the legislation also expanded the oversight of the enrollment practices, marketing, and performance of each participating plan. DHHS is required to prepare a detailed description of the plans available to Medicare beneficiaries, including a comparision of the costs, benefits, and past performance of each plan. To view the success of those efforts first hand,
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go to http://www.medicare.gov/Choices/Overview (last visited October 2005). The amended federal Medicare statute also places more detailed and more stringent requirements on each plan. The plan must also demonstrate to the DHHS that its reimbursement arrangements with providers are sufficient to assure the availability of services, that the plan includes various quality assurance mechanisms, and that the plan has a grievance procedure. There are additional requirements relating to physician participation, the use of “gag rules,” and prohibitions on certain kinds of financial incentives to discourage the use of services. For a specification of these requirements, see 42 C.F.R. § 422.560.
As with the Medicaid program’s enforcement of the obligations of managed care plans in that program, much depends upon the government’s willingness to enforce the statutory and contractual requirements imposed on Medicare managed care plans -- in a context in which the government also wants to encourage HMOs and other managed care plans to expand their participation in the program. Unfortunately, there have been very few reported decisions examining the various statutory and contractual obligations of Medicare managed care plans, the enforcement activities of the federal government, or the ability of individual enrollees to seek private judicial remedies. For one example, see Grijalva v. Shalala, 152 F.3d 1115 (9th Cir. 1998), vacated, 526 U.S. 1573 (1999).
One related line of cases involves the ability of Medicare managed care enrollees to bring state statutory and common law claims against HMOs and other managed care plans participating in Medicare+Choice, Medicare Advantage, or any other programs for enrolling Medicare beneficiaries in private health plans. The Ninth Circuit has held that the tort and other state law remedies available to Medicare beneficiaries enrolled in managed care plans are not preempted by the federal Medicare statute’s specification of grievance and other administrative procedures. (And these claims, of course, are not preempted by ERISA since they are not employment-based health benefits.) Ardary v. Aetna Health Plans v. California, Inc., 98 F.3d 496 (9th Cir. 1996), cert. denied, 520 U.S. 1251 (1997) (spouse claimed wrongful death action against plan for failing to provide timely services). As discussed in Hofler, that view has been followed by a number of circuits, although, as discussed in Hofler, even if such state claims are not generally preempted, there are some categories of state claims that may be specifically preempted (even if the state claims can proceed in state courts).
PROBLEM FOR DISCUSSION: MEDICARE'S REVENUE STRUCTURE AND THE FUTURE OF MEDICARE
The revenue structure of Medicare is complicated, but it deserves to be understood in detail in order to fully appreciate one set of difficult problems that federal policymakers will soon have to address.
The Part A revenue structure
The revenues that pay for Medicare Part A benefits are primarily provided by a payroll tax (FICA) imposed on both employees and their employers, and an equivalent tax on the self-employed. Each year Congress appropriates an amount equal to the projected revenues from this payroll tax into a designated trust fund from which all Part A expenditures are paid. There is no provision under current federal law for supplementing the Part A trust fund with additional federal revenues (although Congress could, obviously, choose to do so.) The Part A payroll tax was created as an add-on to the pre-existing Social Security (OASDI) payroll tax scheme and applies to the same income, essentially wages or self-employment earnings. Both the employer and the employee pay the same rate. Until 1991, the payroll tax rates for both Medicare Part A and for OASDI were applied to the same wages and earnings base, which was annually adjusted. As part of the 1990 budget compromise, the earnings base to which the Part A payroll tax rate is applied was increased to $125,000; in 1994, the maximum ceiling was lifted altogether. As a result, as of 2006, the Medicare payroll tax was 1.45 percent on the earnings received by the employee, matched by an equal contribution from the employer, on all wages. The OASDI payroll tax rate is 6.20 percent on a maximum of $61,200. Thus, as of 2006, the combined payroll tax burden -- Medicare Part A plus OASDI including both the employer and employee share (or that of the self-employed) -- is 15.3 percent on the first $61,200 of earned wages, and 2.9 percent on the remainder.
This designated revenue, payroll tax scheme proved to be more than effective to support Medicare Part A for the first four decades of the program. As demonstrated by Table VII, the Part A trust fund has had an annual surplus each year since the beginning of the program and, consequently, Part A has built up a sizable trust fund surplus. In the mid-1990s, however, it appeared that that trend would be reversed. The actuarial experts who monitor the program found that program expenditures were rising faster than the revenues to support them and they predicted that there would be annual deficits by the end of the century and eventually of the depletion of the trust fund surplus. (The official evaluation of the actuarial status of the trust fund is published annually and based on alternative economic forecasts.)
As it turned out, the experts’ predictions were wrong -- or, at least premature. No one expected the extended economic boom of the late 1990s and the consequent unexpected rise in payroll tax revenues. At the same time, various provisions of the Balanced Budget Act of 1997 limited the growth of Medicare program expenditures to levels significantly below those which had been projected. The result was both a fiscal and a political victory. The predicted collapse of the Part A revenue structure never materialized. By 1998, revenues were once again exceeding annual Part A expenditures and the surplus began to accumulate again and has continued to grow into the first decade of the 21st century.
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But while Medicare Part A survived this fiscal crisis, another looms on the not-too-distant horizon. As the “baby boom” generation begins to retire and become eligible for Medicare some time in the early 2010s, program expenditures are expected to rise more rapidly than at any time in the history of the program, and, most important, more rapidly than the revenues that will be generated by the next generation of working Americans. As set out in the most recent report, the actuaries are now predicting that the Part A surplus will rise through the next decade but begin to shrink sometime after the year 2010 and become depleted some time before the year 2020.
It is important to understand that it is both the increase in the number of Medicare beneficiaries and the increase in their proportion of the population that is pushing Medicare towards this financial crisis. To put it somewhat mathematically, Part A expenditures are a function of the health care costs of the growing Medicare beneficiary population; whereas Part A revenues are a function of the earning capacity of the more slowly growing employed population. Thus, unless the health care costs of the more rapidly growing Medicare population can be significantly and unexpectedly reduced, or, conversely, the earning capacity of the more slowly growing working population is enhanced far beyond current projections, the bankruptcy of Part A is inevitable -- even if it has been postponed for a number of years -- unless the current revenue structure is revised or supplemented.
This can best be illustrated by comparing total Part A expenditures expressed as a percentage of the wages and earnings subject to the payroll tax (what actuaries call the "cost rate") to the payroll tax rate applied to those same wages and earnings. The cost rate has grown since the beginning of the program. Only periodic increases in the tax rate or in the wages and earnings base have been successful in maintaining a balance between program costs and program revenues and in building a sizable trust fund surplus. The cost rate began to exceed the currently established tax rate in the mid-1990s. The reforms of the 1997 budget legislation -- cutting expenditures -- and the economic boom of the late 1990s -- raising revenues -- reversed that trend. Under current economic forecasts and assuming no further cost-reducing (or cost-increasing) reforms of Part A, the tax rate is projected to exceed the cost rate until the second decade of the 21st century, when Part A is projected to once again experience annual deficits and the trust fund surplus will begin to shrink.
The Part B revenue structure
The revenue structure of Part B is wholly independent of that for Part A. While Part B is titularly funded by monthly premiums paid by or on behalf of program beneficiaries, in fact these premiums currently represent only about 25 percent of total Part B revenues. Federal general revenues are appropriated annually in an amount to approximate the remaining amount of Part B expenditures in excess of the premium revenues. As with Part A, Part B revenues are also held in a separate trust fund from which all Part B expenditures are made.
As Medicare was originally structured, beneficiary premiums were to be adjusted annually to allow the total revenue generated by the premiums to approximate one-half of the expected expenditures for Part B services. In 1972, however, Congress amended the federal law to set Part B premium increases at either (1) an amount to represent one-half the costs of the program or (2) the previous year's premium increased by the same percentage as the Social Security cost-of living adjustment, whichever was lower. In the late 1970s, as health care costs rose more rapidly than the economy and, consequently, the cost-of-
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living-adjustments, premiums became an increasingly smaller share of the Part B budget. In the 1980s, Congress lifted the cost-of-living limits on premium increases and required that the annual premium be adjusted to approximate 25
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TABLE V. MEDICARE PART A TRUST FUND OPERATIONSCALENDER YEARS 1966-2010
Year Income* Expenditures Expenditures Surplus/Deficit($ billion) ($ billion) (% change)
Source: 2005 Annual Report of the Boards of Trustees of the federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds at 178 (found at http://www.cms.hhs.gov/publications/trusteesreport (last visited October 2005).
percent of Part B costs. Since 1990 Congress has mandated that premiums be set at rates which are predicted to generate 25 percent of the Part B costs.
Obviously the Part B revenue structure was not designed to support the program entirely or even primarily out of beneficiary premiums. Annual appropriations from general revenues have always provided a substantial share of the program funds. The congressional efforts to cap the rise in premiums to track the annual Social Security cost-of-living increases further reduced the proportionate share of program funds that derive from premiums -- and increased the demands made by Part B on the federal budget. The Part B demands on the federal budget will track the demands of Part A on the Medicare Part A trust; unless "something is done," Part B expenditures will continue to place increasingly greater demands on the federal budget through the next several decades, and even greater demands as the baby boomers join the Medicare population. In one sense, since Part B does not rely exclusively on a single, dedicated source of revenue, these Part B expenditures increases will not create a crisis for the Part B trust fund; there is no point at which the Part B trust fund is automatically depleted and Medicare Part B is officially bankrupt. But in any real political sense, Part B cost increases are problematic both for the program and for the remainder of the federal budget.
Assume that Congress decides -- for reasons of good policy or practical politics or both -- that "something must be done" to reform the way in which Medicare is funded and to assure that the program will remain solvent beyond the first decade of the 21st century. What can be done? What should be done?
Congress has three broad categories of choices: reduce coverage (or reimbursement for covered services), reduce eligibility, or, "enhance revenue," the term politicians use when they don't want to say "increase taxes."
Consider first the options for reducing coverage. What would you have to eliminate in order to produce significant expenditure reductions? Are there any obvious choices? Does it make more sense to eliminate categories of services or place either durational or cost-sharing limits on those that are covered? Other than fiscal necessity, what would be the justification for eliminating one or the other type of service? How will people now covered by Medicare finance those services that are excluded? (And remember, lately the last time Congress reformed Medicare, it created a new Part D, expanding Medicare’s coverage.)
Next consider the options for reducing the number of people eligible for the program -- again, in sufficient numbers to reduce expenditures in some meaningful way. One option is to increase the age of eligibility. Another option is to means-testing eligibility, i.e., set income or resource limits much like those of the Medicaid program. A third option would be to maintain the current definition of eligibility but make some beneficiaries pay higher premiums or, alternatively, more cost-sharing at the point of service. Again, how would you justify your choice? What will be the net result for the Medicare beneficiaries affected? What are the politics of doing so: Who would be opposed and who would favor each option?
Finally, but most importantly, assume that your choices above either are unacceptable or do not produce the necessary expenditure reductions. What are your options for "enhancing revenue?" Consider the merits (and the politics) of the following:
a. abandon the payroll tax and simply fund both Parts of Medicare out of general revenues (with or without the current contribution from Part B premiums);
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b. raise the payroll tax rate to a sufficient level to finance Part A (or Part B or both); c. raise the premiums paid by all (or some) beneficiaries to a sufficient level to fund either Part A or Part B or both;d. dedicate other taxes to Medicare (e.g., "sin taxes" on alcohol or tobacco or revenues from a national lottery);e. use other sources of revenue.
For comparision figures on the sources and amounts of federal revenues raised by various taxes, see http://www.access.gpo.gov/usbudget/ (last visited November 2005).
Source: 2005 Annual Report of the Boards of Trustees of the federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds at 180.
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With any of the choices outlined above there is a technical problem: Will your chosen alternative actually work? Will it reduce expenditures or raise revenues of sufficient magnitude? For example, how high would a tax on tobacco have to be to produce a $10 or $20 billion annual gain in revenue per year? How large would a premium increase have to be? (By the way, economic experts would remind us that if sales or consumption taxes are raised too high that people will change their behavior to avoid paying the tax -- and complicate your calculations of total revenues.)
But more important for present purposes, how are you making your choices? Is there a principle or a value that leads you to prefer one option rather than the other? If, for example, you prefer to raise revenue rather than reduce expenditures, and you prefer dedicated taxes that are automatically indexed to cover the needs of the program, what does that tell you about the importance you attach to maintaining a Medicare program as an “entitlement”? On the other hand, if you want to pare the program to stay within the expenditures produced by the existing revenue structure, that implies that you regard Medicare as less of an entitlement and more of a discretionary benefit.
As you evaluate the revenue options, consider who is paying for whom -- any why. Should Medicare be structured as a pay-now, receive-later insurance scheme or as a redistributional scheme, taxing those-who-can-pay-now to benefit those-who-are-in-need-now? Should old people as a group become a separate, partially subsidized insurance pool, as would be the case if the Medicare premium became the primary source of revenue? Should current taxpayers pay for all old people or only some? Why not ask for a bigger contribution from those beneficiaries who are wealthy or who continue to work? For that matter, not all current taxpayers pay equal amounts. A Medicare-enhancing tax on payroll distributes the tax burden much differently than one on income or sales. You also should remember that any increase in taxes of this magnitude may have an enormous impact on employment, individual investment and spending, and other economic activities.
For a good, detailed discussion of many of these options, see Deborah J. Chollet, Individualizing Medicare (National Academy of Social Insurance May 1999); Jill Bernstein, Should Higher Income Beneficiaries Pay More For Medicare? (National Academy of Social Insurance May 1999).
There are, of course, no rights answers. For that matter, there are no good answers. Americans, even those enrolled in law schools, are particularly unpracticed in evaluating tax schemes. And even if you can find an alternative that sounds like an acceptable way to finance Medicare, you should be mindful of the first corollary to the basic economic theorem that a dollar spent on one thing is not spent on another: Any enhancement of revenue for Medicare is public funding not available for other needs. Why spend any additional public dollars on Medicare if Medicaid is also in financial disarray? What about education or housing programs?
However you make your choices, you also must be mindful of the expectations of generations of taxpayers who have been told, not that they have been paying taxes, but that they have been buying insurance for their future health care needs. Medicare (see discussion supra) is an entitlement in that it promises a wide range of services to everyone who qualifies, and neither eligibility nor coverage is limited by annual budget allocations. But Medicare is also an entitlement in the sense that several generations of people have gone through their working years with the political assurance that they will receive, in Lyndon Johnson's words, the "hand of justice" when they retire. These
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generations are unlikely to concede their expectations easily, even in the face of the fiscal crises that threaten the program that embodies those expectations.
As a final matter, note that many of these questions, particularly those which reflect your values and preferred, underlying principles, will have to be asked and answered as you evaluate options for reforming not just Medicare but all of American health care, as discussed in Chapter 8.
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5. Medicare Reform in the late 1990s and Into the Future
By the mid-1990s, two realities had set the Medicare program at the center of a political storm. First, as described in the previous subsection, in the 1990s, as program expenditures increased faster than the dedicated revenues to support the program, the Part A trust fund was approaching bankruptcy, as early as the end of the decade according to some experts. Even if the Part A revenue imbalance could be resolved, Medicare was demanding a larger and larger share of the federal budget, a budget that was running annual shortfalls in excess of $300 billion by the mid-1990s. Controlling the growth of Medicare and balancing the federal budget were becoming virtually synonymous.
Even amid the highly partisan debates over health care reform, Congress was able to adopt reconciliation legislation in 1993 that was projected to reduce spending by $50 billion over the next five years, primarily by limits on the rates of reimbursement for both Part A and Part B providers. This proved to be only the opening round of Medicare cuts in the 1990s. The mid-term elections of 1994 brought Republican majorities to both congressional houses committed to their "Contract with America" that included a promise to balance the federal budget within the decade without reducing spending for military defense and Social Security. Cutting Medicare was the obvious if not necessary choice to achieve that promise. The ensuing political battles to achieve these cuts, however, were more complicated.
The first battle was a fight to a standstill. The Republican reconciliation proposal in 1995 proposed cutting $270 billion from the program by the year 2002 primarily through further reductions in physician and hospital reimbursement, increases in Part B premiums for upper income beneficiaries, and extended efforts to enroll beneficiaries in managed care programs and other alternatives to fee-for-service arrangements. Most importantly, under the Republican proposal, if these measures did not produce the projected savings, a "fail-safe" provision would require automatic reductions in all fee-for-service reimbursement until the targeted levels of savings were reached. The Clinton Administration countered with its plan to save Medicare that projected "only" $160 in program reductions through somewhat less drastic provider reimbursement limits -- and no "fail-safe" option. The political sparring that followed was dicey, even by American political standards. The Republicans called the Democrats irresponsible. The Democrats claimed that the Republicans wanted to balance the budget on the backs of the elderly. In fact, beyond the "fail-safe" option, the real differences between the two approaches were more in the details of the proposals than in their overall approach. Both parties wanted to substantially reduce annual Medicare spending.
Ironically, neither side was successful. Clinton cited the Republicans' efforts to reduce Medicare as one reason for vetoing the budget reconciliation legislation enacted in late 1995. After the several-month government shutdown that followed, the inability to enact Medicare reform or otherwise balance the federal budget became campaign fodder for the elections of 1996, but no Medicare changes were adopted by the 104th Congress. As a further irony, in June of 1996 as the Fall campaign rhetoric was beginning to warm, the Part A trustees issued their annual report estimating that Part A revenues would fall below Part A expenditures by 1999 and that the program would be bankrupt by 2001 -- a year earlier than previously predicted (and a prediction that eventually proved to be untrue).
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The greater irony, however, followed the elections of 1996 and was driven less by politics and more by the surprising economic upturn of that would continue through the remainder of that decade. By the Spring of 1997, tax revenues were rapidly rising. The budget reductions of the early 1990s began to have visible effects on federal expenditures. Projections of the size of the federal budget deficit began to plummet and prospects for a balanced federal budget -- and possibly even a budget surplus -- were suddenly realistic. Both the Republican-dominated Congress and the Democratic President were quick to take advantage of these odd circumstances. Why not take credit for balancing a budget that appeared to be balancing itself? In relatively short order a reconciliation bill was forged that included both $135 billion in tax relief and a series of budget cuts projected to balance the federal budget by the year 2002. Among these budget cuts were $115 billion in Medicare reductions, representing substantial reductions in program spending, but far less draconian measures than those had been proposed in the budget-balancing efforts a few years earlier. Most of the savings were to be achieved by various limits on provider reimbursement, as had prior years' proposals, and a major expansion of the options for beneficiaries to enroll in managed care plans under a new Part C of Medicare. See discussion supra. The 1997 legislation also included modest increases in Part B premiums for upper income beneficiaries and added new benefits to Medicare coverage: colorectal screening, mammograms, assistance with diabetes self-management, and preventive vaccinations. A new pilot program was also established to allow Medicare beneficiaries to use medical savings accounts instead of traditional Medicare reimbursement schemes. Taken together with the unexpected increases in payroll tax revenues, these 1997 spending reductions were projected to postpone the predicted bankruptcy of the Part A trust for at least a decade. (The year 2015 was most frequently cited.)
Nothwithstanding the 1997 legislation, Medicare continued to be a source of controversy in the late 1990s. Even as the cost-containing reforms adopted in 1997 started to take effect, Congress was being pushed to soften the impact of these reforms on various categories of providers. As the economy continued its bouyant levels of growth and the prospects for the previously unthinkable -- federal budget surpluses -- became more realistic, Congress was under considerable pressure to rescind some of the 1997 cuts in Medicare. In late 1999 Congress adopted a series of reimbursement "givebacks" to hospitals, home health agencies, and other providers, estimated to increase Medicare spending by over $20 billion over the next five years. The Medicare lords apparently can taketh away and give back.
Whatever the long term results of the congressional changes in Medicare in the 1990s, one thing remains clear: Medicare and its reform will continue to be subjects of contentious debate in the coming years, particularly as the "baby boom" generation approaches retirement. One effort to shape that debate was included in a provision of the 1997 legislation which called created a "bipartisan" commission to study the future of Medicare. The final report of that commission is excerpted below.
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National Bipartisan Commission on the Future of Medicare, Building a Better Medicare For Today and Tomorrow (1999)
[In 1998, Congress, emboldened by the more optimistic projections for the future of Medicare and the prospects of federal budget surpluses, empanelled what was called a bipartisan commission of legislators -- a slight majority of Republicans, and including key committee heads from both houses -- to fashion a proposal that would address both Medicare’s shortcomings and its fiscal instability. In 1999, the commission issued the following report, supported by its Republican members and rejected by their Democratic colleagues. (At the same time, the White House issued its own reform proposal, presumably a kind of Democratic rebuttal to the commission’s proposal.) Nonetheless, the commission’s report and its efforts to make specific policy recommendations represent a good illustration of contemporary politics and of the types of proposals that are likely to be aired in the coming decade.]
* * *
We believe a premium support system is necessary to enable Medicare beneficiaries to obtain secure, dependable, comprehensive high quality health care coverage comparable to what most workers have today. We believe modeling a system on the one Members of Congress use to obtain health care coverage for themselves and their families is appropriate. This proposal, while based on that system, is different in several important ways in order to better meet the unique health care needs of seniors and individuals with disabilities. Our proposal would allow beneficiaries to choose from among competing comprehensive health plans in a system based on a blend of existing government protections and market-based competition. Unlike today’s Medicare program, our proposal ensures that low income seniors would have comprehensive health care coverage.
Because the implementation of a premium support system will take a number of years, we recommend immediate improvements to the current Medicare program. In Section II we outline the incremental improvements to enhance the beneficiaries’ security and quality of care now. We recommend immediate federal funding of pharmaceutical coverage through Medicaid for seniors up to 135% of poverty ($10,568 for an individual and $13,334 for a couple [in 1997]). This would also expand beneficiary participation in currently available subsidies for premiums and cost-sharing.
In reviewing the three parts of this proposal, it is important to keep in mind the different government roles in the premium support system and in current law. We believe the guarantee our society makes to every senior is to ensure that they can obtain the highest quality health care, and that their health care coverage not be allowed to fall behind that available to people in their working years. We believe that our society’s commitment to seniors, the Medicare entitlement, can be made more secure only by focusing the government’s powers on ensuring comprehensive coverage at an affordable price rather than continuing the inefficiency, inequity, and inadequacy of the current Medicare program.
I. PREMIUM SUPPORT SYSTEM TO PROVIDE COMPREHENSIVE COVERAGE
The Medicare Board
A Medicare Board should be established to oversee and negotiate with private plans and the government-run-fee-for-service plan. Some examples of the
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Board’s role are: direct and oversee periodic open enrollment periods; provide comparative information to beneficiaries regarding the plans in their areas; transmit information about beneficiaries’ plan selections and corresponding premium obligations to the Social Security Administration to permit premium collection as occurs today with Medicare Part B premiums; enforce financial and quality standards; review and approve benefit packages and service areas to ensure against the adverse selection that could be created through benefit design, delineation of service areas or other techniques; negotiate premiums with all health plans; and compute payments to plans (including risk and geographic adjustment).
This Board would operate under a government charter that would describe its responsibilities and operating standards including the ability to hire without regard to civil service requirements and salary restrictions.
Ensuring plan performance and dependability
All plans (private plans and the government-run FFS plan) would compete in the premium support system; all plans would have Board-approved benefit designs and premiums. The Board would ensure that the benefits provided under all plans are self-funded and self-sustaining, determining whether plan premium submissions meet strict tests for actuarial soundness, assessing the adequacy of reserves and monitoring their performance capacity.
Management of government-run fee-for-service in premium support
The government plan would have to be self-funded and self-sustaining and meet the same requirements applied to all private plans, including whether its premium submissions meet strict tests for actuarial soundness, the adequacy of reserves, and performance capacity.
Cost containment measures would be necessary. The provisions of the Balanced Budget Act of 1997 should be extended, or comparable savings achieved. In any region where the price control structure of the government run plan is not competitive, the government-run fee-for-service plan could operate on the basis of contracts negotiated with local providers on price and performance, just as is the case with private plans. The government plan would be run through contractors as it is today; contractors in one region would be able to bid in other regions; the Board should have powers to assure that the government-run plan would not distort local markets.
Benefits package
A standard benefits package would be specified in law. This benefits package would consist of all services covered under the existing Medicare statute. Plans would be able to offer additional benefits beyond the core package and plans would be able to vary cost sharing, including copay and deductible levels, subject to Board approval. . . .
The Medicare Board would approve benefit offerings and could allow variation within a limited range, for example not more than 10% of the actuarial value of the standard package, provided the Board was satisfied that the overall valuation of the package would be consistent with statutory objectives and would not lead to adverse or unfavorable risk selection problems in the Medicare market.
New benefits to be instituted in the premium support system:
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Outpatient prescription drug coverage and stop-loss protection
In Private Plans:
Private plans would be required to offer a high option that includes at least Medicare covered service plus coverage for outpatient prescription drugs and stop-loss protection. Plans would be able to vary copay and deductible structures. Minimum drug benefits for high option plans would be based on an actuarial valuation. High option and standard option plans each would be required to be self-funded and self-sustaining.
In Government-run Fee-For-Service Plans:
The government-run fee-for-service plan would be required to offer high option (including outpatient prescription drugs and stop-loss) in addition to standard option plans. . . .
Comprehensive coverage for low-income beneficiaries:
Coverage would be provided through high option plans. The federal government would pay 100% of the premiums of the high option plans at or below 85% of the national weighted average premium of all high option plans for all eligible individuals up to 135% of poverty ($10,568 for an individual and $13,334 for a couple) on a fully federally funded basis. . . .
Premium Formula Basics
On average, beneficiaries would be expected to pay 12 percent of the total cost of standard option plans. For plans that cost at or less than 85 percent of the national weighted average plan price, there would be no beneficiary premium. For plans with prices above the national weighted average, beneficiaries’ premiums would include all costs above the national weighted average.
Only the cost of the standard package would count toward the computation of the national weighted average premium. Plans with a high option, whether private plans or government-run, would separately identify the incremental costs of benefits beyond the standard package in their submissions to the Board, and the government contribution would be calculated without regard to the costs of these additional benefits.
Premium for government-run fee-for-service plans
The government-run fee-for-service plan would be treated the same as private plans.
Government-run plan premium excludes costs of special subsidies in premium calculation
All non-insurance functions and special payments now in Medicare would not be included in calculation of premiums for the government-run FFS plan or private plans.
Guaranteed premium levels where competition develops more slowly
In areas where no competition to the government-run fee-for-service plan exists, beneficiaries’ obligations would be no greater than 12 percent of the FFS premium or the national weighted average, whichever is lower. The Medicare
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Board should periodically review those areas with a fixed percentage premium to ensure that the fixed percentage premium is not anti-competitive.
. . . .
II. IMMEDIATE IMPROVEMENTS TO THE CURRENT MEDICARE PROGRAM AND OTHER ASPECTS OF SENIORS HEALTH CARE SPENDING
Provide outpatient prescription drug coverage for 3 million more low-income beneficiaries
Immediately provide federal funding for coverage of prescription drugs under Medicaid for beneficiaries up to 135 % of poverty ($10,568 for an individual and $13,334 for a couple). This would also expand beneficiary participation in currently available subsidies for premiums and cost-sharing. All funding obligations related to the coverage under this provision would be federal.
Improve access to outpatient prescription drug coverage for seniors
Revise federal directives to National Association of Insurance Commissioners (NAIC) to develop new Medi-Gap state model legislation immediately. All private supplemental plans would include basic coverage for prescription drugs. One plan would be a prescription drug-only plan.
Combine Parts A and B
Health care delivery changes have blurred the distinctions originally contemplated when Parts A and B of Medicare were enacted. Parts A and B should be combined in a single Medicare Trust Fund. (See Section III on Financing and Solvency.)
Lower deductible for 8 million beneficiaries
The current Medicare program subjects beneficiaries entering the hospital to extremely high costs just at a time when they face the many other expenses associated with serious illness. Virtually no private health plan imposes such costs. We propose to combine the current Part A ($768) deductible and B ($100) deductible, and replace it with a single deductible of $400, which should be indexed to growth in Medicare costs.
Improve utilization of health care services
A fee-for-service plan is best maintained by financial incentives, without which costs spiral out of control or freedom of choice must be restricted. To protect against unnecessary rises in beneficiary Part B premiums, 10% coinsurance would be established for all services except inpatient hospital stay and preventive care, and except where higher copays exist under current law.
Revise federal directives to NAIC to develop new state model legislation to conform to the changes proposed for Medicare cost-sharing. These directives should also be designed to achieve more affordable and more efficient supplemental insurance and to minimize Medicare outlays. The new single Medicare deductible and coinsurance schedule would be insurable in part or in whole.
. . . .
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III. FINANCING AND SOLVENCY
The changes proposed in this document are intended to put Medicare on surer financial footing by creating savings due to competition, efficiency and other factors, and by slowing the growth in Medicare spending. In addition, these reforms would result in Medicare offering a benefit package that is more comparable to health care benefits offered in the private sector and would enhance our ability to meet our commitment to today’s and future beneficiaries. Without these changes, quality of care could suffer, and significantly greater revenues and/or beneficiary sacrifices would be required. . . .
Medicare’s financing needs would be dictated by the Medicare growth rate achieved under the premium support system. By moving to a premium support system, Medicare’s growth rate would be reduced by 1 to 1.5 percentage points per year from the current long-term annual growth rate of 7.6 percent (Trustees Intermediate) or 8.6 (Commission’s No Slowdown Baseline). If this reduction in growth rate can be achieved, the fiscal integrity and Medicare would be significantly improved.
Even if the estimated reduction in growth rate is achieved, Medicare will require additional resources as the percent of population that is eligible for Medicare increases. As revenue is needed, how much should be funded through the payroll tax, through general revenue, and through beneficiary premiums?
The answer to this question is difficult because it would require knowing today the health care system of the future. We do not know what the future holds in terms of the evolution of the health care delivery system, or the impact that technology will have on health care costs.
At the Commission’s first meeting, Federal Reserve Chairman Alan Greenspan said that “the trajectory of health spending in coming years will depend importantly on the course of technology which has been a key driver of per-person health costs.” Yet he went on to underscore what could be the absurdity of attempting now to determine funding levels necessary decades into the future: “[T]echnology cuts both ways with respect to both saving medical expenditures and potentially expanding the possibilities in such a manner that even though unit costs may be falling, the absolute dollar amounts could be expanding at a very rapid pace. One of the major problems that everyone has had with technology -- and I could allude to all sorts of forecasts over the most recent generations -- one of the largest difficulties is in forecasting the pattern of technology. It is an extremely difficult activity.”
The solvency test that has been applied to Social Security is not an apt model for Medicare. Social Security Trust Funds are funded exclusively through payroll taxes; Medicare is paid for by a combination of payroll taxes, general revenue and beneficiary premiums. These ratios have changed over time such that a greater portion of program expenses is now paid by general revenues and a relatively smaller portion is paid by payroll taxes and beneficiary premiums.
In addition, the payroll tax supporting the OASDI Trust Funds is limited both by its rate and the wage base on which that rate is applied. No portion of Medicare’s funding contains these limitations. In Medicare, there is no cap on the wage base; the Part A Trust Fund is funded by a payroll tax of 2.9% on all earnings, and pays only for the Part A benefits of Medicare. Medicare’s Part B benefits are paid 75% by general revenues and 25% by beneficiaries.
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Consequently, the historic concept of Medicare’s solvency is one that has been partially and inappropriately borrowed from Social Security and has never fully reflected the fiscal integrity, or lack thereof, of the Medicare program. In Medicare, “solvency” has meant only whether the Part A Trust Fund outlays were poised to exceed Part A reserves and collections. That is all.
Recently even this partial proof of fiscal integrity has been shattered. The notion of Part A “solvency” or rather “insolvency” has been used to shift more program costs to the general fund. An act of Congress shifted major home health expenditures from Part A to Part B in 1997, thus extending the fiction of the Part A Trust Fund “solvency” from 2002 through 2008 by shifting obligations to the general fund. The general fund, in great part, became the source of Part A “solvency."
The ever increasing estimates of general fund exposure should be part of any definition of solvency. Absent reform, general fund exposure jumps from 37% of program funding in FY2000 to 43% in FY2005 and 49% in FY2010. General fund demand will increase from $92 billion in FY2000 to $156 billion in FY2005 to $261 billion in FY2010.
Consequently, the “solvency” of the Part A Trust Fund is not useful as a guide to policy making or even as a tool to educate the public on the security and financial condition of the Medicare program.
Therefore, Part A and Part B Trust Funds should be combined into a single Medicare Trust Fund and a new concept of solvency for Medicare should be developed. This concept should more accurately reflect the implications of the program’s financing structure, i.e., the ratio of relative financing burdens on the general fund, the Hospital Insurance payroll tax, and the premiums beneficiaries pay. Because beneficiary premiums and the payroll tax rate can only be amended by law, and have proved very difficult to modify over time, the only meaningful solvency test of this entitlement program is one based on the amount of general revenues needed to fund program outlays. This could be referred to as a programmatic solvency test.
Congress should enact this revised definition of Medicare solvency so that decisions can be made in the context of competing demands for general revenue. Congress should require the Trustees to publish annual projections regarding the ratio in program financing. In any year in which the general fund contributions are projected to exceed 40% of annual total Medicare program outlays, the Trustees would be required to notify the Congress that the Medicare program is in danger of becoming programmatically insolvent. The Trustees Report should provide for necessary and important public debate leading to potential adjustments to the payroll tax and/or the beneficiary premium as well as any adjustment of the general fund devoted to Medicare. Congressional approval would be required to authorize any additional contributions to the Medicare Trust Fund.
With the reforms contemplated under this proposal, that new test would probably not be activated until after 2005. Even if we limit general revenue contributions to 40% of program outlays, however, this proposal would extend the solvency of Medicare to 2013. This calculation, based on the most recent CBO baseline, would indicate that solvency under this test would extend to 2017 or beyond.
Long-term care
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The Commission recognizes that its proposal is focused on acute care, and does not address the issue of long-term care. In 1995, Americans spent an estimated $91 billion on long-term care, with 60% coming from public sources. Despite these large public expenditures, the elderly face significant uncovered liabilities. The Commission recommends that the Institute of Medicine conduct a study. . . .
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D. OUT-OF-POCKET PAYERS AND THE UNINSURED
In 2003, over $230 billion, slightly less than 20 percent of total national health expenditures, were paid out-of-pocket through cost-sharing and other direct payments to providers by consumers. In 1965, just prior to the enactment of Medicaid and Medicare, Americans were paying almost one-half of the costs of their health care out-of-pocket. By 1975, that share had dropped to less than a third, and by the early 1980s it had dropped again to less than 25 percent. Since that time it has gradually reduced to its current level.
The burden of these out-of-pocket payments, however, is not evenly distributed across the population. Many insured people pay a relatively modest amount through cost-sharing incident to utilization of covered services or for outpatient visits, eye or dental care, or other frequently noncovered services. And, of course, in any given year, some people incur no direct medical expenses at all. On the other hand, a few people incur extraordinary or catastrophic expenses and, even if insured for some of these costs, have out-of-pocket expenses in the tens or even hundreds of thousands of dollars.
The people who carry the greatest burden, however, are the uninsured, those who have no public or private health insurance or other form of third party payment or, to use a more descriptive term, the "underinsured," those who have no coverage or coverage that is so limited that they are without third party payment for basic services or for significant periods of time during the year. Estimates vary -- indeed there are raging debates among various would-be experts over the proper definition of the "underinsured" and their precise number -- but virtually all authorities agree on two rather sobering facts: in 2006 there will be as 45-50 million Americans, nearly 20 percent of the nonelderly population, who had no third party coverage for extended periods of time, and that that number has been growing for at least two decades and will likely continue to do so.
These figures represent people who self-report their insurance status as part of the national census and other surveys. It is difficult from these data to determine the length of time that those who report a lack of insurance remain uninsured. One survey found that over a third of the uninsured were uninsured for one to four months, 22 percent were uninsured for five to eight months, and 9 percent were uninsured for nine to eleven months. The remainder were uninsured for the entire year or longer. Other studies tend to support this distribution. See Kaiser Commission on Medicaid and the Uninsured, The Uninsured and Their Access to Health Care (Nov. 2005) found at http://www.kff.org/uninsured/ (last visited November 2005); see also Paul Fronstein, Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2001 Current Population Survey (EBRI Dec. 2001) (annually updated).
Whatever their exact numbers, the basic reality remains: While Americans
in the aggregate may be paying fewer health care dollars out-of-pocket than in previous decades, there are many more individual Americans who must pay out-of-pocket or risk the consequences of foregoing services.
Who are these people? The best answer starts with a description of who they are not: They are not people with stable employment in occupations with middle to high income levels, in public employment, or in unionized occupations; nor do they qualify for Medicare, Medicaid, or any other public programs. Obviously, the "underinsured" include the unemployed, but in 2003 over 27 million uninsured people were in families headed by full-year, full-time
workers. Twenty-seven percent of people who worked for employers with fewer than ten employees had no coverage in 2003, as did 27 percent of those who were self-employed (including many attorneys). A good portion of the uninsured are children; despite the various expansions of Medicaid throughout the 1990s and the SCHIP program, over 11 million people under the age of 18 had no third party coverage in 2003. Another 3 million people aged 21-24 had no coverage. There was variability from state to state and within states; there were higher rates of the "underinsured" in the South and Southwest United States where unemployment is higher and Medicaid eligibility is generally more limited.
Beneath these demographics lies the question of why over 40 million Americans can be "underinsured"? The answer is complicated but derives primarily from the unique contours of American health care financing, particularly the facts that (a) government-sponsored programs cover only some but not all those who cannot afford private third party coverage and (b) private third party coverage is primarily a function of employment, meaning not only whether one is employed but also what kind of employment one has. Small employers represent a large part of the problem, since they are both less likely to offer health benefits and tend to offer more limited coverage or coverage to an employee but not to the employee's dependents.
The tougher question to answer is what happens to these people when they need health care? Some people obviously go without care; others struggle to find providers who will accept them without the assurance of payment by a third party; in the extreme situation, many turn to the hospital emergency room as the provider of last resort. As many of the cases throughout these materials will recount, people without third party coverage suffer both sides of the two-edged sword: Some find the care they need but then face the burden of extraordinary medical bills; others delay or forgo -- or are denied -- the health care services that many other Americans can assume will always be available to them. Somewhat ironically, we know very little about the frequency -- or even the consequences -- of either alternative. Most research concerning health care expenditures and health care utilization relies, ultimately, on the data collected by third party payers incident to reimbursement for services that are delivered, particularly the experience of public payers. There is no routinely collected information on the health care needs of the uninsured or the services that they do -- or do not -- receive. The article to follow attempts to summarize what little we know and tends to confirm what intuition would suggest.
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American College of Physicians-American Society of Internal Medicine, No Health Insurance? It’s Enough to Make You Sick (ACP-ASIP postion paper Nov. 1999)
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This paper reviews and evaluates the available literature, published within the last 10 years, linking health insurance coverage with the utilization of health care services (access) and individual health outcomes to verify whether scientific evidence supports the premise that the uninsured experience reduced access to health care.
. . . .
Reduced Access to Health Services
. . . Numerous studies confirm that the lack of health insurance is linked to reduced access to health care services. These studies also show that uninsured Americans are less likely to receive preventive and primary care than insured Americans. Uninsured citizens are also less likely to have a relationship with a primary care physician (a regular source of care) or to receive required preventive services, like cancer screening for adults and checkups for children. These differences exist even for those who have chronic conditions and special health care needs. Even when ill, uninsured Americans are less likely to receive a physician's care for their health problems, such as asthma or acute earache.
No Regular Source of Care
. . . .
Bloom et al evaluated data on over 61,000 persons from the 1993 Access to Care and Health Insurance Surveys of the National Health Interview Survey (NHIS). The authors found that the uninsured in 1993 were 4 times less likely to have a regular source of care compared with the insured (40% versus 10%).
The U.S. Department of Health and Human Services has reported that uninsured children are 8 times less likely to report a regular source of care than the insured (16% versus 2%). . . .
No Recent Physician Visit
. . . .
. . . Hafner-Eaton found that non-elderly uninsured were consistently less likely to have received any medical care in the previous 12 months. The acutely ill uninsured were 66% as likely to have seen a physician, and the chronically ill were only 50% as likely to have seen a physician in the last year. The uninsured acutely ill are less likely to delay medical care than the uninsured chronically ill or those who are well, but their use of physician services is still well below that of insured individuals.
. . . Newacheck found that uninsured adolescents were 2.5 times less likely than the insured to have had at least one physician visit in the previous
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year (25.1% versus 11.2%). The U.S. Department of Health and Human Services reports that poor uninsured children were 2.8 times more likely to go without a physician visit than poor insured children. Uninsured children, generally, were found to be 1.4 times less likely to have had a physician visit in the last year than insured children (22.6% versus 16.2%).
. . . .
Delayed Care
Several studies found evidence that uninsured Americans were more likely to be hospitalized for conditions that could have been managed with appropriate outpatient care. The U.S. Department of Health and Human Services reports that the uninsured are 3.6 times more likely to delay seeking care than the privately insured (29% versus 8%). Weissman et al. found that the uninsured were 1.5 times more likely to delay seeking care than the privately insured. Those who reported a delay in seeking care had a significantly longer (on average, about 9% longer) hospital stay than did other patients. Uninsured children are 4 times more likely to delay seeking medical care. Additionally, individuals who lost or changed insurance coverage were also more likely to delay seeking care.
Unmet Needs
. . . [A] 1994 survey included specific questions about dental care, prescription drugs, eyeglasses, and mental health care or counseling. Berk and Schur found that more than 34% of the uninsured were unable to obtain one or more of the health services they needed during the previous year, compared with 22% of Medicaid enrollees and 13% of persons with private insurance. Similar variation in inability to obtain medical/surgical care, dental care, prescription drugs, and eyeglasses was found for each insurance status. For each of the specific health services, the uninsured were almost 4 times as likely as the privately insured to report an unmet need. The largest disparity was for prescription drugs.
The uninsured were found to be 3.8 times less likely to obtain needed medical/surgical care compared with the privately insured (15.1% versus 4.0%). . . .
Use of Emergency Room as Regular Source of Care
Although the emergency room is meant to be used for treating life-threatening illness or injury, the uninsured, compared with the insured, are more likely to receive their care in an emergency room rather than in a physician’s office. . . .
Self-Report of Poorer Health Status
The uninsured report poorer general health than the privately insured. The CDC found that the uninsured are, on average, 1.5 times more likely to self-report only poor-to-fair health status than are the insured. . . . Uninsured children are also 1.5 times more likely to self-report only fair or poor health than are privately insured children.
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. . . .
Poorer Medical Outcomes
Establishing a relationship between insurance status and health outcomes is more difficult but several studies present evidence supporting the premise that the uninsured face specific consequences as a result of a lack of insurance. Uninsured Americans are more likely to experience avoidable hospitalizations, be diagnosed at later stages of life-threatening diseases, be hospitalized on an emergency basis, be hospitalized for chronic conditions that could be better controlled with reliable access to physician services, and experience an increased risk of mortality.
. . . .
Stage at diagnosis is one of the most important prognostic factors for most cancers. For many cancers, early stage disease can be effectively treated with a good chance for a cure, whereas late stage disease is generally incurable. The presence and type of health insurance have been consistently predictive of access to care and the provision of screening services.
Roetzheim et al. studied data from 1994 for all Florida patients with incident cases of four types of cancer for which screening is associated with detection of early stage disease: colorectal, breast, prostate, and melanoma. Persons who were uninsured were more likely to be diagnosed at a late stage than were persons with private insurance.
. . . .
Ayanian et al. studied 4,675 women, 35 to 64 years of age, in whom invasive breast cancer was diagnosed from 1985 through 1987. Uninsured women had significantly more advanced disease than privately insured women when their disease was initially diagnosed . . . . Survival during the 54 to 89 months after diagnosis was significantly worse for uninsured patients than for privately insured patients with local or regional disease.
. . . Overall, uninsured women had a 49% greater chance of dying after a diagnosis of breast cancer than did privately insured women. . . .
Summary: Poorer Medical Outcomes
Substantial evidence suggests that individuals without insurance experience poorer or adverse medical outcomes. Uninsured Americans are more likely to be hospitalized for a medical condition that could have been better managed with physician care and/or medications. The uninsured are more often diagnosed at a later stage of disease and suffer a lower survival rate as a result. Most importantly, the uninsured experience a higher mortality rate, both generally over time and specifically while in the hospital.
. . . .
The reduced access to care and poorer medical outcomes evidenced in these studies do not affect only the chronically uninsured. Even those with gaps in
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coverage -- as short as one month or as long as a year or more -- are less likely to seek care, pursue preventive care, or even to have prescriptions filled. Although people with no insurance face the greatest barriers to receiving needed health care, those who are intermittently insured or have inadequate coverage are also exposed to potentially burdensome medical bills in the event of major or prolonged illness. Even the insured who change health plans experience similar reductions in access.
Research has clearly demonstrated that having health insurance makes a difference in health care for Americans. The uninsured -- even those who are sick, chronically ill, or who have special health care needs -- get less health care than those who have insurance. Many studies have shown that increasing coverage improves access to care.
Evidence from the available medical and scientific literature also clearly demonstrates that uninsured Americans experience poorer medical outcomes. A lack of insurance is associated with a delay in seeking care, disease progression, and reduction of the likelihood of a favorable outcome or survival. It is also associated with the increased probability of avoidable hospitalizations for manageable illnesses (some of which are risk factors for the leading causes of death), a generally higher mortality level, and higher in-hospital mortality. Uninsured children are particularly vulnerable to reduced levels of medical care for normal childhood illnesses such as a sore throat, earache (which, left untreated, can lead to hearing loss and speech and language deficits), and asthma, in addition to reduced levels of medical care for serious injuries or acute illnesses such as appendicitis.
Lack of insurance contributes to the endangerment of the health of each uninsured American as well as the collective health of the nation. Because lack of insurance is as much a risk to the public health as smoking, alcoholism, and obesity, this national crisis merits the immediate attention of America’s elected officials and policymakers.
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Some Final Thoughts on the Uninsured
One thing is clear and needs no documentation -- or further research. The fact that tens of millions of Americans have no third party financing is one of the most befuddling health care policy issues facing Americans in the 21st century. As will be reviewed in considerable detail in Chapter 8, both the state and the federal legislatures are currently considering a range of proposals for reform of the financing of American health care, virtually all of which are designed, at least in part, to reduce the number of uninsured Americans. In fact, as described earlier in this chapter, many states are already attempting to expand their Medicaid programs through SCHIP and other programs to include a greater portion of their indigent populations. For that matter, as was outlined in Chapter 1, restructuring health care financing to make some form of coverage available to all Americans has been part of the American public policy agenda since at least the 1930s.
On the other hand, providing some relief for the uninsured is only one of several problems facing American health care. As already documented in this chapter, both the states and the federal government are struggling to find some fiscally acceptable way to maintain an adequate level of services under Medicaid and Medicare and to finance other existing health-related programs. If federal support for the Medicaid program is significantly curtailed in the next few years, many states will have difficulty financing their existing programs for the uninsured, let alone expanding them further. At the same time, most of the recent trends in the private sector -- managing care, using more commercialized marketing practices and so on -- can hardly be expected to produce any short-term relief for those who for economic or other reasons are excluded from those arrangements.
Further insight into these issues will be provided in the next two chapters concerning individual and institutional providers, the manner in which government has attempted to regulate the various categories of providers, and the complicated network of reimbursement through which those providers are paid for their services. Any effort to reform American health care financing, to extend coverage to the uninsured or for any other reason, will be necessarily designed to mesh with the existing arrangements through which American health care is delivered. And, as already should be clear from these materials, any effort to expand or even maintain the accessibility of health care will be necessarily intertwined with the equally important problems of containing the costs and maintaining the quality of American health care issues which also will be discussed in detail in the next several chapters.
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