Medicaid Makes Poor Healthier and States Poorer

July 8, 2011 -- A study released Thursday proves that being insured through Medicaid benefits low-income people physically, financially and psychologically, but deep cuts proposed at both the state and federal levels could limit beneficial services.

The study, released by the National Bureau of Economic Research, is the first to use a randomly selected group of Medicaid participants, making it the most accurate data available on the program's effects, said MIT economist Amy Finkelstein, the lead author of the report.

The random-sample study was possible because of a 2008 Medicaid lottery implemented in Oregon as a way to fairly choose the 10,000 Oregonians the state could afford to extend coverage to. Budget restraints prevented Oregon from accepting all 90,000 applicants.

"The situation in Oregon provided us an opportunity to bring the gold standard of research [random sampling] to important social science and public policy questions," Finkelstein said.

The study found that people enrolled in Medicaid were 25 percent more likely to report their health was very good or excellent, 10 percent less likely to be depressed and 25 percent less likely to have unpaid medical bills sent to a collection agency than their uninsured counterparts.

"The results are even more positive than we anticipated," wrote Sherry Glied, the Health and Human Services assistant secretary for planning and evaluation, in a White House blog post Thursday.

Insured people also used more preventative medical services.

The probability that Medicaid recipients had their blood cholesterol checked increased 20 percent and insured women were 60 percent more likely to have a mammogram.

Insured people were 30 percent more likely to be admitted to the hospital, 15 percent more likely to use prescription drugs and 21 percent more likely to go to a clinic or see a doctor.

"The single core finding of the study is that having Medicaid matters," Finkelstein said.

But with steep cuts proposed to the program at both the state and federal levels, those benefits may be short-lived.

As of March 2011, Medicaid or other health care programs had run over budget in 23 states. Louisiana's Medicaid program, for example, was projecting a $195.2 million deficit, according to the National Conference of State Legislators. Kentucky anticipated falling $100 million short and Maryland had to pump $68.4 million into its Medicaid program because of less-than-expected federal dollars.

As it stands now, Medicaid, which insures 58 million low-income Americans, is the third-largest domestic program in the federal budget behind Social Security and Medicare, accounting for 8 percent of all spending. Since the recession began, 7 million Americans have enrolled in Medicaid, driving up costs 8.1 percent to nearly $340 billion in 2009.

Melissa Hansen, a health policy expert at NCSL, said states have already trimmed any administrative fat in their Medicaid budgets and are now forced to cut services like dental care and physical therapy.

A South Carolina law that goes into effect today cuts how much Medicaid reimburses doctors and hospitals by 2 percent. The state already reduced reimbursement rates by 3 percent in April in an attempt to fill a $228 million gap in its 2011 Medicaid budget.

Arizona hopes to save $500 million, or half of its 2012 budget shortfall, by putting a freeze on accepting new Medicaid patients who do not have children. The freeze goes into effect today and could prevent up to 150,000 Arizonans from receiving insurance.

Cuts may be in store at the national level, as well.

The House Republican budget proposed by Rep. Paul Ryan, R-Wis., would completely overhaul the way Medicaid is paid for, turning it into a block-grant program where the federal government allocates a fixed payment to each state, capping how much states can receive instead of matching their spending dollar for dollar.

Proponents say the block-grant program will give states greater flexibility to tailor coverage, but opponents claim the program would just transfer costs to the states.

Conversely, Obama's health reform law expands health coverage to 32 million Americans by 2014, half of which will gain coverage through Medicaid. The Kaiser Foundation estimated the 16 million new enrollees will cost the federal government $443 billion over five years.

The Associated Press contributed to this report.