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Medicaid Waivers: The New Frontier

The Medicaid and Medicare programs are moving quickly to managed care. As Medicaid costs consumed more and more of their budgets, state governments looked for ways to cut Medicaid spending and control health care costs. And managed care has produced some cost moderation for some states.

States were also interested in addressing problems related to access. Many physicians and other providers have been unwilling to treat Medicaid patients because the fees were considered too low. Some Medicaid patients unable to obtain primary care end up in emergency rooms — a costly and inappropriate alternative.

The majority of Medicaid recipients — AFDC "moms and kids" — do not utilize health care services heavily. Combining state and federal sources, Medicaid spent $879 per child and $1713 per adult on average in 1993. If a managed care plan can keep this population out of the hospital or shorten hospital stays, it can turn a profit. Chronically ill, mentally ill and elderly Medicaid recipients use more services, but private managed care plans are now bidding for these populations, too, planning to substitute home health and other outpatient therapies for costlier nursing home and institutional care. Medicaid spent $4777 on acute care per disabled recipient in 1993 — far more than the amount spent on AFDC children and adults.

Medicaid law provides a number of options for states wishing to use innovative methods for delivering or paying for Medicaid services. The Secretary of the U.S. Department of Health and Human Services may "waive" certain requirements to allow states greater flexibility in managing their Medicaid programs and to conduct demonstration projects.

Bar Chart showing the Project Growth in Medicaid Spending, Using CBO Baseline

"Protecting quality in the care and treatment of persons who are mentally disabled has been a fierce struggle for those of us working on the front lines of mental health and rehabilitative care. This struggle has spanned several decades, and has been complicated by deinstitutionalization, a movement filled with good intentions but ended in tragedy for far too many mentally disabled people. Despite these problems, and despite the need to improve public health services, many states have found yet another way to push the responsibility for service and funding into the private sector: Medicaid waivers to finance private mental health care. These waivers lead to the exclusion of the very providers who know how best to care for mentally ill individuals: state psychiatric hospitals and their staffs."
Bonnie Marpoe, LPN,
Co-Chair of United Nurses of America

The rise in all forms of Medicaid waivers — demonstration projects, home- and community-based care, long-term care and mental health — will soon turn the fee-for-service system into a managed care system. Frequently that means privatization, which has grave implications for AFSCME members: Because public hospitals receive so much of their funding from the Medicaid and Medicare programs, any changes in these programs is bound to have a major impact.

Other than using home- and community-based waivers, most states have not yet looked to restructure the financing and delivery of services for institutionalized populations. This is regarded as the new frontier, however, and you should expect change — driven both by ideological reasons and because of the amount of money involved. 
For example, with "Tenn Care," Tennessee became the first state to mandate Medicaid managed care programs. All public hospitals suffered. The state of Rhode Island has submitted a waiver proposal to restructure MR/DD services and allow clients to choose their providers. And in Iowa, a single managed care contractor (MEDCO) is now making decisions on cost and service delivery for mentally disabled Medicaid recipients. Maryland also has proposed a waiver that would allow a contractor, on a capitated basis, to manage the care of targeted high-cost Medicaid patients, including those with mental illness, asthma, uncontrolled hypertension, diabetes, spinal cord injury, traumatic head injury, stroke, multiple sclerosis and AIDS.

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