Medicaid

Because of the more extensive health care needs of elderly Medicaid beneficiaries, the elderly population accounts for a substantial share of spending under Medicaid. Of the $169 billion in total Medicaid expenditures in 1998, $46 billion (27 percent) was spent on services for the 10 percent of beneficiaries who were low-income elderly persons. Nearly three-quarters of Medicaid spending on the elderly population was for long-term care services, primarily nursing-home care; about 7 percent was for prescription drugs; and nearly 6 percent was payments to the Medicare program for premiums or cost-sharing. Largely due to the high cost of long-term care, elderly beneficiaries had the highest per capita expenditures of any Medicaid eligibility group (see Figure 3).

One of the most important roles that Medicaid plays for elderly Americans is financing long-term care. With nursing-home care averaging more than $50,000 per year and regular assistance in the community costing more than $10,000 per year in 2001, long-term care can be quite costly and can drain private resources quickly. Medicaid is the major public program that covers nursing-home care; the program finances care for over two-thirds of the nation's nursing-home residents and pays nearly half of all nursing-home costs in the nation. However, because Medicaid coverage is available only to low-income individuals, many people in nursing homes who receive Medicaid assistance must spend down, or deplete, their personal resources before Medicaid assistance is available. They must also continue to contribute any available income from Social Security or pensions toward the monthly cost of their care.

Table 1 Medicaid's Protections for Medicare Beneficiaries SOURCE: Kaiser Commission on Medicaid and the Uninsured

NOTE:The first three programs are entitlements; the last two are block grants available on a first-come, first-serve basis.

In response to the high cost of nursing-home care and people's desire to remain in their community, all states also offer home health and home and community-based services (HCBS) under their Medicaid programs; some states also offer personal care services. These services provide assistance to people in the community and may target a specific mix of noninstitutional long-term care services to a distinct population or geographic area. While community-based services are crucial to enabling many elderly persons with long-term care needs to remain in their homes, they represent less than 10 percent of Medicaid spending and have not been shown to reduce nursing-home utilization. A 1999 Supreme Court decision (Olmstead v. L.C.) has helped to promote the broader use of home care as an alternative to institutionalization for people with disabilities, and it may create pressure to increase the amount and share of Medicaid resources devoted to community-based long-term care.

Medicaid's role in covering the cost of prescription drugs to Medicare beneficiaries with low incomes is another key function of the program for elderly persons. Outpatient drug therapy has become an increasingly important part of the therapeutic regimen for millions of elderly Americans. In 1996, eight out of ten Medicare beneficiaries utilized prescription drugs on an ongoing basis as a way of managing chronic conditions, delaying or even preventing the onset of serious illness, or substituting for more invasive methods of care. Prescription drugs come at a substantial cost, however, and, on average, range from $800 to $1,400 per person, per year (as of 2001). People who do not have insurance to help with these costs are less likely to fill prescriptions, and they may pay more for some drugs because they cannot participate in pharmacy discounts negotiated by insurers. All states cover prescription drugs under their Medicaid programs, a benefit that accounted for over 8 percent of total program spending in 1998. One-quarter of Medicaid spending on drugs is on behalf of elderly beneficiaries.

Figure 3 SOURCE: Urban Institute estimates, 2000, based on HCFA-2082 and HCFA-64 Reports. Kaiser Commission on Medicaid and the Uninsured.

NOTE: Expenditures do not include DSH, adjustments, or administrative costs.

For both long-term and acute care services, elderly persons receiving Medicaid face particular challenges in receiving health services from both Medicare and Medicaid programs. Medicare remains the primary source of insurance for elderly people, while Medicaid covers wraparound services. Depending on how a state's Medicaid program works, dual eligibles may have to see different providers for different services— one for their acute care needs and one for their long-term care needs. This situation creates confusion among beneficiaries, is administratively difficult for providers, and may encourage the programs to try to shift the cost of care to each other. The growing use of managed care, which relies on a restricted network of providers for services, in both Medicare and Medicaid programs for the elderly population, brings yet another layer of complexity to coordination of services. However, without the services in Medicaid to complement Medicare coverage, the four million elderly dual eligibles would have their substantial health needs go unmet. Medicaid functions as a true safety net for Medicare's most vulnerable and sickest beneficiaries.