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In Brief: Millions of Low-Income Americans Can't Get Medicaid: What Can Be Done?

This In Brief examines why Medicaid fails to cover millions of low-income, uninsured adults, including many in their 50's and 60's. It also outlines policy options for change.

Medicaid's Current Coverage Rules

Jointly financed by states and the federal government and administered by states, Medicaid provides health insurance to millions of low-income people. However, federal law prohibits state Medicaid programs from covering adults, no matter how poor, unless they are pregnant, caring for dependent children, severely disabled, or elderly. Although Section 1115 of the Social Security Act permits the Secretary of Health and Human Services (HHS) to waive this prohibition, few states use such waivers. That is because under federal “budget neutrality” rules, waivers give no additional federal money to help pay the cost of covering more people.

Experts say these restrictions, based on federal laws passed in the 1930s, are out of touch with current public opinion. A 2007 poll, conducted by pollster Linda DiVall for the Federation of American Hospitals, found that 71 percent of respondents supported providing Medicaid to all uninsured Americans with annual incomes at or below the federal poverty level.

How Does Lack of Health Coverage Affect Low-Income Adults?

Adults who are ineligible for Medicaid represent more than half of the uninsured poor. Low-income, categorically ineligible adults outnumber all uninsured children and all uninsured parents. Low-income, uninsured adults who fall outside federal eligibility categories are a diverse group—ranging from young adults entering the work world to empty-nesters in their 50s and 60s. The majority are white, though more than two in five (42 percent) are African American or Hispanic. Nearly four in five (79 percent) work, and more than four out of five (81 percent) are U.S. citizens. Their lack of health insurance causes serious harm. For example:

  • The absence of health coverage results in significant difficulties accessing care. Among uninsured adults ages 19-29, 57 percent go without essential medical services at some point during the year because, they cannot afford the cost of care.
  • The impact on older adults is even more startling. Peer-reviewed studies suggest that more than 13,000 adults ages 55 to 64 die each year because they have no health coverage, making lack of insurance the third-leading cause of death in this age group.
  • Other peer-reviewed studies find that, if all adults in their 50s and 60s were insured, the percentage who die over an eight-year period would drop from 6.7 percent to 3.9 percent.

How Can Medicaid Be Changed to Cover More Low-Income Adults Ineligible Under Current Rules?

The paper analyzes three basic policy options for addressing current Medicaid restrictions:

  • Eliminate or liberalize the rules under which states apply for waivers by giving states additional federal funds to help cover the cost of newly eligible low-income adults. This approach would repeal or weaken the federal budget neutrality requirement for Section 1115 waivers. While this would help some states cover more uninsured, such waiver reforms would have serious limitations, according to the author—the waiver process is costly and time consuming for states, lacks transparency, and is often influenced by the policy preferences of the administration in power. In addition, some state policymakers fear that federal officials will use waiver requests as leverage to demand other, unrelated modifications to state Medicaid programs.
  • Change Medicaid eligibility from categorical to purely need-based. Everyone with income below a certain level would qualify, regardless of category, and everyone with income above that level would be ineligible. This approach could yield administrative savings since Medicaid agencies would apply one set of rules to all applicants instead of using different rules for different eligibility groups. It would also promote equity, since the same income standard would apply to everyone. However, depending on the income level above which coverage ends, this option could deny Medicaid to millions of people who qualify under current law. A variation on this approach would cover all adults up to specified income levels while giving states the flexibility, without regard to federally-defined categories, to determine which individuals above that income level will receive coverage.
  • While maintaining existing categories, cover all adults with incomes below a specified level. This option would maintain current eligibility categories and create a new “catch all” category for all adults with incomes below a certain amount, such as the federal poverty level. States would still apply different eligibility rules to different groups of people, reducing the equity and efficiency gains from this policy change; but lawmakers would not terminate coverage that is available under current law.

Regardless of the approach policymakers take, many design details would need to be resolved, including the roles and financial responsibility of federal and state government as well as the financial eligibility standards for newly covered adults.

Contact: Lynda Flowers, AARP Public Policy Institute

Written by Stan Dorn, the Urban Institute
Lynda Flowers, Project Manager, AARP Public Policy Institute
September 2008
©2008 AARP
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