Eliminating Health Disparities Will Require Looking at How Much and How Medicaid Pays Participating Providers

The Biden administration has made Medicaid a central feature of its Build Back Better health policy platform, with a goal of reducing disparities. Medicaid already serves 80 million Americans, and the administration has offered remaining Medicaid nonexpansion states a compelling financial deal to expand—a temporary federal matching increase of 5% for two years, tied to the more expensive traditional Medicaid program that serves low-income older people and those with disabilities. Nonexpansion states seem to be taking note but continue to express reservations related to finances, even though the math clearly favors expansion as a boon to state budgets. It is estimated that more than 2 million adults will be newly eligible if Medicaid nonexpansion states take advantage of these federal incentives. Separately, Congress is considering a federal expansion to cover those in the “coverage gap” as part of the Build Back Better bill passed by the House of Representatives in November 2021. Although truly “universal” coverage appears to be out of reach in the short term, the United States seems on track to get close. This raises the question, what are the next policy steps toward achieving health equity?

The health and economic consequences of disparities are well documented and persistent. Many disparities stem from deeply rooted practices and policies of systemic racism that are pervasive in every public sphere, including health, housing, employment, education, transportation, and policing. Disparities exist by income, gender, rurality, sexual orientation, and gender identity as well. It is not a coincidence that these populations are overrepresented in Medicaid, compared to other forms of insurance, and many more would gain Medicaid if current coverage gaps were eliminated. However, advancing the goal of health equity may require going beyond Medicaid coverage to address access for people within the Medicaid program by closing provider pay (and payment hassle) gaps that make Medicaid less attractive to providers than Medicare and private insurance.

Health insurance improves health by increasing access to high-quality and timely health care and by protecting individual and household finances from the cost of care. In our three-tiered system of Medicaid, Medicare, and private insurance coverage—including Affordable Care Act (ACA) Marketplace coverage—most experts agree that Medicaid receives high marks for financial protection and average marks for timely access. Medicaid provider payment levels vary widely across states and are generally lower than Medicare. Relatively low provider payment rates contribute to access barriers for Medicaid enrollees. In a report by the State Health Access Data Assistance Center (SHADAC) to the Medicaid and CHIP Payment and Access Commission (MACPAC), only 70.8% of providers were accepting new Medicaid patients, compared to 85.3% accepting Medicare and 90% accepting private insurance. Access was worse among certain specialty providers—only 35.7% of psychiatrists were accepting new Medicaid patients, compared to 62.1% accepting Medicare and 62% accepting private coverage. After adjusting for state demographic characteristics (such as percent of people in poverty, percent enrolled in Medicaid, physician supply, physician demographics, and employment characteristics), SHADAC found that every 1 percentage point increase in the Medicaid to Medicare fee reimbursement ratio was associated with a 0.78 percentage point increase in provider acceptance.

Increasing Medicaid fees, or benchmarking Medicaid fees to Medicare, is therefore one approach to improving access in Medicaid. This is not a new idea. The ACA provided enhanced primary care funding, bumping Medicaid to 100% of Medicare payment rates for the first two years of Medicaid expansions. A meta-analysis of research on the ACA fee bump found increases in access in some studies, but not across the board. It may be that primary care fees are not as big of an access barrier as fees in some specialties, such as mental health; it also may be possible that providers were not motivated enough to respond to temporary increases in targeted fees. But, to the extent that higher Medicaid fees can increase the supply of services to Medicaid enrollees, a narrowing of access disparities may result.

What, then, are the policy options to place Medicaid more on par with other forms of insurance? Money is ultimately a driving factor, as current Medicaid policies reflect trade-offs between serving Medicaid populations effectively and state budget constraints. States could raise their own Medicaid provider fees and require Medicaid managed care organizations (MCOs) to increase fees. However, that would raise state spending through higher overall spending per service, plus additional services delivered on account of the higher fees. States might try to stretch Medicaid dollars by relying on managed care techniques, such as narrow provider networks and aggressive utilization management, but these approaches do contain costs and states would likely need to increase MCO payments accordingly. Combinations of these policy options would likely help to level the access playing field for Medicaid recipients, but it is unlikely that states can or will do this on their own.

The federal government could consider requiring states to benchmark Medicaid prices to Medicare, along with a commensurate Federal Medical Assistance Percentages (FMAP) increase. Benchmarking could range from a minimum percentage of Medicare rates (e.g., at least 80% for each service) to complete parity. A critical issue is that states value flexibility in their Medicaid programs, and Medicaid populations are different from Medicare populations in ways that call for specific services to be targeted to the needs of each population. As a result, the Medicare fee schedule is not necessarily the appropriate set of relative prices for the Medicaid populations, to say nothing of services that are covered by Medicaid but not Medicare. As such, a version of benchmarking might require that the weighted average Medicaid prices of all services common to both programs not fall below some proportion of Medicare prices.

Benchmarking Medicaid to Medicare prices would clearly need to occur at the federal level. Medicaid is statutorily required to pay providers enough to ensure access, although this has not been well defined or enforced. Efforts to fight provider payment cuts or to require Medicaid to pay more have been defeated by the US Supreme Court in two separate cases. State financing of Medicaid is already precarious, and the federal government would need to make the case and provide states with implementation assistance. Doing so would send a powerful message about the seriousness of purpose when it comes to eliminating health inequities, particularly racial, ethnic, income, and rural health disparities. It would also serve to tie one of America’s most marginalized constituencies (Medicaid enrollees) with one of its most powerful (Medicare beneficiaries). In the absence of federal action, states could try other policy levers to increase provider participation in Medicaid—for example, mandating that providers who serve public employees also agree to serve those with Medicaid. Other policies, such as implementing a cap on commercial insurance payment, might also have the effect of narrowing relative prices paid for Medicaid and privately insured populations and making providers more likely to accept Medicaid patients.

Still other approaches to improve access and equity in Medicaid might target features outside of payment levels. For instance, administrative burdens for providers and patients may be barriers to care. Providers experience more hassles in receiving payment for Medicaid patients than for patients with private insurance or Medicare. Furthermore, Black, Indigenous, and people of color (BIPOC) Medicaid patients who have experienced historical and contemporary structural racism often present with unfavorable social circumstances requiring extra time and attention by providers, a situation that exacerbates frustrations related to lower payment rates and greater administrative hurdles. Medicaid beneficiaries and BIPOC individuals, across insurance modalities, report experiencing greater burdens and associated care delays than those with private insurance or Medicare, and more than non-Hispanic white people, respectively. Racism also may play a role; researchers have shown that physicians have been less likely to accept Medicaid in racially segregated areas and places where the poor are less likely to be white. States could use their Medicaid managed care procurement practices to advance health equity more aggressively. For instance, Minnesota’s recent bidding process for Medicaid managed care plans explicitly evaluated bids on the basis of how plans addressed structural racism and attempted to eliminate disparities.

The Medicaid program is critically important for the health and health care of marginalized populations, yet its tight budget contributes to structural racism and other inequities in health care. Putting its provider payments more on par with other payers will promote health equity, but will cost society more money. The question is whether we as a society—and specific states in particular—are willing to allocate more resources that would narrow these inequities.

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