Center for American Progress

Building on Success: The Role of Public Coverage Programs in Health Reform

Building on Success: The Role of Public Coverage Programs in Health Reform

Public health insurance programs may not be perfect, but by improving on their strengths and fixing their weaknesses, they can be a solid foundation for health care reform.

In This Issue

If It Ain’t Broke, Use It: Expanding Public Programs in Health Reform

TennCare Medicaid

SOURCE: AP/Wade Payne

TennCare, Tennessee’s Medicaid program, recipient Terry Shields sits at his kitchen table in Jamestown, Tenn., with some of the prescription drugs he needs to survive.

Public health insurance programs—notably Medicare, Medicaid, and the State Children’s Health Insurance Program—have evolved to insure people with the greatest health needs or the least resources. These programs cover one out of every four Americans, including the elderly and the disabled under Medicare; low-income families, the elderly, and the disabled under Medicaid; and low-income children and parents under SCHIP. The federal government also provides health benefits to federal employees, American Indians and Alaska Natives, military personnel, and veterans, while state and local government manage health benefit programs for their employees and some low-income populations.

Despite their proven success, some question what role, if any, public programs should play in a reformed health system. Some believe that public programs have no role in health reform. They argue that private insurance and market forces will ensure seamless, affordable, and quality health coverage. Others see the flaws in public programs and would choose to eliminate them altogether rather than improve them as part of a broader reform effort. In contrast, advocates for public program expansions argue that there are inherent limitations to private coverage, and that reform should focus on expanding public programs to ensure that all working families have health coverage that meets their needs.

The line between public and private coverage has blurred in recent years. Medicare, Medicaid, and SCHIP all use private health plans to cover at least some of their enrollees. While the federal government funds approximately 75 percent of the health care premiums for its employees through the Federal Employees Health Benefits Program, it contracts with private insurers to provide the coverage.

Despite the complex and overlapping roles public and private payers play in our health insurance system, rhetoric in the health care reform debate suggests stark divisions. Conservatives demonize the role of public coverage while emphasizing the sanctity of private coverage, while progressives have accused private insurers of seeking profit at the expense of care and, sometimes, lives.

Reviewing the success of public programs will be critical to the growing discussion about health care reform. This does not mean that public programs are perfect. Medicaid, for example, must be transformed and strengthened in several areas, including by ensuring enrollees access to providers and specialists. Medicare faces significant controversy around its provider reimbursement rates and Part D payment rates. And SCHIP could use a more equitable formula for dispersing federal funds to the states.

In health reform, we now have a vital opportunity to capitalize on what works and improve what does not in public programs. The achievements of private insurance should also be considered and incorporated into any effort to transform the system. As Jeanne Lambrew, the new deputy director of the White House Office of Health Reform explains, "The question is not whether or not there should be a public plan role in health reform, but instead what balance of public and private plans best moves the system toward affordable quality coverage for all.”

Public programs today and in the future

Since 1965, seven public programs have emerged to cover various segments of the population. Medicare initially insured the elderly and soon added coverage for individuals with disabilities. Medicaid, a state and federally funded program, evolved to cover low-income families, seniors, and individuals with disabilities. The State Children’s Health Insurance Program, enacted in 1997, covers children in families with too little income to afford private insurance but too much income to qualify for Medicaid.

The government provides health insurance to military personnel and veterans through TriCARE and the Veterans Administration, respectively. Federal workers also receive health benefits from the government under contract with private health insurance plans. These programs combined insure more than 25 percent of the American population and finance 45 percent of the health system, including the safety net programs that directly pay for services for the country’s most vulnerable populations.

These public programs serve the following five functions:

Making health coverage more affordable for low-income Americans

Many low-income Americans can afford neither coverage nor health care. Financial barriers to accessing health care lead to unmet health care needs, delayed diagnosis and treatment for chronic conditions, and worse overall outcomes. Health coverage through public programs tends to be generous; it accounts for the fact that limited benefits and significant copayments could make needed health services unaffordable to an individual with limited financial resources.

Medicaid and SCHIP, for example, offer coverage to income-eligible individuals in federal- and state-defined categories at minimal cost-sharing, thereby increasing access to care. Children covered by these two programs are more likely to have a usual source of care than uninsured children, more likely to have seen a physician in the last two years, and more likely to have had a dental visit in the past two years. Medicaid and SCHIP have also significantly improved access to and reduced disparities in care.

Providing coverage to our most vulnerable populations

Public programs insure a disproportionate percent of Americans with disabilities or severe health problems, and individuals with limited income or savings. Medicaid, for example, covers individuals who qualify for Supplemental Security Income due to a disability. Medicaid beneficiaries with disabilities account for 16 percent of enrollees but 45 percent of benefit spending. Program improvements can still be made, but Medicaid’s services have adapted to this population’s needs, covering home- and community-based long-term care as well as support services like targeted case management and rehabilitation services. Additionally, Medicaid provides extra help with premiums, cost-sharing, and services not covered by Medicare for millions of low-income Medicare enrollees known as "dual eligibles.” Medicaid also covers more than 60 percent of nursing home residents and finances 40 percent of all long-term care spending in the nation, including 43 percent of nursing home care.

Serving as an economic support

Medicaid and SCHIP also help more Americans during recessionary periods when unemployment rises and job-based coverage and income fall. Eligibility for both programs grows in hard economic times. Currently, the weak economy and steady erosion of employer-based health coverage have caused a growing number of adults and children to lose coverage. However, fewer have become uninsured due to Medicaid and SCHIP.

These programs, along with Medicare, support the health care safety net. Public hospitals and community health centers, which directly provide health care to individuals without health insurance, depend on public programs for survival. Medicaid dollars are the largest source of third-party payment to community health centers—37 percent of the operating revenues. Similarly, Medicaid provides 34 percent of public hospitals’ net revenues.

Managing risk for high-cost individuals

Public programs enroll far more high-risk individuals, and public program enrollees tend to be sicker than those in private health insurance. In 2005, more than one-fourth of adult Medicaid enrollees reported being in fair or poor health, compared to one-eighth of low-income adults enrolled in private insurance. These Medicaid enrollees also were more likely to suffer from a chronic disease or face limitations in completing daily tasks. In this same year, more women and minorities were also enrolled in Medicaid—two populations that are associated with higher medical expenditures.

The need for health care services generally increases with age: The per capita health cost for seniors is 3.3 times higher than that for other adults and 5.6 times higher than that for children. Medicare, by providing health coverage to the elderly, bears those higher costs. Because risk varies within the Medicare population, the program utilizes risk adjustment to pay private plans more (or less) depending on the likely cost of enrollees. This process helps to mitigate the problem of adverse selection in the Medicare Advantage program by lessening the private plans’ incentive to avoid enrolling people with health problems, although the technical and political challenges of risk adjustment are substantial.

Keeping administrative costs low

Public programs operate more efficiently than private insurance. For example, both Medicaid and Medicare have low administrative costs compared to private insurance. Research shows that medical costs paid by insurance are higher under private coverage than under Medicaid. This is likely due to Medicaid’s lower administrative costs. Medicare is also repeatedly recognized for its low administrative costs. In 2007, approximately 1.5 percent of all of Medicare expenditures went toward administration, a significantly lower figure than for private insurance.


A reformed health system will likely include both public and private coverage choices. Public programs are not perfect, but current health reform proposals provide an opportunity to expand on their strengths and improve weaknesses—not to do away with them completely.

Public programs have often led the way in systemic change. Medicare’s policies toward hospital desegregation and access to appropriate language translation and interpretation services have transformed access to care for many racial and ethnic minorities. The Veterans Administration was among the first to use personal medical records and health information technology. Medicare is again taking the lead in improving quality by ending payments for "never” events, which are serious yet preventable incidences that can be costly, such as operating on the wrong body part.

Public programs will play a critical role in health reform, and reform is an important opportunity to improve the health safety net. Reform should expand eligibility for public programs and ensure that people can easily enroll in and keep public coverage. To ensure success, provider rates should not only be increased, but also reformed to give providers incentives to coordinate care, including through medical homes for patients, where their primary care physician takes the lead in managing and coordinated care. Public programs should be leaders in designing and implementing disease management initiatives that will help the millions of Americans with chronic conditions get and stay healthier. These improvements can drive health system changes that will be critical to the success of comprehensive health reform.

For additional reading

Building Blocks for Reform: Achieving Universal Coverage with Private and Public Group Health Coverage Health Affairs, May/June 2008.

Using Medicare as Part of Coverage Expansion, Alliance for Health Reform, June 2008.

Jeanne Lambrew, "The Role of Public Programs in Health Reform," Testimony to the U.S. Senate Finance Committee, June 2008.

Center on Budget and Policy Priorities, Expanding Medicaid: A Less Costly Way to Cover More Low-Income Uninsured than Expanding Private Insurance, June 2008

Point-Counterpoint: Strong public programs should be part of health reform

Point Counterpoint The bottom line
Health reform that ensures affordable, quality health coverage will remove the need for public programs. Public programs ensure that vulnerable populations such as the elderly, individuals with disabilities, and individuals with low-incomes have access to health coverage. Even with comprehensive health reform, gaps in coverage will persist in a purely private market. Few insurers, for example, operate in rural areas that require the involvement of public programs to ensure coverage. Even the insurance industry does not propose eliminating public programs for low-income and other vulnerable populations in its health reform proposals.
Spreading risk across the population could be achieved without public programs. Public programs help spread risk across the population through community rating, which limits how much insurers can charge based on age or health status, and guaranteed issue, which provides insurance to all applicants. In the absence of comprehensive regulations to govern private insurance, the need for public programs to balance risk will persist.
Health care providers, particularly specialists, are increasingly exiting Medicare and Medicaid due to low reimbursement rates. Public plans, including Medicaid and Medicare, must ensure that their enrollees have access to needed health care providers and facilities. Public plans have limited resources. They must carefully consider and evaluate how to spend those resources, including determining whether payments are too high in some cases (provider payments in Medicare Advantage, for example) and too low in others (participating dentists in Medicaid).
Individuals in public coverage programs have poor health care outcomes. Investing in public programs is an opportunity to increase the quality of care delivered. Individuals with Medicare have high success rates in health outcomes. Additionally, Medicare is leading the charge in not paying for “never events,” serious yet preventable incidences, which will encourage better safety in clinical practice.
Programs such as Medicaid lock low-income individuals into weak coverage. Without Medicaid’s comprehensive insurance package, low-income individuals would be uninsured. Medicaid and the public programs it funds include facilities and programs that have expertise in cultural competency and provide the bulk of medical education and trauma care in the country.

In the News

Market Watch, "Three-Quarters of Americans and Industry Leaders Want Health Care Reform in President-Elect Obama’s First Term," Press release, November 20, 2008.

According to a recent survey, "Health industry leaders were in close agreement on how to expand access, their top reform priority for the president-elect. Nearly three quarters (74 percent) support a mandate for all employers to offer health benefits or contribute to the cost of a public program to expand access.”

Robert Pear, "Senator Takes Initiative on Health Care," The New York Times, November 11, 2008.

Senator Max Baucus (D-MT) unveiled a detailed health care proposal that guarantees health insurance for all Americans. One key element of his plan is to expand public programs, such as Medicaid and Medicare.

The Last Word

"…[a] mixed private–public system of universal coverage with seamless coordination across sources of coverage could transform both the financing and delivery of health care services. Such a system would build on the best that private insurance and public programs have to offer and achieve needed savings and ensuring access to needed care for all.”

Karen Davis, President of the Commonwealth Fund, Testimony to the U.S. Senate Finance Committee, June 2008.

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