Is Medicaid Real Insurance?

As governors across the land pepper the federal government with requests to scale back Medicaid — many people are losing sight of the fact that health care reform (what some call ObamaCare) requires a huge expansion of Medicaid.

In fact, in just three years the nation is expected to start insuring about 32 million uninsured people. About half will enroll in Medicaid directly; and if the Massachusetts precedent is followed, most of the remainder will be in heavily subsidized private plans that pay little more than Medicaid rates.

That raises an important question: How good is Medicaid? Will the people who enroll in it and in private plans that function like Medicaid get more care, or better care, than they would have gotten without health reform? The answer to that question is not obvious. In fact it’s probably fair to say that we are about to spend close to $1 trillion over the next 10 years insuring the uninsured and we really don’t know what we expect to accomplish by spending all that money.

The 32 million newly insured may not get more health care. They may even get less care. And even if they do get more, odds are that low-income families as a group will get less care than if there had never been a health reform bill in the first place. The reason: the same bill that insures 32 million new people also will force middle- and upper-middle-income families to have more generous coverage than they now have. As these more generously insured people attempt to acquire more medical services they will almost certainly outbid people paying Medicaid rates for doctor services and hospital beds. To make matters worse, the health reform bill (following the Massachusetts precedent) did nothing to increase the supply side of the market to meet the increased demand.

Both anecdotal and scholarly reports from Massachusetts are consistent with this prediction. The wait to see a family doctor in Boston is now longer than in any other US city. More people are going to emergency rooms for their care in the state than before Massachusetts enacted its health reform. A Boston cab driver went through a list of twenty doctors (a list Medicaid gave her!) before she found a doctor who would see her. A preliminary report on the state as a whole found that nearly a quarter of adults who were in fair or poor health reported being unable to see a doctor because of cost during the implementation of the reforms. Further, state residents earning less than $25,000 per year were much less likely than higher earners to receive screening for cardiovascular disease and cancer.

That brings us back to the initial question: Is Medicaid real insurance? Or is there little practical difference between being on Medicaid and being uninsured? It would appear at the margin that there’s not much difference.

Currently there are roughly 10 million people in the U.S. who are eligible for Medicaid and S-CHIP but have not bothered to enroll. That implies that for about one in every six eligibles, Medicaid insurance is not worth the effort it takes to fill out the enrollment papers!

Consider the case of Dallas emergency rooms. At Parkland Memorial Hospital both uninsured and Medicaid patients enter the same emergency room door and see the same doctors. The hospital rooms are the same, the beds are the same and the care is the same. As a result, patients have no reason to fill out the lengthy forms and answer the intrusive questions that Medicaid enrollment so often requires. At Children’s Medical Center, next door to Parkland, a similar exercise takes place. Medicaid, S-CHIP and uninsured children all enter the same emergency room door; they all see the same doctors and receive the same care.

Interestingly, at both institutions, paid staffers make a heroic effort to enroll people in public programs — (going patient by patient, family by family) right there in the emergency room. Yet they apparently fail more than half the time! After patients are admitted, staffers go from room to room, continuing with this bureaucratic exercise. But even among those in hospital beds, the failure-to-enroll rate is significant.

Clearly, Medicaid enrollment is important to hospital administrators. It determines how they get paid. Enrollment may also be important to different sets of taxpayers. It means federal taxpayers pay more and Dallas County taxpayers pay less. But aside from the administrative, accounting and financial issues, is there any social reason we should care?

Economics teaches that people reveal their preferences through their actions. If people act as though they are indifferent between being uninsured and being on Medicaid, we may infer they are equally well off in both states of the world from their own point of view. If someone drops a $20 bill on the floor in Parkland’s emergency room, how long do you think it would stay there?  Probably not very long. If someone drops a Medicaid enrollment form on the floor, how long do you think it would stay there? Probably until the next janitor comes along with a broom.  Health economists tend to think Medicaid insurance is really valuable – worth a lot more, say, than $20.  Many patients, through their actions, communicate that they disagree.

Against this conclusion, there are two counter arguments worth considering. First, some claim that transactions costs (administrative difficulties) are the real reason why so many eligibles don’t enroll. At Parkland and Children’s Hospital those costs are close to zero, however. Second, there is the argument from paternalism: that people will be better off if we push them into Medicaid, whether they prefer it or not.  But even on that score, the evidence is weak. A very comprehensive  RAND study, found that the type of insurance people have — or whether they are insured at all — does not affect the quality of care they receive. With respect to cancer care, it is unclear that Medicaid matters very much. Health blogger Avik Roy summarizes other studies that find that Medicaid patients do no better and sometimes worse than the uninsured. Additional evidence is supplied by Scott Gottlieb. If you’re trying to get a primary care appointment, it appears your chances are better if you say you are uninsured.

Health economist Austin Frakt takes issue with these studies, claiming that Medicaid and non-Medicaid populations are fundamentally different, even after adjusting for race, income and other socio-economic factors. That claim seems improbable — at least at the margin — however, in light of the heavy ping-pong migration of people in and out of Medicaid eligibility. Frakt points to some studies finding that Medicaid makes a positive difference over being uninsured. But the results would probably have been just as good or better if we spent the money giving free care to vulnerable populations. Moreover, even with their Medicaid cards, enrollees turn to emergency rooms for their care twice as often as the privately insured and the uninsured.

Austin and I have had a further volley (at his blog and mine) after a version of this Alert appeared at Kaiser Health News last Friday.

Here’s my bottom line: after we get through spending our $1 trillion under ObamaCare, there is no convincing reason to believe that the bottom half of the income distribution will have more care, better care, or better access to care than they have today.

Comments (34)

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  1. Neil H. says:

    Great post. Of course it’s not real insurance.

  2. Larry says:

    I agree with your bottom line, in so far as, we probably won’t have meaningful measures of the results for ten years.

    At the outset of your post you talk about the lack of suppliers to serve the lower income market effectively. I do think that the advent of health reform MAY be energizing free market innovation in several areas including telehealth, having healthcare workers more often work at the top of their respective licenses and delegating less skilled work to the next lower level of suppliers.
    Of course you could argue that this innovation would be happening even without health reform as supplier shortages (e.g., physicians and nurses) begin to crop up as we baby boomers age.

  3. Vicki says:

    You convinced me. I don’t want to be on Medicaid. And I feel sorry for all those people who are going to be forced into it.

  4. Jennifer S. says:

    One thing that I didn’t see addressed here is the cost of prescriptions. Aren’t people enrolled in Medicaid more likely to keep up with their maintenance medications as opposed to the uninsured?

    That aside, with any kind of government program, there needs to be oversight – which apparently has not been happening in MA with their Free Care program, a component of Romney Care – see this recent article in the Boston Herald:

  5. Devon Herrick says:

    Many physicians feel they have a moral obligation to treat some Medicaid patients as an act of charity. I worry that if Medicaid becomes a lower-middle class entitlement, many of these physicians might conclude Medicaid has expanded beyond its original mission and decide to stop accepting new Medicaid patients.

  6. Nancy says:

    Charity health care under a different name (Medicaid) is still charity health care.

  7. Simon says:

    Good points Dr. Goodman. Consider the Emergency Medical System as an extension of the Emergency Room. Studies have shown that abuse is as high as 80% in the public insured, whereas below 20% for the privately insured in ambulance transports. There are perverse incentives for the crew to transport individuals, as reimbursement rates are generally based off of transporting to the hospital. The service is available to anyone regardless of insurance type. Studies have shown that on average ambulance companies lose money on transporting individuals on public insurance. If you are a wise ambulance manager, you will seek out non-emergency contracts with groups with certain level of insurance (ie. Inter-facility transfers, skilled nursing facilities) to offset the cost of providing care to everyone. This revenue stream is essentially rationing care by staffing these transfers, and minimizing the emergency response force. As you say without addressing the supply side, similar effects will be seen traditional health care. I believe this may also support your argument that at the margin there is little difference between Medicaid and the uninsured.

  8. Lori Conway says:

    What has our country come to???? Breaks my heart for my children and their children

  9. Linda Gorman says:

    Jennifer S:

    Changing the price of some drugs in the range from $0-$15 seems to have modest effects on adherence. The clinical effects are, for the most part, still open to question. Part of the problem is that there are various measures of medication adherence and they do not necessarily agree. Nor do they tell whether people actually took the drug in their posession or sold it off or lost it, etc.

    Personal characteristics may matter more than cost. For example, Bagchi et al. found that 15.2% of the Medicaid patients in four states were not using any of their prescribed meds. And the costs, of course, were minimal because these people already were on Medicaid.

  10. Bruce says:

    NO. It’s not real insurance.

  11. Hal says:

    If one asks the question ” is Medicaid real insurance?” and the answer is yes, then the logical next question would be: “is Welfare a job?”

  12. John Goodman says:

    This is Jason Shafrin at his blog on this same subject:

    “The lesson is that simply expanding insurance coverage is not the same as improving the quality or quantity of medical care.”

    See full post here:

  13. Robert Kramer says:


    The answer to your query about funding Medicaid gets more basic than worrying about the $32M cost. We as physicians need to put honesty and integrity as the number one priority, with the standard of care utilizing best practices a close second. It has been estimated that by practicing medicine to insure that what transpires is necessary, and to deny the “medicine on demand” of so many people who want unreasonable therapies and medications. How often do I hear that a patient calls and says “send me a Z Pack” for a cold, or “I sprained my ankle and I want an MRI”. The amount that could be saved by monitoring performance of the medical profession and giving in to patient demands is staggering.

    I’ll write more when I have a bit more time.

    Dr Bob Kramer

  14. Frank Timmins says:

    Dr. Kramer, please do write more. When you refer to patients who demand a Z pack or want an MRI (and how monitoring physician performance could save money), are you talking about only Medicaid patients or your entire patient base?

  15. Frank Timmins says:

    John Goodman

    When you note the reticence of those persons being treated in the Parkland ER to sign up for Medicaid (even at the insistence of those treating them), isn’t it possible that a great many of those people are illegals who certainly would not be interested in signing any forms)? If so, does that not skew the point or bring up an entirely different question?

  16. Brian Williams. says:

    Not only isn’t Medicaid real insurance, I’m not sure whether private health insurance (as we know it) is real insurance. Real insurance mitigates and limits risk. Or at least it quantifies the risk so you can plan for it.

  17. TR Bill says:

    Fundamentally different? Really, you need to re-investigate current data. Millions whose livelihood depended on the mortgage and real estate market have been hit hard by our current situation. I myself was recently forced to put my children on medicaid, mainly because I have a daughter with cystic fibrosis. I have a college degree and am preparing for grad school. I am sure I am not the only educated person on medicaid. Further, I would like to assure you that those who are truly ill do receive optimum care. I would suggest, for those “ping pong” recipients, a sliding scale copay. It would be a small price to pay for uninterrupted care.

  18. Erik says:

    Medicaid is insurance as it guarantees payment to the provider on behalf of the patient. It might not be the level of income desired. But these are hard times.

  19. George says:

    Great post , John
    Witness your statement “…if we just spent the money giving free care to vulnerable…”
    There is, as you know, no such thing as free care, unless you mean by “we” the physicians, nurses, and hospitals. If “we” includes politicians, financialists, and industrialists, the giving becomes the taking. Absent true charity care by those competent to act in healing ways, the taking must be coercive.

  20. John Goodman says:

    Greg Scandlen weighs in on this post at his blog here:

  21. Jennifer: Linda is right. Med. compliance is abyssmal in any population. I’ve heard about 40% but don’t quote me. In the Medicaid population, it’s even worse..access problems every month (Catching buses/a ride to the pharm., financial probs mostly b/c they can’t take off work b/c they need the $$, childcare, working parents..etc

    Devon: Many patients are proud and don’t want hand-outs. They have enuf self-esteem problems as it is. I find that many will pay a monthly fee for unlimited access to primary care by cell, txt, email or office visits. Medicaid highlights the fee for service problem. They can afford cell phones, cars, $4 gas, cigs, flat screen TV’s…they can afford monthly fee- for-care service.

    Match $2/day by the state with a health stamp (~ to a food stamp) to $2/d by the patient and a state would save millions…..and keep people out of the hospital and decrease Rx costs.
    100,000 people x $2/d = $73,000,000/year…

    Pt’s match the the states $73 million with $2/day…

    It would only take 200 primary care physicians to care for them….

  22. Simon: U r dead on. I’ve seen people brought to the ER complaining only of hemorrhoids…unbelievable.
    In Fort Worth, they have been innovative in addressing the problem. They have identified a subset of frequent fliers that come for dinner regularly and they get out of the cold.
    They contact them regularly and address their few needs and decrease their abuse of the system.

    Erik/Brian…there is no such thing as health insurance. It’s accident/sickness insurance

  23. Greg,
    The fine proposal offered by TXPPF is well-intentioned. But TEXHEALTH, as usual,highlights lack of innovation and the waste in government. Defined contribution or benefit plans don’t increase ACCESS to anyone. Our state has tremendous access problems to PCP’s. Wait til there are 4 mill more patients. Where will the Docs come from?

    If you want to change the dynamic, then pass a law in the state of Texas that will allow primary care physicians with pre-paid annual fees to be “medical care”. A defined set of practice models would qualify PCP’s..(family physicans/internists) to be the only ones allowed to accept the health stamp. (eg <600 patients, 24/7 access to their physician – phone, email, txt, etc.)

    The example is even better.
    It would take only take about 6,500-7,000 PCP's to take care of 4 million people.

    4 million patients paying $2/day = $2,920,000,000/year
    The State matches it……cost is..$2,920,000,000/year

    Let's see …if I were a politician, would I want to pay $11,300,000 in subsidies to low income Texans or $2,920,000.
    That doesn't even include long-term services, support, implementation and administration costs…

    Innovation is needed…not the same old waste….

  24. oops
    $11,300,000,000 vs $2,920,000,000…

    An obvious mistake….I’ve never counted that high.

  25. John Goodman says:

    @ Larry

    There is a difference between nurses and paramedics being an assist to good medical care and using them as a substitute for good medical care. It is the latter I fear we are headed toward.

    @ Simon

    There are lots of studies that confirm your observations. Medicaid all too often is a license to steal.

    @ Dr. Kramer

    You want to take away my Z Pack? How cruel.

    @ Frank Timmins

    Some of the Parkland patients (maybe a lot) may be illegal. But, remember, on proding 50% do sign up in the emergency room and once admitted I think they hit 80%. So being illegal is not the main problem here.

    @ TR Bill

    If your children got good medical care, I’m glad. However, some studies show that there is a difference between the outcomes for Medicaid enrollees and the privately insured.

    @ Chris Ewin

    I like your idea. But don’t restrict it. Let any innovator on the supply side approach Medicaid with proposals to repackage and reprice primary care services.

  26. Greg Scandlen says:


    Interesting idea, but workforce shortages are the easiest thing in the world to fix. Pay more and regulate less and you will have more primary care physicians (or accountants, or lawyers, or plumbers, or economists.) There is absolutely no mystery to it.

    Give the people back their money and they will spend it on the goods and services that are important to them. If this happened for the entire population, physicians could afford to serve the poor at lower cost.

  27. Greg,
    The pay more, regulate less just isn’t working.
    PCP’s have been doing the annual beggathon to Congress to no avail until recently b/c they are finally realizing that we do the workload and take care 80-85% of patients needs…not to mention the preventive treatment for chronic diseases.

    The regulations are still there and the middleman is too…maybe worse with ACO’s.

    The goods and services they buy are cigarettes, McDonalds, cell phones, etc…
    A half gallon of gas or 7 cigarettes isn’t much to pay for unlimited access to a PCP who knows you.

    The prob…not enuf PCP’s that are willing to have a more efficient/productive/satisfying business model.
    Why: poor business skills, afraid to leap off the cliff (although their is a ledge 3 feet down)…

    You have to know how to run a business. It’s the overhead that’s killing primary care. The 2 biggest costs….salaries and space…
    My old cattle chain practice overhead was over 60%…
    Now it’s less than 20%…
    Most importantly…it’s the quality of care we have treating our patients…

    I serve the poor…
    I had 2 heroine addicts in my office today on Methadone since the late 80’s…
    Another 22 yo single, unemployed Mom with her 9 month old hooked on Vicodin…
    They can afford it…
    One patient 2 weeks ago was spending > $40,000/year on his habit…

    They can afford it if we can keep our overhead down and charge a price that the patient/consumer decides whether it works for them….

  28. Albert Bryson, Parkesburg, PA says:

    I want to go on record say to everyone I think Medicaid stinks. The way it is being funded hurts people. To maintain Medicaid in Pennsylvania our incompetent governor is forced to cut spending for higher education in our state by 50% in one year. I rather not have to have Medicaid system in place and do that kind of drastic cut to higher education. Wake up folks we need to put an end to Medicaid, Medicare, SCRIP, and of course the new Obamacare system. We can’t afford it.

  29. jmitch says:

    Dr. Goodman:

    This is a great post and I agree with you about Medicaid as false insurance. And whether you intended it or not (I doubt you did), you make a great argument for reform centered on a universal single-payer healthcare system.

    Medicaid patients use the ER for non-emergent primary care because (1) it’s free at the point of service (vs. paying a nominal co-pay at the PCP’s office; who’d want to do that?); it’s available 24/7 (why take time off from work or daily activities, better to come at night); (3) perceived higher level of technology than at the PCP’s office (and again, it’s free to them); (4) the perception of getting non-judgmental care vs. being treated as second-class patients at the private PCP’s office.

  30. Alieta Eck, MD says:

    I testified at a US Senate health subcommittee hearing last week where Bernie Sanders was not eager to spread the idea of non government free clinics as a cost-effective substitute for Medicaid. Medicaid costs the taxpayers so much, giving so much to managed care companies and federally qualified health centers, yet they do not pay the physicians.

    In NJ we are suggesting four hours physician volunteer service per week in a free clinic in exchange for state medical malpractice coverage for our whole practices. “I think doctors should be paid for what they do,” he said. But he was not interested in allowing me to elaborate. Watch NJ.

  31. Janice Place says:

    I had open-heart surgery. I cannot work now. I did before this. My income is 1,400.00 a month W/ my Husband of 31 year’s , who had been a master carpenter. He now works at Wal-Mart for 9 dollars an hr. at night’s. I get a big 286.10 from Social Security a month. He is a Vet. We paid off 2 Homes, and 3 cars, before my surgery, THANK GOODNESS!!! We were not slouche’s. So I become upset , when some people say all the poor are lazy etc. We were NOT….

  32. Alieta Eck, MD says:

    Here it is– one year after John Goodman’s original post. In NJ, we are developing the concept I discussed last May– non government free clinics where physicians donate four hours a week and the state protects us for medical malpractice in our private practices.

    Simple, elegant– with better care for poor patients, real malpractice relief for physicians and the unraveling of the expensive Medicaid bureaucracy. No billing, no coding, no paperwork–just free care for the poor.

    Baby boomers are retiring at the rate of 10,000 per day. They can set up and run the clinics under the charity status of their churches, synagogues, the Salvation Army, the Kiwanis. And the poor will find that they are treated as individuals, not Medicaid numbers.

    The government cannot provide medical care. It can only coerce, meddle, restrict and underpay for services it promises to provide. Doctors and nurses can provide care to the poor for free–the community needs to just help us and protect us.

  33. Shane says:

    You shouldn’t worry. I had Medicaid for both of my prcneagnies and the care I received was excellent. Care givers cannot discriminate due to what kind of insurance a person has. Medicaid is a type of insurance, and as long as they know they are getting paid, they will be fine. Why would they want to risk losing payment, or risk a lawsuit for inferior care. Don’t worry and just enjoy the pregnancy with your wife.

  34. julie stephanie says:

    It depends i mean there are many who have successfully enjoyed there benefits of medicaid and there are even few who have not reached the benefits which they have been promised for !