What Iowa Policy Makers Need to Know about
Medicaid and Medicaid Expansion
by Charles Bruner
DRAFT February 20, 2013
As Iowa lawmakers decide whether to expand Medicaid to currently ineligible adults earning up to 138 percent of the
federal poverty level, a number of questions have been raised about the current scope of Iowa’s Medicaid program,
the services it provides, its cost and the federal government’s historical and future commitment to Medicaid.
Iowa has a long history of partnering with the federal government in developing and operating the state’s Medicaid
program. The following provides a background on that history and the growth and management of Iowa’s Medicaid
program over time.
Q. Who administers Medicaid and is responsible for
Iowa’s Medicaid matching rate has varied over time,
managing the program to ensure it is cost-effective?
based on Iowa’s economy and poverty rates—from a low
A. Medicaid is a partnership between state and
federal governments, with the state responsible for
administration, effective management and making
most of the coverage decisions. The federal
government established broad guidelines and picks up
a large share of the cost.
Iowa is responsible for setting up its Medicaid program
according to federal guidelines, but Iowa plays the major
role in administering and managing the program. Through
the legislative process, the Governor and the General
Assembly make decisions on coverage options, payment
of 52.0 percent in FFY 1972 to a high of 65.0 percent in
FFY 1992. Since FFY 1982 to FFY2012, Iowa’s rate has
varied between 55.2 percent and 65.0 percent. The FFY
2012 rate was 60.7 percent.
In addition, as part of the American Recovery and
Reinvestment Act, between 2009 and 2001, the federal
government provided additional temporary assistance to
states to help them maintain their Medicaid programs
despite state budget deficits. Iowa received over $400
million in supplemental federal payments on top of the
above rates in that period.
rates and expansion or changes to program eligibility.
Q. What has been the federal government’s
commitment to financing Medicaid over time?
A. Since establishing Medicaid in 1965, the federal
government has kept its commitments to states in
providing the majority share of funding through a
funding formula based on state fiscal well-being. The
federal government has maintained this formula for
over four decades.
Q. What have been the changes in and growth of
Medicaid over time?
A. Under Democratic and Republican administrations,
the federal government has continuously supported
Medicaid and offered new options to states to expand
coverage. Expanding Medicaid to all adults (including
childless adults) earning up to 138 percent of poverty,
part of the Affordable Care Act, is the latest option.
When Medicaid began, eligibility for parents and children
coverage for people with developmental disabilities.
was tied to welfare eligibility. In the 1980s the federal
Through Medicaid expansion, there are additional
government permitted states to expand coverage to
opportunities to cover costs now assumed by counties
pregnant women and infants up to 185 percent of
and the state, particularly for mental-health services.
poverty regardless of welfare participation. Medicaid also
established new provisions enabling states to provide
home- and community-based services, as well as care in
intermediate-care facilities, to people with disabilities.
The Child Health Insurance Program, established in 1997,
allowed states to expand Medicaid or provide coverage
through private insurance (or a combination of the two,
as Iowa did) to children up to 300 percent of poverty.
Recently, the Centers for Medicare and Medicaid Services
approved a number of state waivers to cover childless
adults under Medicaid. Iowa was one of the first states to
Q. Who does the Iowa Medicaid program serve
today and what has been driving Medicaid costs?
A. The majority of people served under Medicaid are
children, but children account for a very small share of
the costs. The primary costs for Medicaid are in
serving persons with disabilities, including nursing
home care for seniors and institutional care
arrangements for people with mental illness,
profound physical conditions or mental retardation.
adopt the Family Opportunity Act, championed by Sen.
Iowa has been a leader among states in ensuring health
Chuck Grassley, which provides additional coverage for
coverage for children, primarily through expanding
children with major special health care needs.
Medicaid coverage up to 185 percent of poverty and
hawk-i up to 300 percent of poverty. This has reduced the
Q. What has Iowa done in terms of adopting
number of uninsured Iowa children. In fact, Iowa has one
changes and how has this supported Iowa’s efforts to
meet Iowa health needs?
the nation (although 5.7 percent remain uninsured).
A. Iowa has taken advantage of prior opportunities to
expand Medicaid—in many instances covering
individuals who previously had received care through
county- or state-funded indigent programs or state
mental health institutes and hospital schools.
of the highest rates of child health insurance coverage in
Most children still are covered under employersponsored family health plans, but because of rising
costs, this option has been increasingly less affordable,
both for lower-wage workers and many employers.
Today, more than three in 10 Iowa children are covered
by Medicaid. Children represent over half of all people on
Through legislative action, Iowa has taken advantage of
Medicaid, but consume less than one-fifth of Medicaid
many opportunities to expand Medicaid, starting by
costs.
covering pregnant women and children up to 185 percent
of poverty in the 1980s. Iowa also expanded Medicaid to
cover care provided in state mental health institutes and
hospital schools, which previously had been financed
entirely with state and county funds. Iowa was noted for
helping to create home- and community-based waivers,
in what has been known as the Katy Beckett program,
that allow children to receive medical care at home
rather than requiring them to be hospitalized. Other
Medicaid expansions, including the IowaCare waiver,
eliminated the need for the state to fund the indigent
patient program and reduced county costs in providing
The major costs in the Medicaid program are covering
adults (and select children) who simply cannot care for
themselves and are in institutional settings, including
intermediate-care facilities (nursing homes) for the
elderly, infirm and mentally retarded, state mental-health
institutes and state hospital schools. Prior to Medicaid
coverage, these individuals often were in county care
facilities and shelters or homes supported by local or
state funds or charity. People receiving supplementary
security income (SSI) for major disabilities are eligible for
Medicaid, and Iowa’s Medicaid program has developed
additional home health care and treatment programs
designed to prevent the need for institutional placement.
costs, and overall cost increases have been low
relative to private insurance.
In addition to covering children, the Medicaid program
Medicaid costs have risen more slowly overall than
covers prenatal services for pregnant women. Medicaid
private health insurance costs, and the cost of
currently covers approximately half of all births in Iowa.
administering Medicaid is well below that of private
Without this coverage, these women would not be able
health insurance plans. Medicaid also has streamlined its
to afford prenatal services. In fact, prior to Medicaid
eligibility process through opportunities in the Child
expansion, childbirth was covered through the state
Health Insurance Program Reauthorization Act (CHIPRA)
papers program, which required women to travel to the
and has substantially upgraded its Medicaid data system
University of Iowa Hospitals from across the state to give
through over $40 million in funds for such activities
birth. Expanding Medicaid enabled women to receive
through the Affordable Care Act.
prenatal care and give birth in their home communities.
Q. Does the federal Medicaid program allow states
Q. What would it cost Iowa to expand Medicaid to
to develop more cost-effective services?
adults up to 138 percent of poverty compared with
maintaining the status quo?
A. The federal Medicaid program also has provided
A. The latest opportunity to expand Medicaid
states flexibility, and incentives, to develop more costeffective care. Iowa was one of the first states to take
advantage of new enhanced federal funding (90
percent federal match) to provide health homes for
patients with chronic health conditions.
contains a much higher federal matching rate than
past expansions. The federal government will cover all
of the costs in the first three years and 90 percent of
the costs going forward. In significant measure, this is
financed through agreements with hospitals, who
agreed to accept lower Medicare payments because
they expect to see reductions in charity and bad debt
liabilities as more previously uninsured adults gain
coverage. Actuarial studies show that expanding
Medicaid rather than continuing to cover the adults
now served by IowaCare without Medicaid expansion
will actually save Iowa taxpayers money and help
control overall health care costs.
In addition to Medicaid expansion, the Affordable Care
Act provides opportunities for states to contain costs and
improve services. Iowa currently implementing a health
home provision to provide more coordinated care for
Medicaid patients with chronic health care conditions,
with a goal of better maintaining health and reducing ER
and hospitalization and re-hospitalization costs. The ACA
also promotes health financing mechanisms under
Medicaid that meet the “triple aim” of improving health
Iowa is one of several states that are currently covering
care quality and health outcomes and reducing health
otherwise non-eligible adults under a Medicaid waiver, in
costs.
Iowa’s case, IowaCare. Even if Iowa were granted a
continued waiver to cover these adults, if the state does
Q. How does the Medicaid program compare with
private insurance in terms of costs?
not ensure coverage of all eligible adults under 138
percent of poverty with a comprehensive health plan,
Iowa would at best be able to continue covering those
A. The number of people served by Medicaid in Iowa
adults, and would be responsible for at least 38 percent,
has increased substantially as a result of the state
accepting new options. As a result, state Medicaid
costs have risen. However, the Iowa Medicaid
program has maintained very low administrative
and possibly 100 percent, of the costs. If Iowa expands
Medicaid, these individuals (along with others) will be
covered solely by federal funds for the first three years
(declining to a 90 percent federal match by year eight).
Expanding Medicaid will also reduce the number of
historical funding. States that had more extensive
people not receiving primary health care services and
programs retained the funding to continue that level of
those receiving health services in the ER or through
effort. If Medicaid ever were to be turned from an
charity care. Expanding Medicaid is necessary for
entitlement to a capped program, Congress and the
hospitals, in particular, to make up for reduced Medicare
President would almost surely adopt a capitation system
reimbursements. Expanding Medicaid also will help to
based on historic federal spending and the contours of
ensure that Iowa’s mental health redesign is successful in
the program in place at the time of capitation.
providing mental-health services equitably and affordably
across the state.
* * *
Q. What if the federal government changes
Medicaid from a cost-sharing program to a capitated,
or “block grant” program, as it did for the Temporary
Assistance to Needy Families (TANF) program? What
will that mean regarding Medicaid expansion?
A. Although very unlikely to happen, the federal
government almost certainly would establish a
capitated program based on the amount of funding
and the population being served at the time.
Therefore, Iowa would be at a fiscal disadvantage if it
did not expand Medicaid to adults up to 138 percent
of poverty.
There has been discussion of “turning over Medicaid to
the states” in the form of a block grant or capitated
payment—in the name of cost containment—for some
time. These calls have never been seriously considered,
though. As an alternative, the federal government has
provided greater flexibility and incentives to states to
manage their programs without establishing an artificial
cap on payments. President Obama has stated clearly
that he will not accept caps or cuts to Medicaid as part of
deficit reduction.
If Medicaid were capped (as the Aid to Families with
Dependent Children program was capped when it
became TANF), the decision would result from
negotiations between the federal government and
governors and state legislatures. The TANF result was not
imposed on states, but was part of an agreement on a
new direction for welfare policy. The cap was based on
prior expenditures by states and the federal government
on AFDC, to ensure that states could maintain their
The Child and Family Policy Center is a Des Moinesbased research and advocacy organization promoting
outcome-based policies that improve child well-being.
For more information on Medicaid expansion in Iowa,
contact Charles Bruner at cbruner@cfpciowa.org or
515-280-9027.