Medicare and Medicaid: When Two Is Not Better Than One

The complexities that arise when programs overlap make it harder to control costs.

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Brian Fung via mlsj1_99/Flickr

Experts all agree that controlling Medicare and Medicaid spending is crucial to slowing rising health care costs. However, under the current system, the most expensive subset of Medicare and Medicaid beneficiaries are lost in a complicated web of multiple payers and programs that lack both the incentive and the ability to curb risings costs. These beneficiaries are "dual eligibles"--people who are eligible for both Medicare and Medicaid at the same time--and they are among the poorest and sickest individuals in our society.

Providing care for these individuals under two entitlement programs proves that two is truly not always better than one. Instead of working together to coordinate care, Medicare and Medicaid split responsibility, dividing up who pays for what based on which service is provided and in which setting. This bifurcated payment structure leaves dual eligibles in a black hole between Medicare and Medicaid, resulting in poorer care and increased costs for taxpayers. 

Solving the nation's most entrenched problems See full coverage

Congress should do away with the dual eligible model and instead place responsibility for this population in one federal program that can ensure quality of care and cost control.

Who Are "Dual Eligibles?"

Dual eligibles include approximately nine million people who are among the most vulnerable in our society. To be eligible for both programs, they must be low-income, to qualify for Medicaid, and either over age 65 or disabled, to qualify for Medicare (they are often both). More than half of dual eligibles live below the poverty line. They are more likely to suffer from chronic conditions--particularly diabetes, cardiovascular disease, and Alzheimer's--than are the Medicare or Medicaid beneficiaries who qualify for only one program. 

Unsurprisingly, dual eligibles are an extremely expensive population to insure, and represent a disproportionate percentage of both Medicaid and Medicare expenditures: approximately 40 percent of total Medicaid expenditures, despite their making up only 15 percent of Medicaid enrollment. One study calculated that a dual eligible costs Medicare almost twice as much as the average Medicare beneficiary.

The current payment system for dual eligibles is set up in a way that denies both programs the ability to control overall costs. Rather than being covered by two programs, dual eligibles are more accurately a part of neither, as neither program has clear responsibility, and both programs have incentives to shift costs onto the other.

Conflicting Incentives

Under the current system, a dual eligible is caught in a complicated division of financing between the two programs. For many dual eligibles, Medicaid pays for nursing home services or supports and services at home. In fact, more than two-thirds of Medicaid funding for dual eligibles goes to long-term care. Meanwhile, Medicare pays for hospital care, outpatient physician care, and prescription drugs--but Medicaid must pick up a dual eligible's premiums, deductibles, and copays. Medicaid also pays for many support services that are not covered by Medicare, such as transportation, dental, and vision.

Presented by

Caroline Brown & Anna Kraus

Caroline Brown is co-chair of Covington & Burling's Health Care Industry practice and chair of its Federal-State Programs practice. Anna D. Kraus is co-chair of Covington & Burling's Health Care Industry practice. Prior to joining Covington & Burling, Kraus served as deputy general counsel to the U.S. Department of Health and Human Services.

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