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Racial and Ethnic Disparities in
Healthcare: Issues in the Design,
Structure, and Administration of Federal
Healthcare Financing Programs Supported
Through Direct Public Funding
Sara Rosenbaum J.D.
Harold and Jane Hirsh Professor, Health Law and Policy
INTRODUCTION
An examination of the relationship between racial disparities in health-
care and public healthcare financing may strike some as ironic, given the
well-documented role that programs such as Medicare and Medicaid have
played in reducing racial and ethnic disparities in healthcare access and
health outcomes (Congressional Research Service, 1993; Committee on
Ways and Means, 1996; Davis and Schoen, 1978; Moon, 1993; Starr, 1982;
Smith, 1999; The Henry J. Kaiser Family Foundation, 1999). But in the face
of a significant and ongoing health gap between minority and non-minority
individuals, it is worth considering whether the manner in which public
financing programs are administered has the potential to contribute to one
of the nation’s most sobering and enduring public health problems.
This paper begins with a background and overview that briefly de-
scribe Medicare and Medicaid (and its companion SCHIP program) and
roles in financing healthcare for minority persons. It then turns to a more
extended analysis of the kinds of administrative choices made under these
programs that have the potential to contribute to the problem of health
disparities, either by tolerating or tacitly countenancing access, treatment
and quality differentials or by failing to act affirmatively to minimize the
possibility of differentials.
This paper examines issues in federal and state administration of
health programs rather than the legislative design of the programs them-
selves. Several limitations and caveats should be noted at the outset. First,
the association between race and poverty makes it difficult to disentangle
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FEDERAL HEALTHCARE FINANCING PROGRAMS
the two factors. Administrative choices that adversely affect poor pa-
tients are also more likely to create problems for minority patients. The
literature is replete with studies of race-associated healthcare disparities;
regardless of payer source, income, or other characteristics unrelated to
healthcare need, racially linked health disparities appear to be one of the
most unfortunate constants of the American health system (U.S. Civil
Rights Commission, 1999; Mayberry et al., 2000; Gaskin and Hoffman,
2000; Weinick et al., 2000). Minority patients perceive barriers and racism
within the health system, and at least some research suggests that these
perceptions appear to be borne out by discernible differences in how
health professionals interact with minority patients (The Henry J. Kaiser
Family Foundation, 1999; La Viest et al., 2000; Lillie-Blanton et al., 2000;
Einbinder and Schulman, 2000; Schulman et al., 1999). Furthermore, stud-
ies confirm the independent role of race in healthcare (Mayberry et al.,
2000). At the same time, it is difficult to separate healthcare administra-
tion choices that harm poor people from those that harm members of ra-
cial and ethnic minority groups. This is particularly true in the case of
programs such as Medicaid, where coverage is specifically aimed at the
poor and medically indigent.
Second, even if U.S. lawmakers were to enact a totally reformed sys-
tem that utilizes a single payer with common coverage and payment rules,
research from other nations suggests that minority and poor residents
nonetheless would continue to experience reduced healthcare access and
poorer health outcomes. The literature on disparities in healthcare access
is replete with examples of disparate access to care and disparate utiliza-
tion of health services (Mayberry et al., 2000; Lillie-Blanton et al., 2000).
The most recent example can be found in a 2001 Surgeon General’s report
examining racial and ethnic disparities in the use of mental health ser-
vices by members of racial and ethnic minority groups, which speculates
on the underlying causes of disparity in access, utilization and quality
and concludes that the principal factors are cost, poor services in poor
communities, cultural and communications barriers, fear of the health
system, and general overall problems in the relationship between patients
and providers (U.S. Department of Health and Human Services, 2001).
This focus on provider/patient communication difficulties, fear of the sys-
tem, and cultural isolation in healthcare appear to be recurrent themes
throughout the literature on healthcare disparities.
Furthermore, the evidence on disparate access to care even where in-
surance is technically not a barrier is hardly unique to the United States.
For example, studies of the apparently common practice of using govern-
ment-sponsored community health clinics in nations with national health
systems typically point to the need for such service delivery interventions
because of access barriers related to race, ethnicity, culture, and poverty
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666 UNEQUAL TREATMENT
(Hawkins et al., 2000). Consequently, even aggressive efforts to reduce
disparity-causing choices in the administration of healthcare financing
programs could nonetheless continue to leave minority and low-income
patients with unequal access.
Third, even substantial incremental reforms that improve existing
programs but leave them intact inevitably would leave millions of Ameri-
cans dependent on sources of healthcare financing that are perceived as
other than “mainstream,” and thus subject to the misapprehensions that
enrollment in “lesser” programs brings with it. The data reviewed for
this study suggest that incremental reforms would leave a racially and
income-identifiable group of Americans disproportionately enrolled in
forms of healthcare financing that are less attractive to healthcare provid-
ers because they cover less, pay less, and carry unpleasant connotations
and associations, such as bureaucratic hassles and the status of a “poor
people’s program.”1 This lesser form of coverage in effect validates on
business grounds what may be underlying prejudicial leanings on the part
of members of the medical care industry.
Finally, and as noted at the outset, any assessment of the limitations
of directly financed public insurance programs such as Medicare and
Medicaid must be read against a backdrop of their extraordinary accom-
plishments over the past three and a half decades. Since their inception,
Medicare and Medicaid have literally remade the American healthcare
system for minority Americans, opening access that previously had been
denied. At the time of their enactment, white Americans were hospital-
ized 27% more frequently than African Americans and members of other
minority groups, and in the case of elderly persons, the racial gap stood at
70%. By 1975, the gap had narrowed to 4% overall and 14% among the
elderly (Davis and Schoen, 1978). Research also has pointed to the con-
nection between the decline in U.S. infant mortality rates and the advent
of Medicaid, which made pregnancy related care available and accessible
to the poorest women (Davis and Schoen, 1978; Congressional Research
Service, 1993).
Data on access to and use of healthcare by income and insurance sta-
tus suggest that Medicaid has eliminated healthcare access and utilization
disparities among children and non-elderly adults, particularly when uti-
lization data are adjusted for reduced health status; indeed, poor Medic-
aid beneficiaries appear to use care at rates greater than the poor with
1 At one time, dependence on Medicaid was viewed by health providers and policymakers
as stigmatizing. As Medicare has become increasingly complicated and overall payment has
declined in relation to the overall cost of care, anecdotal evidence suggests that reliance on
Medicare (either alone or in combination with Medicaid) may be producing similar reactions
within the health system.
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FEDERAL HEALTHCARE FINANCING PROGRAMS
private insurance, presumably because of the program’s broad coverage
rules and strict limits on cost sharing, discussed below (Congressional
Research Service, 1993). Although the source of care differs, Medicaid
beneficiaries have been shown to be significantly more likely to have a
usual source of care (Congressional Research Service, 1993). Medicare and
Medicaid have been directly credited with the desegregation of U.S. hos-
pitals, nursing homes, and other healthcare institutions, as providers rap-
idly moved to eliminate the techniques of discrimination in order to be
able to participate in government health programs (Smith, 1999).2
Despite these limitations, it is important to understand the extent to
which the administration of publicly funded health coverage has the po-
tential to perpetuate, intensify, or implicitly validate differential treatment
of minority Americans.
Background and Overview
Medicare and Medicaid represent enormous advances in American
social welfare policy. The joint product of an extraordinary convergence
of social, policy, and political circumstances that have been chronicled at
length and in multiple dimensions by numerous experts (Fein, 1986;
Marmor, 1970; Moon, 1993). Medicare and Medicaid not only opened the
health system to previously uninsured persons but changed American
healthcare itself by supplying the financing needed to achieve the enor-
mous leaps in medicine and technology that the nation has witnessed over
the past 40 years.
For purposes of issues that are dealt with in this paper, it is important
to remember the context in which Medicare and Medicaid were enacted.
As Marilyn Moon has observed, “[t]he rules that were established to gov-
ern Medicare did little to disrupt or change the way healthcare was prac-
ticed or financed in the United States.” In his seminal history of the fed-
eral government’s efforts to address race discrimination in American
healthcare, David Barton Smith describes the civil rights environment in
which Medicare and Medicaid were enacted, with de jure race discrimina-
tion in healthcare having only recently ended, and with Southern Mem-
bers of Congress threatening to derail passage of Medicare if its funding
were used under Title VI as a lever to force healthcare integration (Smith,
2 These techniques included such devices as denying admission to patients without staff
physicians while simultaneously denying admitting privileges to minority physicians or
physicians working at publicly funded clinics located in medically underserved communi-
ties, segregating the wards and wings of hospitals and nursing homes, placing strict numeri-
cal limits on minority patients admitted or served, demanding insurmountable pre-admis-
sion deposits (akin to a poll-tax), and refusing to participate in certain government insurance
programs, particularly Medicaid (Rosenbaum et al., 2000).
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1999). In its efforts to secure Medicare’s enactment, the Johnson Adminis-
tration effectively promised that Medicare funding would not be used as
a basis for Title VI enforcement against physicians in individual practice
and thus as a means of achieving changes in the behavior among medical
professionals.3 This promise had major implications for the autonomy of
American medicine and was consistent with the overall hands-off ap-
proach of the original Medicare legislation when it came to altering the
behavior of physicians. The Administration made good on its promise by
interpreting Medicare physician payments as a form of indemnity cover-
age, which lacked the requisite nexus to federal funding to produce Title
VI enforcement jurisdiction—which hinges on the receipt of federal finan-
cial assistance. Despite the virtual end of Medicare as an indemnity-style
program (physicians now are effectively required to accept direct, as-
signed Medicare payments as a condition of participation through the use
of payment penalties for those physicians who refuse assignment), suc-
ceeding administrations never have issued an outright reversal of this
original interpretation of the program in a Civil Rights Act context. 4
While both Medicare and Medicaid are quite complex, Medicaid is
especially so because of its cash welfare assistance roots, as well as its
uneasy perch atop a honeycombed federal-state system of program au-
thority. It is not possible to understand how the design and administra-
tion of the programs (as well as the more recent SCHIP statute) could
potentially create disparities without a basic familiarity with the programs
and their relationship both to other payers as well as to each other.
Medicare
Medicare is a federally administered social insurance program that
finances a defined set of health benefits for individuals who qualify for
coverage (i.e., individuals who are entitled to Social Security Old Age or
Disability Insurance benefits, children and adults with end-stage renal
3 Of course no similar promise was made with respect to Medicare payments to hospitals,
whose desegregation already had been forced by the courts. Smith presents a marvelous
overview of the Johnson Administration’s near-superhuman effort to achieve compliance
agreements with all Medicare-participating hospitals by the date of Medicare implementa-
tion, only six months following enactment.
4 The hesitation to extend civil rights statutes to office-based health professionals on the
basis of their participation in federal healthcare financing programs continues today. In
2000, the federal government released guidelines clarifying existing civil rights act stan-
dards as they apply to healthcare access among persons with limited English proficiency.
Included in the regulations was clarification that physicians would be considered subject to
these standards if they participated in Medicare and Medicaid. By the spring of 2001, nearly
all of the major private medical groups were meeting with White House officials demanding
the repeal of the guidance.
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FEDERAL HEALTHCARE FINANCING PROGRAMS
disease, and certain individuals who are permitted to purchase coverage).
In 2000, Medicare outlays reached $216 billion (Congressional Budget Of-
fice, 2001) and total program enrollment stood at over 39 million (HCFA,
2001a).
Medicare is federally administered according to uniform standards,
most of which are found in extensive regulations governing the program.
The program consists of three parts (A, B, and C). Part A (Hospital Insur-
ance) is paid for through a payroll tax-based trust fund; it covers inpatient
and outpatient hospital services, post-hospital extended care services,
home healthcare, and hospice benefits. Part B (Supplementary Medical
Insurance) is financed through a combination of premium payments and
general revenues. Part B covers physician and other medical services,
outpatient hospital care, home health services, certain preventive services,
clinical diagnostic laboratory services, ambulatory surgical services, and
outpatient mental health services.
Part C of Medicare, enacted in 1997, established the Medicare+Choice
program as a means of encouraging enrollment in managed care arrange-
ments and to modernize and strengthen the regulatory framework for
Medicare managed care (Rosenblatt et al., 1997; 2001). Medicare contains
significant cost-sharing requirements, including both deductibles and
coinsurance.
While Medicare is federally administered, private insurers (known as
carriers and intermediaries) conduct the day-to-day business of provider
enrollment, claims payment, and coverage decision-making. Qualified
managed care organizations, known as Medicare+Choice providers, carry
out broad contractual responsibilities for the federal government.
Both the Medicare statute and implementing regulations establish
conditions of participation for medical care institutions and professionals;
indeed, much of the Medicare legislation is devoted to the establishment
of standards of participation for health professionals, hospitals, other in-
stitutions and suppliers, and the managed care industry. Medicare also
specifies a range of formulas for provider compensation in the case of
hospital care, physician and medical care, and payments to managed care
entities. State health agencies, accreditation bodies, and peer review orga-
nizations conduct provider certification and oversight activities.
Medicare was founded on the notion of health system freedom for
both providers and patients alike. Physicians, hospitals, health profes-
sionals and suppliers have discretion over whether to participate in the
program at all (although most U.S. physicians and virtually all hospitals
and qualified nursing homes and home health agencies do so). Further-
more, providers can decide the extent of their participation, limiting their
involvement for example to patients who once were privately insured and
now depend on Medicare exclusively or primarily.
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In a similar vein, a hallmark of Medicare from a beneficiary perspec-
tive is its free-choice-of-provider guarantee. It is probably safe to say that
Medicare beneficiaries are the last remaining group of insured Americans
who are given a choice with respect to how they use healthcare. Benefi-
ciaries can elect to enroll in a Medicare+Choice plan if one is available;5
alternatively, they can elect to remain in the “fee-for-service” system, ob-
taining medical and healthcare from the participating physician, health-
care institution, or other health professional of their choice.
While the concept of free choice among participating health providers
exists in theory, in practice there are problems, although none so severe as
those faced by Medicaid beneficiaries. When these problems are com-
bined with various structural shortcomings in the Medicare program, they
create a potential for barriers, particularly in the case of lower income
beneficiaries, who are significantly more likely to be members of a racial
or ethnic minority group. Medicare coverage is limited, omitting crucial
services such as prescribed drugs and cost sharing is high, with monthly
premiums in the case of Part B coverage and significant deductibles and
coinsurance. Furthermore, because Medicare was modeled on the “major
medical” health insurance plans that existed at the time of enactment (and
that still dominate the insurance market), it fails to cover long-term ser-
vices necessary to the management of chronic and serious physical and
mental health conditions that extend beyond an initial acute phase of
illness.
Figures 1 through 4 illustrate the nature and extent of the dilemma
facing minority Medicare beneficiaries. Figure 1 shows that members of
racial and ethnic minority groups, who are at significantly greater risk of
poverty, represent a sizable and growing part of the Medicare popula-
tion. By 2025, minority persons will constitute 33% of the Medicare popu-
lation, up from 15% in 1995.
Figure 2 provides an overview of the health status of Medicare benefi-
ciaries by race and ethnicity and shows that regardless of condition, mi-
nority beneficiaries are more likely to experience significant limitations in
health status. Latino and African-American beneficiaries are more than
one-and-a-half times more likely to be in fair to poor health. They also are
at significantly greater risk for one or more limitations in activities of daily
living (ADLs) and cognitive impairments. This health risk profile sug-
gests a higher need for services.
Figure 3 shows the enormity of the poverty gap between minority
and non-minority beneficiaries. In 1997, African-American and Latino
5 In recent years participation in Medicare+Choice has eroded significantly, chiefly as a
result of limitations on the payment formula enacted in 1997, as well as increased regulatory
participation standards (Rosenblatt et al., 2001).
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FIGURE 1 Racial and ethnic minority Americans as a share of the elderly popu-
lation: 1995–2025. SOURCE: Urban Institute analysis of the March 1998 Current
Population Survey, prepared for The Henry J. Kaiser Family Foundation.
FIGURE 2 Health problems and long-term care needs: minority and non-minor-
ity individuals. SOURCE: Urban Institute analysis of the March 1998 Current
Population Survey, prepared for the The Henry J. Kaiser Family Foundation.
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Minority and non-minority individuals
FIGURE 3 Poverty rates: Minority and non-minority individuals. SOURCE: Urban
Institute analysis of the March 1998 Current Population Survey, prepared for The
Henry J. Kaiser Family Foundation.
FIGURE 4 Supplemental insurance coverage: Minority and non-minority Medi-
care beneficiaries. SOURCE: Urban Institute analysis of the March 1998 Current
Population Survey, prepared for the The Henry J. Kaiser Family Foundation.
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beneficiaries were over three times more likely to be poor and more than
one-and-a-half times as likely to have low incomes overall. That year, two-
thirds of African-American and Latino beneficiaries were poor or near
poor.
Figure 4 shows the healthcare financing implications of the deep pov-
erty among minority beneficiaries. In 1995, white Medicare beneficiaries
were one-and-a-half times more likely than African-American beneficia-
ries and twice as likely as Latino beneficiaries to have additional coverage
through an employer-sponsored health plan and three times as likely to
have private Medigap coverage. Conversely, minority beneficiaries were
twice as likely to be exclusively dependent on Medicare and about three
times as likely to depend on Medicaid as a supplemental source of health
coverage.
These statistics suggest that minority Medicare beneficiaries are
poorer and sicker, are at significantly greater risk for serious healthcare
under-financing, and are far more likely to depend on sources of supple-
mental financing less acceptable to providers. Minority beneficiaries are
more likely to lack employer-sponsored or other private coverage, signifi-
cantly more likely to depend on Medicare alone, and far more likely to
depend on Medicaid as a source of supplemental coverage. Because mi-
nority beneficiaries represent a rapidly growing proportion of the overall
Medicare population, the consequences of these problems are more likely
to become clear and pronounced.
Medicaid and the State Children’s Health Insurance Program (SCHIP)
The largest and most complex of all federal grant-in-aid programs,
Medicaid is a means-tested entitlement that creates three interlocking sets
of enforceable legal rights. The first is states’ right to open-ended federal
financing for their medical assistance and program administration costs.
The second is an eligible individual’s right to coverage for a defined set of
benefits. The third is a legally enforceable providers’ right to participate
in Medicaid if qualified and to be paid for the care they furnish (Rosen-
baum and Rousseau, 2001).
In fundamental respects, Medicaid is the mirror image of Medicare.
Medicaid is rooted in welfare principles in that its origins were as a com-
panion to federal cash welfare assistance programs for certain poor families
with “dependent” children, indigent elderly and disabled persons, and cer-
tain “medically needy” persons whose characteristics connect them to a
federal welfare category (e.g., age, disability, dependent children) (Congres-
sional Research Service, 1993; Schneider et al., 1998; Rosenbaum and
Rousseau, 2001). These mandatory coverage categories have been ex-
panded over the past 35 years to include “poverty level” (i.e., low income)
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children and pregnant women regardless of family composition or disabil-
ity status, and low-income Medicare beneficiaries whose poverty level in-
comes prevent them from either purchasing supplemental Medigap cover-
age or paying Medicare’s premiums, deductibles and coinsurance out of
pocket. Beyond these minimum coverage groups, the law gives states the
option of covering literally dozens of additional eligibility groups consist-
ing of persons who bear some relationship to the mandatory groups but
who are not poor enough to qualify for coverage outright. Despite the many
eligibility expansions that have occurred over the past two decades, Medic-
aid is still associated with coverage of the poor. After 35 years, the program
remains a selective and restrictive source of coverage, reaching only ap-
proximately half of all poor individuals.
Despite the fact that Medicaid’s roots are in welfare, its importance as
a health payer can hardly be overstated. In 1998, Medicaid was a source
of health insurance for 40 million persons (Congressional Budget Office,
2001). The vast majority of individuals insured through Medicaid are
persons without access to employer or other private health insurance ben-
efits; they are individuals who because of age, disability, or dependency
lie outside the furthest limits of the private health insurance market
(Rosenbaum and Rousseau, 2001).
Medicaid is an integral part of the American insurance system not
only because of whom it covers, but also because of what it finances.
Unencumbered by the conventions of private insurance, Medicaid is ca-
pable of covering populations and services that lie outside essential struc-
tural insurance limitations that flow from the problems of “avoidable risk”
and “moral hazard,” and that are embedded in the notion of “fair dis-
crimination” (Rosenblatt et al., 1997; Rosenbaum and Rousseau, 2001). In
its role as an insurer of both uninsured and uninsurable populations and
services, Medicaid effectively attempts to compensate for the structural
and financial limitations of the world’s largest voluntary healthcare mar-
ket.
Medicaid melds state design and administration choices within a
broad federal framework that contains many options and a few absolutes.
The program is designed and administered by participating states in ac-
cordance with broad federal standards. As a matter of federal law, state
welfare agencies bear final legal responsibility for Medicaid eligibility
determinations, but the law permits any state agency to act as the respon-
sible “single state agency”6 for overall program accountability purposes.7
6 42 U.S.C. §1395a(a)(4)
7 Approximately half of all states share ongoing administrative responsibilities with county
governments; even in these states however, the single state agency has a non-delegable ob-
ligation to administer the program within federal requirements.
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tients remain significant matters within the provider community, grossly
low payment rates offer a ready-made excuse for non-participation that
rests entirely on neutral economic grounds. This excuse is particularly
available to urban healthcare providers who are plentiful in number to
the point of saturation in more affluent communities. As Table 2 illus-
trates, because of the high concentration of minority individuals in the
poorest large city neighborhoods, this refusal to participate also has its
greatest adverse impact on minority beneficiaries who ultimately are
starved for access in the midst of plenty.
Table 2 shows the marked racial and ethnic patterns of urban poverty
in the largest cities. While the concentration of urban poverty increased
for all races between 1970 and 1990, by 1990, 83% of all urban African-
American poor persons resided in census tracts that could be labeled as
poor, while nearly 42% resided in high-poverty census tracts. Latino pov-
erty concentrations were somewhat less pronounced but decidedly el-
evated above overall rates. In 1990, 68% of all poor persons residing in
the nation’s 100 largest cities were either African American or Latino, and
an astonishing 87% of all poor persons residing in these cities’ highest
TABLE 2 Concentration of Poverty–100 Largest Cities, 1970-1990
1970 1980 1990
Total # poor 7,542,479 8,133,277 9,392,953
% poor 14.5% 16.7% 18.3%
Poor in poverty (>20%) tracts 4,156,543 5,178,509 6,466,097
% poor in poverty tracts 55.1% 63.8% 68.8%
Poor in high poverty 1,240,855 1,828,576 2,650,142
(> 40% poor) tracts
% in high poverty tracts 16.5% 22.5% 28.2%
African American # poor 3,182,881 3,428,593 4,002,094
% population poor 27.7% 27.2% 29.9%
Poor in poverty (>20%) tracts 2,567,429 2,837,386 3,328,652
% poor in poverty tracts 80.7% 82.5% 83.2%
Poor in high poverty 895,920 1,157,537 1,664,872
(> 40% poor) tracts
% in high poverty tracts 28.1% 33.8% 41.6%
# poor 966,413 1,575,569 2,394,890
Latino
% population poor 23.2% 26.2% 21.7%
Poor in poverty (>20%) tracts 664,375 1,162,367 1,842,990
% poor in poverty tracts 68.8% 73.8% 77.0%
Poor in high poverty 196,202 378,832 650,747
(> 40% poor) tracts
% in high poverty tracts 20.3% 24.0% 27.2%
SOURCE: Fossett and Perloff, 1999.
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FEDERAL HEALTHCARE FINANCING PROGRAMS
poverty urban census tracts were members of these racial and ethnic
groups. These statistics underscore the particularly serious impact that
provider non-participation in Medicaid and depressed Medicaid payment
levels potentially could have on minority beneficiaries’ access to care.
Low provider compensation rates have other pernicious effects as
well. The failure of Medicaid programs to include capital payments in
their compensation rates to safety net providers that so frequently anchor
poor communities seriously limits their ability to engage in the level of
renovation, facility and practice improvement, and overall technical up-
keep that is essential to maintaining a safe and good quality healthcare
environment. Equipment cannot be updated or replaced as needed.
Building space essential to the expansion of capacity (along with greater
employment opportunities in poorer neighborhoods) cannot be added.
Supplies cannot be maintained. And finally, the recruitment of personnel
and health professionals becomes even more difficult because of the de-
pressed working conditions.
The federal Medicaid equal access requirement described previously
does not guarantee precisely the same pattern of access that privately in-
sured persons have. But it does require that states maintain payment lev-
els that are reasonable to enlist sufficient providers to achieve an equal
overall level of access to care. Related to this equal access requirement is
the requirement that medical assistance be furnished promptly, a basic
operating rule that in recent years, as noted earlier, has been used to ex-
pand access to care, particularly in the case of persons with disabilities.
Other than isolated litigation efforts designed to challenge grossly low
provider payment levels, this basic requirement of the program has at-
tracted no attention other than from the nation’s governors who have pe-
riodically called for its repeal.29 The federal government has done virtu-
ally nothing with the provision, and there are virtually no guidelines that
interpret how to apply the equal access requirement or what is expected
in terms of state implementation (e.g., specific data collection to measure
levels of access where disparities in health outcomes are pronounced, af-
firmative efforts to increase rates, or affirmative efforts aimed at attract-
ing healthcare providers in high need communities).
5. Administration of separate SCHIP programs
As noted earlier, SCHIP permits states to use their allotments to es-
tablish and operate separate SCHIP programs. Research on SCHIP is just
29 Under pressure from the governors, the Balanced Budget Act of 1997 repealed specific
equal access provisions related to obstetrical and gynecological care but left the overall re-
quirement in tact.
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underway, but several issues are becoming apparent. First, in many states
with separate programs, the SCHIP population is whiter than the Medic-
aid population because of racially identifiable poverty distribution. Mi-
nority children simply are more likely to be extremely poor, and thus any
state with a separately administered SCHIP program is more likely to
have a SCHIP population that is white in relation to its Medicaid popula-
tion. As the inner-city data presented earlier underscore, SCHIP and Med-
icaid children also are likely to reside in different communities, with Med-
icaid children more concentrated in inner-city poor neighborhoods, and
SCHIP children (those with incomes about twice the federal poverty level),
throughout a metropolitan area.
Thus, even without taking any step other than deciding to set up a
separate SCHIP program, a state that does so likely faces a situation in
which its Medicaid children are more likely to be minority children, and
its SCHIP children are more likely to be white.
This racial skewing of children receiving public insurance into two
sub-groups may pose problems in and of itself, since these patterns create
racial imprimaturs for the programs. Added to this problem however, is
the fact that early research conducted by the George Washington Univer-
sity Center for Health Services Research and Policy, as well as anecdotes
from around the country, indicate that states with separate programs are
permitting their physicians to participate in SCHIP but not Medicaid, per-
mitting managed care organizations and insurers to sell to SCHIP agen-
cies but not to Medicaid, and even paying better rates under SCHIP and
not Medicaid. These choices in design and administration obviously have
the potential to take a bad situation and make it far worse, labeling minor-
ity children as members of substandard health coverage arrangements
reserved for minorities and outside of the healthcare mainstream. No
federal regulations address this problem.
6. Administrative choices in establishing conditions of participation and
quality of care measurement; self examination by federal and state governments
The final problem is one that affects Medicare, Medicaid, and SCHIP.
There is very little in the conditions of participation under these three
programs that requires or finances the efforts of healthcare providers to
take systematic steps to examine enrollment and utilization patterns in
relation to the demographics of the communities in which they serve, and
undertake affirmative steps to improve access to their services. Limited
conditions of participation under federal Medicare and Medicaid man-
aged care regulations do require that participating managed care organi-
zations make certain efforts to address access to care in their service ar-
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FEDERAL HEALTHCARE FINANCING PROGRAMS
eas.30 But there is no affirmative obligation on the part of either providers
as a condition of participation or participating states in the case of Medic-
aid and SCHIP to collect and analyze health data on access and utilization
by race, examine health outcomes by race, examine patterns of healthcare
administration that conceivably could contribute to racially identifiable
outcomes, or take affirmative steps to attempt to remedy these problems
through restructuring of healthcare delivery arrangements.
Notably, state Medicaid programs are far ahead of the federal gov-
ernment in the case of managed care organizations; their contracts with
managed care organizations typically contain extensive access require-
ments related not only to networks but to hours, locations of services,
cultural competency and translation services, and other steps designed to
remove barriers that disproportionately could affect minority enrollment
and utilization (Rosenbaum et al., 1997; 1998; 1999a). Only in the case of
the federally funded community health centers program does one find
federal policies aimed at engendering this type of careful self-examina-
tion by health providers on an ongoing basis to determine whether access
to care is appropriate. Not since the federal government undertook such
an effort in the mid-1970s as part of its revision of Hill Burton hospital
regulations31 has there been this type of careful self-assessment of the fed-
eral government’s (or state governments’) payment practices or the prac-
tices of federally assisted providers. Indeed, in the case of Medicaid, the
federal government neither collects nor requires much racial data.
7. Administrative choices in the design of managed care systems: contractually
sanctioned discrimination in provider networks
As noted previously, federal law provides states with broad leeway
in the design of their managed care arrangements and selection of man-
aged care contractors. Despite the “equal access” provisions in the Med-
icaid statute (noted above), most state contracts with managed care orga-
nizations do not expressly prohibit contractors’ provider networks from
engaging in what can be termed “contractually sanctioned discrimina-
tion,” i.e., permitting network providers under a general duty of care to
all plan members to nonetheless refuse to treat the Medicaid sponsored
members of the plan (Rosenbaum et al., 1997). The issue of segregated
provider networks (i.e., networks operated by Medicaid participating
30 The Medicaid managed care regulations are now in suspense by the Bush Administra-
tion. Medicare+Choice regulations require merely that a provider network be “sufficient to
provide adequate access to covered services to meet the needs of the population served.” 42
C.F.R. §422.112()(1).
31 See note 25, supra.
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managed care organizations that subdivide members based on sponsor-
ship status) has been the subject of both speculation and actual legal chal-
lenges (Rosenbaum et al., 2000). Anecdotal discussions with physicians
and other health professionals who participate in managed care plans sug-
gest a great unwillingness on their part to accept Medicaid-sponsored
members into their practices, either because of payment differentials or
because of discomfort with Medicaid-sponsored members.32
As serious as network provider discrimination might be at the pri-
mary care stage, in communities with health centers, safety net provider
clinics, and other sources of primary care for medically underserved popu-
lations, there may be enough primary care access to overcome the worst
tangible effects of internally sanctioned discrimination (although the long-
lasting tangible and intangible effects of contractually sanctioned discrimi-
nation could never fairly be calculated). At the point of specialty care how-
ever, the real and immediate impact of sanctioned network discrimination
could be enormous, since permitting specialists to refuse to accept or treat
referred Medicaid-sponsored plan members is tantamount to the denial
of specialty care. Unless a managed care organization was to literally run
two entire specialty networks, contractually sanctioned discrimination
against Medicaid beneficiaries could have an incalculable effect on access
to specialized services. Because of disproportionate minority representa-
tion within the Medicaid-sponsored managed care enrollee population,
the impact would be felt most heavily by minority patients.
Regulations issued by the Clinton Administration in January 2001 and
applicable to Medicaid managed care systems prohibit contractually sanc-
tioned provider discrimination against Medicaid patients within Medic-
aid-participating managed care organizations.33 On August 20, 2001, the
Bush Administration suspended these rules.34 The Administration simul-
taneously proposed new regulations that seek to relax certain of the re-
quirements imposed on state agencies and managed care organizations
32 This position on the part of providers serves to at least informally dispel any notions
that managed care would somehow erase healthcare access differentials based on sponsor-
ship. Medicaid-only managed care plans are the norm in many communities, and in com-
munities in which MCOs that do business across sponsors are in the market, separate Med-
icaid-only subsidiary operations may be common. There are many reasons to maintain a
special Medicaid subsidiary, because the specifications of a Medicaid contract offer differ
enormously from those found in a commercial agreement. Furthermore, the geographic
isolation in which beneficiaries may live (particularly in the case of inner city residents) may
justify enhanced provider networks in order to ensure adequate access in underserved com-
munities. These affirmative reasons for maintaining a separate Medicaid business are a
different matter from doing so in order to isolate and separate Medicaid customers.
33 42 C.F.R. 438.206(d)(7).
34 66 Fed. Reg. (August 17, 2001).
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under the January 19 rule.35 One of the rules eliminated in its entirety is
the regulation that explicitly prohibits discrimination against Medicaid
beneficiaries. The implicit message sent by the repeal of this express anti-
discrimination provision is that while general compliance with civil rights
laws remains a requirement,36 contractually sanctioned discrimination
based on payer status is no longer specifically prohibited.
It is conceivable of course that the Health and Human Services Office
for Civil Rights (OCR) could conclude upon investigation that federal civil
rights regulations are violated by contractually sanctioned discrimination
against Medicaid patients by network providers.37 To date however, OCR
does not appear to have taken such a position, nor has it developed stan-
dards to clarify the legality of this practice under Title VI. Furthermore,
by relying on general Title VI sanctions rather than expressly prohibiting
patient “redlining” by member sponsorship status, the Administration
essentially foregoes an opportunity to set an explicit standard designed to
directly address an identified problem issue in Medicaid managed care
that has the potential to hurt not only all Medicaid beneficiaries but dis-
proportionately harm minority patients. Putting aside Title VI, the repeal
of such a regulation appears to have direct implications for the enforce-
ability of the equal access provisions of the Medicaid statute themselves.
Discussion
There is no question regarding the contribution that public financing
programs have made to improving health and healthcare for minority
Americans. At the same time, the data presented in this paper underscore
the disproportionate dependence on these programs that minority indi-
viduals maintain, as well as their vulnerability to heightened health risks
and reduced access to healthcare because of their poverty and where they
live. Together Medicare, Medicaid, and SCHIP pumped better than $350
billion into the American healthcare system in 2000. At the same time, a
review of key issues in program administration, such as treatment of low-
income Medicare beneficiaries, Medicaid eligibility and enrollment prac-
tices, provider recruitment and payment, conditions of participation for
health providers, and overall program management by both agencies and
35 66 Fed. Reg. 454564 (August 20, 2001).
36 The NPRM does not repeal the January 19 rule requiring compliance by MCOs with
Title VI as well as other applicable federal civil rights statutes.
37 In light of the recent Supreme Court decision in Alexander v Sandoval, 121 S.Ct. 1511
(2001), the ability of beneficiaries to directly challenge such discrimination as a violation of
the Title VI regulations is thrown into doubt, as are the discriminatory effects regulations
themselves.
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participating providers reveals that little has been done to make affirma-
tive use of this vast purchasing leverage to both promote and finance
customization of the healthcare to better meet the needs of minority pa-
tients and blunt or minimize prejudicial attitudes. Indeed, if anything,
stigmatizing enrollment arrangements and dramatically low payment lev-
els have not only tacitly sanctioned provider and system aversion but have
affirmatively encouraged the rejection of lower income patients. Even in
SCHIP, where the entire population is lower income, emerging informa-
tion suggests that states are unwittingly creating a dynamic that encour-
ages the racially identifiable treatment of children within the publicly fi-
nanced health system.
What will it take to fix these problems? Two issues—financial and
political—need to be addressed. First, making the programs more ori-
ented to minority patients will require significant financial investments.
Destigmatizing Medicaid’s eligibility and enrollment arrangements not
only requires funds to underwrite eligibility expansion but would also, if
past reform efforts are any gauge, result in greater enrollment rates and
would thus push program costs up. Medicaid payments are so depressed
that even modest proportional increases in payments necessitate major
outlays, and Medicaid provider participation research suggests that mod-
est rate increases in fact result in little change in the system.
While money is always a problem, and can be expected to become
increasingly so in an era of declining rates of government revenues, the
financial problems actually pale in comparison to the two awesome po-
litical problems that arise in any restructuring discussion: the healthcare
industry and state governments.
Restructuring Medicare and Medicaid administration to emphasize
orientation toward minority patients and beneficiaries as a condition of
federal financial participation means confronting the fundamental char-
acter of both programs. As Marilyn Moon has observed, the context for
enactment of the programs was that they would require nothing of health
providers (Moon, 1993). The promises made at the birth of Medicare and
Medicaid (and once again at the birth of SCHIP) were that participation
would be voluntary and that few if any conditions of participation would
be imposed. Despite the presence of direct government financing, pro-
viders could continue to select their patients and their markets, and to a
greater or lesser degree could continue accountable and open to minori-
ties.
The act of literally pulling physician payments out of Title VI enforce-
ment authority in 1965 is emblematic of the delicacy with which govern-
ment payments were overlaid on the healthcare system. To the extent
that anyone believes that provider attitudes regarding government regu-
lation of their health practices have softened, one need only look at the
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FEDERAL HEALTHCARE FINANCING PROGRAMS
recent dust-up over the Office for Civil Rights Limited English Proficiency
Guidelines, when dozens of prominent provider groups in April 2001
joined together to actively protest to the White House the application of
these guidelines to healthcare.
It is true that much has changed since 1965. Providers now are in
managed care networks and are obligated to accept as patients the mem-
bers who select or are assigned to them.38 Payment arrangements are
now direct rather than indemnity in nature. Old racial barriers and atti-
tudes certainly have softened if not dissipated. But the notion of telling
Medicare-participating physicians that they must participate in Medicaid
at least to the extent that they serve low-income Medicare beneficiaries
would strike most persons as an utterly radical idea and one that lies be-
yond the furthest reaches of permissible payer leverage over the health
system.
The other political behemoth is state governments. States always have
operated Medicaid with substantial levels of autonomy; this autonomy
has grown over the years, as the power of governors has increased and as
succeeding administrations have lessened their regulatory enforcement
of the Medicaid statute. Were a federal agency to suddenly impose a
series of regulatory requirements related to eligibility and enrollment de-
sign, provider compensation, and assessment of program impact on mi-
nority families, the federal officials prescribing such changes probably
would be regarded as daft and most likely would lose their jobs.
Where does that leave policy in this area? The enormous difficulty of
achieving changes of the magnitude described here means that the effort
to make changes will only work if they are constantly placed in front of
policy makers and program administrators and if the changes that are
identified as potentially beneficial are tied to incentives. Congress might
consider extending additional levels of compensation to both state agen-
cies and providers that take steps to orient programs toward minority
patients and away from practices that result in segregation, exclusion, and
denial of care. Also necessary is sufficient health services research to sup-
port the claim that certain healthcare financing decisions and service ar-
rangements are at least associated with better (or poorer) access to health-
care and health outcomes among minority beneficiaries.
There are certain practices that appear to create so much dispar-
ity that careful consideration should be given to how to stop them.
38 In this regard, it is important to note that provider challenges to “all products” clauses
have meant that in practice, managed care companies that sell their products to both public
and private payers may in fact set up separate subsidiaries that do Medicaid business with
separate networks or else may maintain separate networks for their Medicaid customers
(Rosenblatt et al., 1997; 2001).
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Above all is the refusal of providers to participate in Medicaid in the
case of low-income Medicare beneficiaries and the tendency of sepa-
rately administered state SCHIP programs to segregate white, near-poor
children from minority poor children in access and coverage. Both of
these practices, as well as the practice of permitting Medicaid managed
care plans to treat enrollees through separate networks, appear to di-
rectly countenance a form of payer segregation that comes close, at least
in principle, to segregated waiting rooms and hospital wings. The elimi-
nation of these practices should be matters of first priority for federal
and state policy makers.
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