Although no one had really thought through what the Medicaid program would cost, some features of the program guaranteed it would much more expensive than anyone had anticipated:
- Medicaid coverage of nursing home services created a perverse problem when Medicaid covered nursing home care but only provided limited coverage for home care. If someone needed help and was unable or unwilling to pay for it themselves, they could move to a nursing home to receive that assistance and have the cost covered by Medicaid. Once in a nursing home, the high nursing home bills allowed people to qualify for Medicaid at higher income levels because of the "medically needy" provisions, greatly increasing the number of people on Medicaid. At the same time, the program cost per beneficiary increased because Medicaid was now paying for housing, food, housekeeping, and laundry, services which would not have been covered for in-home services.
- The option of a federal match provided a huge incentive for states to try to shift other obligations into the Medicaid system so that the federal government would pick up part of those costs, as well. The states could, and did, move people from the community, where the state and local government covered 100% of the cost, to nursing homes, where the federal government would pick up half of the cost. This also meant that the states had an opportunity to greatly expand the services they provided, while paying little or none of the additional cost themselves.
- States could set rates wherever they wanted, with no caps or ceilings, but they would never have to pay more than 50% of the cost. That made it easier to increase rates, since they only had to pay part of the increase themselves. If they combined this with the transfers described above, they could actually increase the rates paid to providers while reducing the cost to the state!
- Fiscal control of the system at the federal level was virtually impossible. All of the data was maintained by the states in over 50 different, disconnected systems. The federal government found it difficult to identify costs or utilization statistics even for services that had already been rendered, let alone derive enough information to make accurate projections for the future.
The cost of Medicaid quickly overran all initial projections. As Ways and Means Chairman Wilber Mills remembers it, "We were told by Bob [Meyers], the actuary, that the cost of Medicaid over Kerr-Mills in the first year would be $250 million, nationwide. It was $250 million in New York State alone...They had 41 per cent of the people in the state of New York eligible for Medicaid, the legislature did, after we passed it. And of course, they'd upped the numbers and that upped the cost over and above what Bob Meyers ever anticipated." (Social Security Oral Histories)