Lower Medicaid Provider Fees 

Low reimbursement rates are generally one of several factors contributing to the shortage of physicians willing to treat Medicaid enrollees.[21] On average, Michigan pays physicians participating in the fee-for-service state Medicaid program only about half (51 percent) as much as Medicare pays for the same service — in other words, physicians treating Medicare patients get paid twice as much for the same services.[*] For primary care, Michigan Medicaid fee-for-service pays less than half (46 percent) as much as Medicare.[22] Compared to commercial insurers, the authors estimate that Michigan’s Medicaid fee-for-service program pays physicians about two-fifths (41 percent) as much as a private insurer does.[†]

It should be noted, however, that in Michigan a majority of Medicaid enrollees participate in Medicaid managed care plans, rather than Medicaid’s fee-for-service program.[23] Proponents of these plans say they provide better access to health care providers than standard fee-for-service Medicaid.[24] There is considerable disagreement, however, about whether Medicaid spending is lower under managed care than fee-for-service programs.[25] To the extent that managed care saves money, managed care payment rates are unlikely to greatly exceed fee-for-service rates.

[*] “2012 Medicaid-to-Medicare Fee Index,” (The Henry J. Kaiser Family Foundation), http://goo.gl/ZVuWb (accessed May 16, 2013). Physicians who treat Medicaid patients and who are not affiliated with managed care organizations are reimbursed based on a state fee-for-service fee schedule. By contrast, some physicians who participate in Medicaid managed care plans are paid rates negotiated with the sponsoring plan, rather than the fee-for-service fee schedule. Nationwide, Medicaid managed care physicians are also generally paid much less for treating Medicaid patients than they are for treating Medicare enrollees with the same condition.

[†] Authors’ calculations in part using data from ibid. The ratio of Medicare to commercial insurance reimbursements is estimated at about 81 percent; see John Sheils, “The Cost and Coverage Impacts of a Public Plan, Testimony before the Ways and Means Committee,” (The Lewin Group, 2009), 4, http://goo.gl/Udn1S (accessed May 16, 2013). Precise calculations of the ratio of Medicare physician fees to private insurers’ fees are problematic at best. A study commissioned by the Medicare Payment Advisory Commission estimated that Medicare physicians’ fees were 83 percent of private insurers’ fees in 2001; see Christopher Hogan, “Medicare Physician Payment Rates Compared to Rates Paid by the Average Private Insurer, 1999-2001,” (Medicare Payment Advisory Commission, 2003), 2, http://goo.gl/ alYXC (accessed June 9, 2013). The actuarial consulting firm Milliman estimated that Medicare physician fees were 78 percent of private insurer fees in 2007; authors’ calculations based on Will Fox and John Pickering, “Hospital & Physician Cost Shift: Payment Level Comparison of Medicare, Medicaid, and Commercial Payers,” (Milliman, 2008), 7, http://goo.gl/xgTqF (accessed June 9, 2013).

Under a Medicaid expansion, the disparity between Medicaid reimbursements and commercial insurance reimbursements would be decreased in 2014 by the federal government’s subsidy to boost the Medicaid fees that primary care providers receive to Medicare levels. The gap would open again when the federal subsidy ceased in the following year, however, unless the state took over the cost of boosting Medicaid fees to Medicare levels.