Unforeseen Consequences: Medicaid and the Funding of Nonprofit Service Organizations

Background and Purpose: Although Medicaid is typically understood to be a program that provides health insurance coverage to indigent populations, Medicaid reimbursements have become an important source of program funding for nonprofit social service organizations in recent years. Despite the importance of Medicaid funding to nonprofit organizations that are not primarily health care providers, relatively little work has examined the magnitude of this shift or the consequences it may have for the delivery of safety net assistance to low-income populations. Understanding the role played by Medicaid in the delivery of social services matters as the program changes in response to rising poverty, federal health care reform, and persistent state budget pressures.

Methods: Drawing on unique survey data (the Multi-City Survey of Social Service Providers and the Rural Survey of Social Service Providers) of more than 1,000 nonprofit social service agencies in seven urban and rural communities conducted between 2005-06 (Chicago, Los Angeles, and Washington, D.C., southeastern Kentucky, south-central Georgia, southeastern New Mexico, and the border counties of Oregon-California), this paper examines the role of Medicaid in the funding of social service programs. Descriptive analyses examine the prevalence of Medicaid funding and the characteristics of service providers reporting Medicaid revenues. In addition, we create spatial accessibility measures to reflect the proximity of low-income populations to Medicaid-funded service providers and examine how access to providers varies across our study sites.

Results: We find that about one-quarter of urban and rural nonprofit agencies—mostly agencies specializing in substance abuse and mental health treatment—report receiving Medicaid reimbursements, but very few of those receiving such funds are reliant upon them for a majority of their operating revenues. We also find that agencies reporting receipt of Medicaid reimbursements are much larger on average than agencies that do not receive Medicaid funding. Contrary to popular impressions, Medicaid-funded social service nonprofits are less accessible to residents of high-poverty, predominately minority central city neighborhoods than to residents of more affluent, white, suburban locales.

Conclusions and Implications: Combined, these findings have important consequences for agency management and the politics of social services that should be of interest to scholars specializing in social welfare policy, Medicaid, and issues of federalism. Our findings also have implications for changes in Medicaid that are being driven by federal health care reform, federal budget debates, and by current state fiscal crises.