Reining in Medicaid

An article in the Springfield News-Leader reports that the number of people within Missouri’s Medicaid program has risen 5 percent during the last year. Given the current economic situation, more people are qualifying for Medicaid.

Legislators have suggested provisions to further expand Medicaid. From an article on Kaiser Health News:

Currently, many low-income adults are not eligible for Medicaid, but they could be if Congress decides to “make income alone the determinant of Medicaid coverage. Under the health reform bill now being considered by the House, all non-elderly people earning at or below 133% of poverty — about $14,400 for an individual, and $29,300 for a family of four — would be eligible.” The House bill would have the federal government “pick up the entire cost of those newly covered under Medicaid — $438 billion over 10 years,” while a Senate finance draft version “would have the feds paying the additional cost for only five years, after which the states would have to pick up their typical share of existing Medicaid costs, which averages over 40%” (Tumulty, 7/21).

As Show-Me Institute intern Abhi Sivasailam said in an earlier blog entry, economist Arthur Laffer recently published an op-ed in the Wall Street Journal about the proposed federal health care reform. The main cause of out-of-control spending in the existing health care system has been the “health-care wedge,” the distance that a patient/consumer has from the actual cost of a procedure. Medicaid exacerbates this wedge by completely separating the patient from any responsibility. The payment structure of Medicaid (which compensates for a lesser amount than some procedures cost) encourages doctors to order more tests than necessary in order to recoup costs. This cycle only raises taxpayer expenses and the cost of health care in general.

Regarding Medicaid, Missouri has relatively low expenditures compared to the rest of the country. Missouri spent $6.6 billion on Medicaid in 2007, approximately 2.06 percent of what the United States spent that year. During the past 10 years, Medicaid spending in Missouri has grown at a slower rate than the national average, but it is still growing. Every dollar that Missouri spends sees some percentage of a match (based on a varying multiplier rate) from the federal government. In 2008, the federal government paid for 62.4 percent of Medicaid’s cost; in 2009, that percentage has jumped to 71.2. This creates an even larger wedge for states that have less of a responsibility for each enrolled individual, but are making payment decisions. Some other states have already (or almost) run out of money to pay for Medicaid, including New Hampshire, Georgia, Illinois, and Mississipi. With compensation decreasing to a point lower than procedural cost, more doctors are refusing to accept new Medicaid and Medicare patients. It is apparent that Medicaid is not working, and Medicare is set to run out of money by 2017. Expanding Medicaid and creating a similar public option are not workable solutions.

One way to decrease the size of the “health-care wedge” is by encouraging the use of health savings accounts (HSAs), something that the Show-Me Institute has written about, and that Arthur Laffer writes about in his op-ed:

A patient-centered health-care reform begins with individual ownership of insurance policies and leverages Health Savings Accounts, a low-premium, high-deductible alternative to traditional insurance that includes a tax-advantaged savings account. It allows people to purchase insurance policies across state lines and reduces the number of mandated benefits insurers are required to cover. It reallocates the majority of Medicaid spending into a simple voucher for low-income individuals to purchase their own insurance.

Health care vouchers and HSAs may be the best ways to fix the growing health care problem, and to rein in Medicaid before it becomes even more unsustainable than it already is.