OEDEL: An alternative to Medicaid expansion

April 7, 2013 

Last week, I outlined a choice now confronting states: should they expand Medicaid by about half to cover many poor and lower-income citizens not now eligible for Medicaid?

Expanding Medicaid may be problematic for many reasons, and not just because it would cost a state like Georgia between $2.5 billion and $4.5 billion over the next decade, while costing the feds something like $33 billion in Georgia.

There are serious health concerns. If Medicaid’s expansion also expands the poor health outcomes now suffered by the people already covered by Medicaid, it’d be lots of money spent for lousy results.

Of course, poor people get sick more often and die younger for plenty of reasons that have nothing to do with Medicaid. But if you examine how Medicaid works, you have to doubt that it would substantially help uninsured people with low incomes to improve their health outcomes compared with more thoughtful alternatives.

Though Medicaid may seem more efficient administratively than private insurance, that’s in part because it’s something of a payment factory for medical “procedures,” regardless of whether those procedures make good sense. Providers are given plenty of incentives just to churn through procedures rather than work with patients to improve health. With Medicaid reimbursement rates being lower than under Medicare and private insurance, the providers that do still accept Medicaid patients are encouraged to focus on quantity, not quality and results. It’s hardly surprising that Medicaid patients get lots of procedures but poor health outcomes.

Medicaid also gives covered individuals little incentive to think economically and strategically about their own health outcomes. With practically no co-pay concerns, Medicaid patients tend to use Medicaid services without considering the balance of costs and benefits, and without using self-help strategies that could make procedures unnecessary. Take tooth decay. Filling kids’ cavities is free via Medicaid. That limits their families’ incentives to insist on brushing, flossing and avoiding cavity-causing conditions.

Everywhere else in our health care system, from private insurance to military insurance to Medicare, the consensus among experts seems to be that we should incentivize beneficiaries to act in more rational ways (e.g., by increasing co-pays), make medical pricing more transparent, provide opportunities for alternative treatments, and move away from procedure reimbursement in favor of paying for good health outcomes.

Medicaid in its basic design does pretty much the opposite in all respects. Why expand the most problematic portion of our health care system while all other parts are struggling to adopt more intelligent, sustainable, health-promoting designs?

States like Georgia, duly skeptical about expanding Medicaid, are in a quandary. Opt out of Medicaid and accept the status quo? Or is there another way?

Since helping the states win the option of thinking independently about whether to expand Medicaid, I’ve been working to articulate a third alternative, engaging both the Obama administration and lawmakers in states like Georgia reluctant to expand Medicaid. With the administration getting nervous that many states may really opt out, which could upset the intricate internal balance of Obamacare, the administration has finally started to talk more seriously.

One approach is already technically allowed under Medicaid: for the states to buy private insurance that would replicate Medicaid benefits. That wouldn’t help, though, because Medicaid is flawed to begin with, so replicating it in private form (even if economically feasible) wouldn’t change health outcomes.

A more promising alternative is to allow the targeted poorer parts of the presently uninsured population to select subsidized insurance plans through Obamacare’s new “exchanges.” The exchanges will allow uninsured citizens to find and get subsidized private insurance, paying on a sliding scale.

That would be better than expanding Medicaid. Most importantly, it would provide a way for this cohort of uninsured citizens to get insurance that is better than and doesn’t mimic Medicaid’s flaws. Instead, it would be more like what most of us will experience: an array of options that can be competitively tested against metrics of costs, benefits and health outcomes, then evolve, unlike antique, static Medicaid.

It’s an option worth considering.

Oedel, who helped represent Georgia in NFIB v. Sebelius, is associated with Mercer’s Center for Collaborative Journalism.

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