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Paying More for Less

Medicaid fails taxpayers and patients.

Peter Suderman
August 6, 2010

Imagine a government-run health care program in which medical access is severely limited, that is racked by uncontrollably rising costs, and that in many instances results in demonstrably worse health outcomes than having no insurance at all. Such a program isn’t a mere hypothetical; it already exists, and it’s called Medicaid.

One might imagine that a program of such rotten pedigree might be ripe for reform, or even for trimming back. If so, one would imagine wrong. Just yesterday, the Senate voted to put $16 billion toward extending a temporary boost in Medicaid funding contained in the stimulus; the House is expected to follow sometime next week. Meanwhile, the Obama administration’s signature achievement—the new health care law—relies on an expansion of Medicaid for fully half of its projected increase in insurance coverage. According to the Congressional Budget Office, thanks to the Patient Protection and Affordable Care Act (PPACA), 16 million new individuals are projected to enroll in Medicaid by the end of the decade, and many experts believe that those estimates are low.

We’re not making Medicaid better, and we’re certainly not scaling it down. We’re making it bigger—and worse.

Medicaid, which is funded jointly by Washington and by state governments on a matching basis, was initially intended as a bulwark against further government intervention in the health care system. Designed to provide aid to the country’s poorest and sickest individuals, it cost about $9 billion in inflation-adjusted dollars during 1965, its first year in operation.

But instead of heading off additional government intervention, it became a vehicle for expansion of those efforts. In 2008, according to the National Association of State Budget Officers, the program accounted for more than 20 percent of total state spending. This year, the Department of Health and Human Services expects the program to cost just north of half a trillion dollars. At the end of last year, more than 46 million Americans were enrolled, according to the Kaiser Family Foundation. Medicaid outspends all other welfare programs combined, and, if not for the Medicare prescription drug benefit, it would already be more expensive than any other entitlement. And because much of this burden falls upon state budgets, most of which are constrained from emulating the federal government’s endless borrowing, local governments have little recourse except to tax more or cut programs and benefits.

What do we get for all that money? Not much. Numerous studies show that, on an array of specific maladies, Medicaid’s health outcomes are dismal—and in some cases worse or no better than the outcomes for individuals who lack health insurance entirely. A University of Pennsylvania study, for example, reported that colon cancer patients in Medicaid have a 2.8 percent mortality rate, compared with 2.2 percent for the uninsured. A study of Florida’s Medicaid patients found they were more likely to have late-stages of prostate cancer, breast cancer, and melanoma at diagnosis than the uninsured.

Part of the problem is that Medicaid’s reimbursements are so low that many doctors refuse to take patients enrolled in the program. Those low payments have paved the way for massive amounts of fraud and abuse in the system. Yet simply paying more—and more and more and more—is not an option. Indeed, over the past few decades, we’ve vastly expanded the amount of resources the program uses. Between 1970 and 2000, the program grew from $29 billion to $250 billion in 2010-adjusted dollars. And since its inception, Medicaid spending has almost always grown at a faster rate than its counterpart, Medicare.

So what to do? As appealing as axing the whole thing and starting over from scratch might be, there’s little to no chance it will occur in the current political environment. But at least in theory, it’s possible that the program will dwindle over time. As ObamaCare’s implementation nears, it’s possible, as the Heritage Foundation’s Edmund Haislmaier has suggested, that some states will simply choose to drop out of the program entirely.

In the meantime, we ought to follow the recommendations of John Hood, who argues in the most recent issue of National Affairs that Medicaid should be more like welfare—a temporary assistance program that includes time limits and work requirements. At the same time, we ought to put a stop to the matching grant process, in which states get extra federal money for each dollar they spend. Instead, the program should be funded by a single block grant indexed to the rising cost of health care.

ObamaCare’s reliance on Medicaid to expand coverage has dimmed the prospects for reform. But the alternative is the status quo, in which we devote ever-more resources toward a program that fails both taxpayers and patients. It’s all too easy to imagine a world beset by broken government programs. Shouldn’t we also be able to imagine one in which utterly dysfunctional programs no longer exist?

Peter Suderman is an associate editor at Reason magazine. This column first appeared at Reason.com.


Peter Suderman is Associate Editor


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