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Pennsylvania's Marketplace of Ideas
Pennsylvania's Marketplace of Ideas
PAtownhall.com
Pennsylvania's Marketplace of Ideas
Pennsylvania's Marketplace of Ideas
by Michael Bond
Medicaid, the joint federal/state program that was created to provide health care for the poor, is growing at an unsustainable rate and threatens both state and federal budgets. In 2000, Medicaid represented 2% of Gross Domestic Product (GDP) and is projected to rise to 9% by 2075. This, combined with unfunded liabilities in Social Security and Medicare, will require a devastating doubling of federal taxes and enormous increases in state funding. In 1980, Medicaid represented around 12% of Pennsylvania's state budget. As of 2007, that total had increased to almost 26%. At this rate of growth, Medicaid will consume 94% of the Pennsylvania budget in the year 2075.
Unfortunately, the enormous fiscal problems facing Medicaid often overshadow its other major flaw: a well-deserved reputation as a low-quality provider of health care. The program delivers episodic treatment, provides poor preventive care, and offers low-quality services to many beneficiaries. The plan produces some tragic health outcomes for America's most vulnerable populations. It is routinely abused by both providers and beneficiaries. This ranges from Medicaid "mills" to outright theft. There have been estimates that as much of 40% (over $100 billion) of Medicaid spending involves abuse and fraud.
To reform Medicaid, Pennsylvania should establish an Insurance & Provider Exchange (IPE). The IPE would be nothing more than a market from which Medicaid beneficiaries would purchase their health care. Providers could offer packages of services to the enrollees at the IPE. The role of the state will change from being the buyer of health care to facilitating a marketplace for users. Those eligible for Medicaid will receive risk-adjusted credits to purchase services from competing plans.
Beneficiaries would receive a Medicaid Health Credit from the state to buy the coverage they want at the IPE from competing providers. This may be an HMO, a network plan, an Health Savings Account (HSA)-type product or some hybrid product. This would turn Medicaid into a real market, in which buyers act in their own interest and providers compete to enroll beneficiaries. It would produce gains in efficiency that would make Medicaid sustainable in federal and state budgets and, just as importantly, improve the quality of health care that beneficiaries receive.
Those enrolled in Medicaid will receive credits that are actuarially adjusted based on risk factors. This will induce new providers to enter the marketplace and focus on treating the sick rather than "cherry picking" the healthy. In order to promote competition in rural areas, the state should reinsure smaller plans. Beneficiaries also should receive "Reverse Health Savings Accounts," which would be used to encourage them to engage in cost-saving and health-improving behavior.
Medicaid enrollees should be free to use their Medicaid Health Credits to join existing employer-provided plans. Given that a significant number of new Medicaid enrollees in the last 15 years dropped family coverage, this could be a low-cost way of offering coverage to these groups. Since many of them are above the poverty level, the state could offer grants to them on a sliding scale, with high amounts for the poorest and lower amounts for incomes near the arbitrarily established income limit.
While this exchange model may seem worlds away from Pennsylvania's current Medicaid program, it is a realistic reform within our grasp. The state of Florida received approval from the federal government to begin converting their Medicaid plan to an exchange model. In its early stage, these reforms are working well.
Medicaid is in serious trouble. It delivers low-quality health care, and its long term fiscal situation is unsustainable. Pennsylvania should move to reform its troubled Medicaid program immediately. The creation of a marketplace in Medicaid would improve the quality of care for beneficiaries since they can switch to alternative providers offering real choices in care. It would also accelerate innovation in the delivery of medical care and produce efficiency gains in the Medicaid program. Competition would translate these productivity gains into lower program inflation. The compounding effect of this reduced cost growth would make Medicaid far more sustainable in the Commonwealth of Pennsylvania. It is time for Pennsylvania to look to bold reforms for Medicaid along these free-market lines.
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Michael Bond, Ph.D., is a Senior Fellow at the National Center for Policy Analysis. This commentary is based upon a full-length report Medicaid Reform: Mending the Holes in Pennsylvania's Health Care Safety Net, available at www.CommonwealthFoundation.org. The Commonwealth Foundation is an independent, nonprofit public policy research and educational institute based in Harrisburg.
Permission to reprint is hereby granted provided the author and affiliation are cited.
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