Winning the ‘Right Now’ of Medicaid

by Nicole Gelinas

My colleague David Gratzer writes in Politico that President Obama, in attempting fiscal restraint, “should start by championing one [idea] that House Budget Chairman Paul Ryan (R-Wis.) is promoting: Reform Medicaid by turning it over to the states.”

That is, Washington would stop matching states’ spending on Medicaid, often more than dollar for dollar, as it does now. Instead, Washington would give each state a set amount of money, increasing each year by population and inflation (and maybe some other metrics, like age of population).

States would have the motivation to be efficient without hurting care, rather than be as inefficient as possible to wring more “free” federal dollars.

I agree wholeheartedly that Medicaid is the best place to start, for the reasons that Gratzer explains.

I also think Medicaid a far better place to start this debate than Medicare. (Remember, Medicare is for elderly people. Medicaid is mostly for poor and working-class people who don’t have private insurance, plus for poorer elderly people who receive nursing care.)

Much of the commentary surrounding Obama vs. Ryan has focused on Ryan’s Medicare plan: the proposal, starting eleven years from now, to transfer the risk of increases in retiree health-care costs from the government to retirees and insurance companies. Ryan’s thinking is that insurers will compete to drive down the cost of care without harming quality of care, and that discerning retirees won’t want to pay for health care they don’t need, driving down costs by eliminating wasteful tests and prescriptions. 

But Ryan’s plan is unlikely to fly politically unless Americans see progress on reining in the cost of health care now. With enough flexibility from Washington, states could lead the way in showing such progress on Medicaid. 

How? States could compete against one another to see which approach works. Would aggressively negotiating on prices, and having the government determine which treatments are cost-effective and which are not, work, as Obama thinks?

Or would encouraging competition between insurers work better, and, if so, would patients be willing to accept insurer determination of which treatments are cost-effective and which are not?

Would asking working Medicaid patients to pay for some of their own care help eliminate unnecessary tests, or would it result in higher costs by delaying treatment? Do states that spend more have healthier populations, or can states spend less money more wisely, without denying expensive procedures like transplants?

These are empirical questions — and if we start now with fixing Medicaid, we could get some answers well before eleven years from now.

Good results would help build support for a better Medicare fix. Ryan’s plan, starting eleven years from now, would exempt all then-current seniors from mandatory participation in the new Medicare, seemingly forever.

But creating two tiers of Medicare recipients, not just for a short transition period but for decades, seems unworkable. For one thing, younger retirees could end up paying higher insurance premiums not because of free-market forces, but because doctors and hospitals with a mostly elderly patient base would need to charge the private insurers more to make up for lower payments in traditional Medicare.

Why not design a plan that would apply to all retirees — and thus necessarily win the support of older retirees, too, by presenting evidence that the new plan would be just as good as the old?

The only way to do that, though, is to show results well before then. So, instead of “winning the future” of Medicare, we should start winning the right now of Medicaid.

— Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal

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