Politics & Policy

Are the GOP’s Proposed Medicaid Reforms Mean?

(Photo: Otnaydur/Dreamstime)
No, they’re not — especially in comparison with Canada’s single-payer system.

At a recent meeting with Republican senators, President Trump reportedly called the House GOP’s proposed health-care reform “mean” and suggested that the Senate enact reforms that are “more generous.” Trump has repeatedly praised Canada’s health-care system, which has a very similar structure to Medicaid, as offering a model for the United States to emulate. However, the reforms proposed in both the House and the Senate bills would in fact bring Medicaid even closer to the structure of Canada’s health-care system — only with a far more generous level of funding.

As Sean Speer of the Macdonald-Laurier Institute has recently noted, Canada’s health-care system has much in common with Medicaid: The federal government provides funds to support provinces in their efforts to deliver medical services to individuals. States administer these benefits within broad national guidelines, which prevent substantial cost-sharing from being imposed on beneficiaries. Detailed regulations fix rates for each service, which limit payments providers can receive in return for delivering care.

Canada’s federal funding system was established in 1957, with the national government providing one dollar for every dollar that provinces spent on hospital and physician services. By the 1970s this arrangement was widely recognized to be causing costs to soar, and the Liberal prime minister Pierre Trudeau reformed this “Canada Health Transfer” so that provinces would receive a fixed annual allocation from the national government.

In the United States, the federal government currently provides (without limit) $1 to $3 (depending on the state) for every dollar that states spend on Medicaid services for traditionally eligible beneficiaries such as the elderly, the disabled, children, and pregnant women. But as a result of the Affordable Care Act’s “Medicaid expansion,” it provides $10 for every dollar that states spend on medical services for able-bodied adults made eligible by that legislation. The so-called “repeal of the Medicaid expansion” proposed in both current GOP bills merely reduces this payment over time to align with the ratio of subsidies for providing care to traditionally eligible beneficiaries.

The U.S. Medicaid matching payment to states ($344 billion, or $1,071 per American, in 2015) already well exceeds the Canadian block grant to provinces (US$26 billion, or US$716 per Canadian) — even though the Canada Health Transfer is supposed to cover Canadians of all ages and income levels, whereas Medicaid is dedicated to 21 percent of the U.S. population with low incomes. U.S. federal taxpayers spend an additional $646 billion on Medicare, and $122 billion on other health entitlements such as CHIP or VA — yielding total federal health-care entitlement spending of $3,461 per capita.

Canada is not getting more value for money; it is just getting fewer services. Canada’s federal payment doesn’t cover prescription drugs; only hospital and physician services are paid for. Canada also saves money by rationing operating-room time and the ability of physicians to order costly services.

Nor does Canada pay significantly less for its physicians than the United States; it just limits access to the expensive ones. In 2010, family physicians earned incomes (net of practice expenses) averaging $159,000 in the United States and US$156,000 in Ontario, while cardiologists averaged $325,000 in the United States and US$283,000 in Ontario. According to the World Bank, the United States has 2.45 and Canada 2.07 physicians per 1,000 inhabitants, while the United States has 0.55 specialist surgeons per 1,000 and Canada 0.35.

As a result, a Canadian must wait an average of ten weeks for an initial consultation with a gynecologist, 38 weeks for joint surgery, and 47 weeks for neurosurgery — and then only after referral from a general practitioner. Waiting lists save lots of money because some patients get better by themselves, others give up seeking care, and a substantial number die before receiving treatment.

Canadians wait ten weeks for an initial consultation with a gynecologist, 38 weeks for joint surgery, and 47 weeks for neurosurgery — and then only after referral from a general practitioner.

Medicaid doesn’t face such acute problems, precisely because it has traditionally focused its resources on providing the most essential services to the neediest of the poor, rather than pretending it can pay for all things for all people. As a result, Medicaid beneficiaries receive primary care, preventive care, and specialty care at rates similar to the privately insured.

But the expansion of the program to able-bodied childless adults has undermined this focus, and the allocation of federal payments by open-ended matching has caused funds to be distributed according to how much states can themselves afford to put in. As a result, the states that need help the least received the most assistance. In 2015, Connecticut collected $12,240 in federal Medicaid funds per resident under the poverty line, whereas Alabama received only $4,070.

To keep funds from being captured by the richest states (which generally use them to expand eligibility to wealthier individuals who mostly already had private coverage), it therefore makes sense to cap the increase in funding that each state is able to claim from the federal government every year.

The Canada Health Transfer currently increases the funds received by each province at a standard rate of 3.0 percent every year. By comparison, the House GOP’s proposed reform would limit the annual increase in federal payments claimed by each state to a statistic that has increased around 7.0 percent for spending on the aged and disabled and 4.9 percent for that on able-bodied adults and children (assuming medical inflation continues at its rate since 2000 and CBO’s enrollment projections are correct). The Senate bill would match the House’s caps but allow the Secretary of Health and Human Services to adjust them up 0.5 to 2.0 percentage points for states with spending below the national average, and down 0.5 to 2.0 percentage points for states above the national average. From 2025, the base Senate caps would increase by around 3.4 percent every year for all enrollee categories.

Over time, this will help ensure better ongoing scrutiny of Medicaid spending, more cost-conscious management of priorities by states, and a fairer allocation of resources that puts the neediest first.

Canada’s health-care system might be mean by comparison, but the Medicaid reforms proposed by the House GOP are not.

READ MORE:

The GOP Is Right: Medicaid Needs Fundamental Reform

Despite Democrats’ Hyperbole, Republicans’ Medicaid Reform Is Not Unreasonable

The Good, the Bad, and the Senate Health-Care Bill

Chris Pope is a senior fellow at the Manhattan Institute.

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