Let States Make Medicaid Better

‘I don’t appreciate being told that I’m not nice. I’m a very nice person. I’m just pissed.” Those were the exasperated words of Aurora, Colo., psychologist Lisa Griffiths directed at “mediators” hired by the Colorado state government to ease tensions over Medicaid reimbursements. The mental-health providers who attended the forum — designed to enable the providers to voice their frustrations to the mediators — want to help low-income patients on Medicaid get the care they need. But they are stymied by a system that is, in the words of the Colorado Sun’s Jennifer Brown, “rife with administrative burdens, convoluted requirements and . . . delays in payment” that make the provision of even the simplest services appallingly complicated. And, sadly, this bureaucratization of government insurance has taken root across the country. It’s time for policy-makers in state capitals and Washington, D.C., to take a long, hard look at Medicaid and implement much-needed reforms.

Health-care-assistance programs such as Medicaid are supposed to be nimble and help vulnerable and low-income people get essential services without financial ruin. That’s difficult, though, when doctors are afraid to accept Medicaid patients for fear of dealing with a sprawling and far from friendly bureaucracy. According to a study released last year by researchers from the University of Chicago, the Federal Reserve Bank of San Francisco, and the U.S. Bureau of Economic Analysis, nearly 20 percent of initial claims submitted to the federal insurer face at least partial rejection. In comparison, only about 5 percent of claims submitted to private insurers were not paid in full.

The study’s authors acknowledge that these figures might not be fully comparable, but the wide disparity highlights the very real complaint of doctors that Medicaid is too complicated with too many middlemen. Sometimes these are managed-care organizations or independent review boards imposing standards on state Medicaid plans, but all of these layers create extra complications for physicians trying to get a simple reimbursement for care rendered.

These issues have led to more than just gripes from already-overworked doctors. Across Illinois, for example, “[doctors’] offices have already closed and the closures have created medical deserts in some of the . . . most vulnerable communities” because of onerous reimbursement procedures. Medicaid complications also impose a tax on some of the nation’s largest health-care providers, ensuring higher costs that are then passed along to taxpayers and other patients in the system.

When hospitals have too many psychiatric patients relative to “medical” patients, they risk falling out of compliance with federal Medicaid reimbursement guidelines. This in turn means that hospitals that serve as “last resort” institutions for patients suffering from mental illness must scramble to get approval to spin off campuses as standalone psychiatric hospitals just to keep Medicaid dollars coming in. These rigid rules and classifications leave patients behind and only succeed in creating administrative bloat.

The rampant bureaucratization of Medicaid is only a small part of a larger issue facing states and federal governments. In a recent conversation between George Mason University economist Alex Tabarrok and New York Times columnist Ezra Klein, Klein highlighted a troubling trend. Government programs garner criticism from lawmakers and the public for frivolously spending taxpayer dollars, and, as a result, program rules and conditions are introduced to fight this frivolity. These measures, which admirably try to address these complaints, just tend to muck things up and reinforce the idea that dealing with bureaucrats is a slow and costly process.

Policy-makers can steer clear of wasteful spending and bureaucratization by jettisoning the complicated structure of Medicaid and giving program dollars directly to low-income families. States such as Arkansas have already implemented this approach, recognizing that individually purchased private insurance is far superior to government insurance. Under this system, doctors can treat vulnerable patients without worrying about Medicaid not approving claims in full or clawing back already-paid claims. Other states such as Texas take a more middle-of-the-road approach, using Medicaid dollars for a stabilization fund to directly reimburse the claims of the uninsured instead of going through the federal billing process.

But these innovative approaches require the federal government to sign off on “waivers” for states to use Medicaid dollars as they see fit. These waivers are being jeopardized by the Biden administration, which has signaled its suspicions of health-care federalism.

It’s time for federal officials to give states a freer hand in shaping their own Medicaid programs, while moving toward a private-insurance model supported by income-based tax credits. The out-of-control bureaucratization of Medicaid must come to an end.