The Agenda

What Paul Krugman Misses About the Medicaid Model

Paul Krugman touts the virtues of Medicaid, drawing on the fact that its per enrollee cost appears to have been flat over the past decade:

Ah, but you say, Medicaid patients have trouble finding doctors who’ll take them. Yes, sometimes, although it’s a greatly exaggerated issue. Also, middle-class patients would surely be unhappy if transferred from the open-handedness of Medicare to the penny-pinching of Medicaid.

But the problems of access, such as they are, would largely go away if most of the health insurance system were run like Medicaid, since doctors wouldn’t have so many patients able and willing to pay more. And as for complaints about reduced choice, let’s think about this for a moment. First you say that our health cost problems are so severe that we must abandon any notion that Americans are entitled to necessary care, and go over to a voucher system that would leave many Americans out in the cold. Then, informed that we can actually control costs pretty well, while maintaining a universal guarantee, by slightly reducing choice and convenience, you declare this an unconscionable horror.

Elsewhere in the New York Times, Robert Pear describes some of the ways in which the insurance plans available on the new state-based insurance exchanges will resemble Medicaid:

When insurance marketplaces open on Oct. 1, most of those shopping for coverage will be low- and moderate-income people for whom price is paramount. To hold down costs, insurers say, they have created smaller networks of doctors and hospitals than are typically found in commercial insurance. And those health care providers will, in many cases, be paid less than what they have been receiving from commercial insurers.

Some consumer advocates and health care providers are increasingly concerned. Decades of experience with Medicaid, the program for low-income people, show that having an insurance card does not guarantee access to specialists or other providers.

Consumers should be prepared for “much tighter, narrower networks” of doctors and hospitals, said Adam M. Linker, a health policy analyst at the North Carolina Justice Center, a statewide advocacy group.

“That can be positive for consumers if it holds down premiums and drives people to higher-quality providers,” Mr. Linker said. “But there is also a risk because, under some health plans, consumers can end up with astronomical costs if they go to providers outside the network.”

Krugman suggests that problems of access “would largely go away if most of the health insurance system were run like Medicaid, since doctors wouldn’t have so many patients able and willing to pay more,” though it is also possible that some doctors will choose to stop practicing medicine under this scenario. There are other ways to relieve supply constraints, e.g., relaxing licensing requirements for physicians trained overseas, allowing non-physicians to take on more responsibilities, etc., measures that ought to be pursued regardless of how we finance the health system. 

But consider another way of thinking about the Medicaid program’s costs, which I owe to David Goldhill’s excellent book Catastrophic Care. Medicaid’s low prices yield good profits for high margin, high volume treatments. But administratively-set low prices yield low profits for low margin care, like labor-intensive primary care. This helps explain why there is such a shortage of primary care physicians willing to take on new Medicaid patients, as Michael Ollove reported back in February:

A report published last year in Health Affairs signaled trouble ahead. According to that study by Sandra Decker, an economist at the National Center for Health Statistics, only two out of three primary care physicians surveyed in 2011 were willing to accept new Medicaid patients. Larger numbers said they would take on new Medicare patients or see new patients with private insurance. Medicare, health care for the elderly, is a purely federal program; Medicaid, which covers many poor people, is a joint state and federal enterprise.

The latest findings are particularly worrisome because they come on top of an existing national shortage of primary care doctors. A report by the Association of American Medical Colleges found that the United States needed 9,000 more primary care doctors than it had in 2010 and projected that the shortfall would grow to nearly 30,000 in 2015, when millions more Americans will have health insurance coverage thanks to President Obama’s Affordable Care Act. (The Agency for Healthcare Research and Quality estimates that in 2010 there were 209,000 primary care physicians in the U.S.)

Poor compensation in relation to other specialties helps explain the primary care shortage. Money is also a likely explanation for why those who do practice on the front lines of primary medicine are reluctant to take on new Medicaid patients. On average, Medicaid pays physicians 59 percent of the amount Medicare pays for primary care services. And it’s not as if doctors regard Medicare as extremely generous. [Emphasis added]

The ACA does have a provision which increases compensation for primary care physicians:

The authors of the Affordable Care Act foresaw that there would be a growing shortage of primary care doctors for Medicaid when expansion occurs January 1, 2014. That’s why the law includes a provision that raises the Medicaid fees paid to doctors practicing primary care medicine to the same levels Medicare pays for those services. The Medicare-Medicaid match went into effect January 1 this year and will remain in effect for two years. Best of all from the states’ point of view, in most cases the federal government will bear the entire cost of that increase. (Most other Medicaid costs involve both state and federal contributions.)

As a result of the provision, Medicaid physician fees for primary care services have climbed an average of 73 percent, according to a report prepared for the Kaiser Family Foundation by the Urban Institute. It is the biggest fee increase in the history of Medicaid. (KHN is an editorially independent program of the Kaiser Family Foundation.)

But whether the pay raise will accomplish what its champions intended is hardly a given. One drawback is its sunset provision in two years. No one knows what will happen at that point. Will states be willing to contribute to the higher pay rates after two years? Will the federal government extend the pay raise?

What isn’t clear is whether states will be willing to finance this increase after two years, or if the federal government will be willing to keep financing the pay increase. And if the pay increase does remain in place, Medicaid’s per enrollee cost will presumably increase. Krugman is overlooking some of the challenges the Medicaid model faces as it expands.


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