Saving Patients from Medicaid

by Charles Katebi

Liberals frequently claim that Medicaid expands healthcare options to the less fortunate. But without major reforms, Medicaid will become a major barrier for patients seeking care.

Medicaid's looming threat to patients stems from its wasteful reimbursement regime. The program pays most doctors, hospitals, and clinics on a fee-for-service basis. The more they test and treat, the more they're paid. These perverse incentives encourage doctors to provide as many services as possible, regardless of their cost or health benefits.

Furthermore, Medicaid patients have no reason to demand affordable healthcare. Unlike private insurance, Medicaid charges almost no copays, deductibles, and other out-of-pocket fees that encourage patients to seek cost-effective treatments. Federal regulations bar states from charging Medicaid recipients more than $4 for physician visits, $8 for non-emergency ER visits, and $75 for inpatient hospital care. With so little exposure to their healthcare's underlying costs, it makes no difference to recipients whether their doctor charges $10 or $1000. As a result, Medicaid's spending in Wyoming has increased 40 percent since 2007.

While Wyoming could afford Medicaid's out-of-control spending during its mineral boom, those days are over. Thanks to the EPA's War on Coal and the recent collapse in oil and gas prices, the Consensus Revenue Estimating Group estimates that the state will collect $1.1 billion less in tax revenue over the 2017/2018 Biennium than in 2013/14, a decline of 28 percent.

In the wake of Wyoming's worsening budget forecasts, the Department of Health announced they're cutting Medicaid's budget by $140 million over the next 18 months. Given how little control Wyoming has over Medicaid expenditures, the department will likely resort to slashing compensation to doctors.

As the Health Department's director, Tom Forslund, explained at Wyoming's Joint Labor and Health Committee's latest meeting, reimbursement cuts primarily harm patients:

"[If] you drop reimbursement rates too low, providers won't take Medicaid clients… Over the course of years, states have said 'we can't afford to keep reimbursing at these rates.' They get down to such a low amount that they have a hard time finding providers who will sign up for the Medicaid program. As we start to reduce payments."

Forslund is absolutely right. Other states have slashed Medicaid's reimbursements so low that few providers can afford to treat its recipients. In many metropolitan areas, Medicaid patients wait weeks and even months before a doctor accepts them.

In order to save Wyoming's Medicaid patients from the same decline in healthcare access, we must reform the program's unreliable payment regime that threatens to deprive them of care.

One possible reform would replace Medicaid's fee-for-service reimbursements with a direct stipend or credit. Patients could spend these credits on any medical service they like, in any way they like. They could use them to buy coverage from an insurance carrier or health maintenance organization. Or they could purchase their healthcare directly by contracting with a concierge or direct primary care practice.

Letting Medicaid patients control their healthcare dollars will incentivize them to seek the best health coverage at the lowest price. If a patient spends less than their allotted subsidy in any given month, the rest is rolled over for them to use next month. Patients therefore have an incentive to seek low-cost healthcare options when they're relatively healthy so they can accumulate enough savings for when they're sick.

Giving patients a financial stake in controlling their healthcare spending would also reduce Medicaid's burden on taxpayers. The Congressional Budget Office estimates that similarly replacing Medicare's fee-for service payment scheme with private insurance would reduce its spending by 11 percent over ten years. A separate study, published by the Kaiser Family Foundation, found that enrolling seniors on private insurance would be cheaper than traditional Medicare in 40 of 50 states (including Wyoming), by introducing:

"a more competitive marketplace for plans and beneficiaries, giving beneficiaries stronger financial incentives to choose low-cost plans to reduce their out-of-pocket costs."

In practice, these reforms reduce costs even more than experts forecast. In the late 1990's Medicare implemented a temporary pilot program in Denver that gave seniors subsidies to buy private health insurance. Since insurers had to compete for patients on price, they offered health plans that cost 25 to 38 percent less than traditional Medicare. Imagine if Wyoming introduced these dynamic incentives in Medicaid.

The Cowboy State faces a choice. We can leave Medicaid unchanged and let low-income patients suffer as reimbursement cuts drive providers away. Or we can modernize Medicaid through reforms that give patients greater control over their healthcare and deliver better value for taxpayers.