From a mere blip on state government's radar screen thirty years ago, Michigan's Medicaid program has ballooned into a $4.5 billion giant. That price tag is more than double what it was in 1990. Everyone agrees that something has to be done about runaway costs, but some solutions clearly offer more promise than others. Health care for the 1.1 million Michigan poor, disabled and elderly who currently receive Medicaid benefits hangs in the balance.
Many reasons explain Medicaid's explosive growth. To begin with, it's the nature of the beast. Government programs almost always come with incentives built-in for more spending, paperwork, and bureaucracy. Politicians invariably expand the scope of a program if doing so buys more votes. From its original purpose of providing health care to the poor, Medicaid now includes long-term care for the elderly middle class. Furthermore, Congress has burdened the program with a lengthy list of unfunded mandates. In a recent year, according to a Mackinac Center for Public Policy study, those mandates cost Michigan taxpayers an additional $100 million.
Even worse, government policy within the Medicaid program has inflated health care costs for almost everyone else. The practice of reimbursing physicians and hospitals at well below market rates when they serve Medicaid patients has shifted billions of dollars in costs onto other people who get their health care through private insurance. At the same time, fewer and fewer providers are willing to even treat Medicaid patients and when they do, those patients sometimes receive "second class" health care.
Recent reforms have slowed the growth in Michigan's Medicaid spending from a gallop to a trot. To slow it even further, the Engler administration plans to place Medicaid recipients into "managed care" plans that would restrict their choice of physicians and procedures and exert tighter control on overall spending. Managed care programs administered in the private sector by HMOs (Health Maintenance Organizations) have indeed curtailed costs by rationing care, but they are not the only option for Medicaid reform.
Vouchers for Medicaid recipients to purchase private insurance in place of the current government program is one option that could curtail costs without restricting personal choice. The value of a voucher would be sufficient to buy private insurance that covers what Medicaid now does. Insurers would compete for the voucher dollars of Medicaid clients on the basis of the benefits offered, crafting policies to meet individual needs. Individuals could purchase policies that more closely meet their personal requirements, rather than those which Congress or the bureaucracy dictate.
Because they would be privately insured like almost everyone else, Medicaid patients would no longer get the second class treatment they sometimes receive now. Reimbursements would be at the same rates as under all other private insurance. Health care providers would no longer be short-changed for treating the poor, which would eliminate cost-shifting and benefit all consumers in the health-care marketplace.
Another positive reform idea involves Medical Savings Accounts (MSAs). The idea behind MSAs is to empower individuals to pay their smaller medical bills from their own portable, tax-free savings accounts. Low-cost insurance policies with high deductibles would take care of their more expensive health problems. Congress recently approved a very limited experiment in MSAs that should be expanded at the earliest opportunity. By allowing everyone to set up MSAs, Congress would encourage people to save for their medical expenses. Over time, that could relieve Medicaid of the burden of providing long-term care for the middle class.
Preventive health care is a proven cost-cutter that would be enhanced by both vouchers and MSAs. Creating new incentives for prevention offers enormous promise for reducing the nation's health care bill. By bringing Medicaid recipients into the private insurance market, vouchers will give those patients greater access to preventive care. MSAs would give each citizen a powerful incentive to invest in prevention: a small amount spent for prevention today would mean less need to draw from one's own savings account later.
Getting the government out of the business of health care may be the best policy in the long run. Neither vouchers nor MSAs would completely do that. However, they do represent incremental, common-sense approaches to solving major problems that thirty years of Medicaid now present.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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