Paying More for Less

Medicaid fails taxpayers and patients.

Imagine a government-run health care program in which medical access is severely limited, that is racked by uncontrollably rising costs, and that in many instances results in demonstrably worse health outcomes than having no insurance at all. Such a program isn’t a mere hypothetical; it already exists, and it’s called Medicaid.

One might imagine that a program of such rotten pedigree might be ripe for reform, or even for trimming back. If so, one would imagine wrong. Just yesterday, the Senate voted to put $16 billion toward extending a temporary boost in Medicaid funding contained in the stimulus; the House is expected to follow sometime next week. Meanwhile, the Obama administration’s signature achievement—the new health care law—relies on an expansion of Medicaid for fully half of its projected increase in insurance coverage. According to the Congressional Budget Office, thanks to the Patient Protection and Affordable Care Act (PPACA), 16 million new individuals are projected to enroll in Medicaid by the end of the decade, and many experts believe that those estimates are low.

We’re not making Medicaid better, and we’re certainly not scaling it down. We’re making it bigger—and worse.

Medicaid, which is funded jointly by Washington and by state governments on a matching basis, was initially intended as a bulwark against further government intervention in the health care system. Designed to provide aid to the country’s poorest and sickest individuals, it cost about $9 billion in inflation-adjusted dollars during 1965, its first year in operation.

But instead of heading off additional government intervention, it became a vehicle for expansion of those efforts. In 2008, according to the National Association of State Budget Officers, the program accounted for more than 20 percent of total state spending. This year, the Department of Health and Human Services expects the program to cost just north of half a trillion dollars. At the end of last year, more than 46 million Americans were enrolled, according to the Kaiser Family Foundation. Medicaid outspends all other welfare programs combined, and, if not for the Medicare prescription drug benefit, it would already be more expensive than any other entitlement. And because much of this burden falls upon state budgets, most of which are constrained from emulating the federal government’s endless borrowing, local governments have little recourse except to tax more or cut programs and benefits.

What do we get for all that money? Not much. Numerous studies show that, on an array of specific maladies, Medicaid’s health outcomes are dismal—and in some cases worse or no better than the outcomes for individuals who lack health insurance entirely. A University of Pennsylvania study, for example, reported that colon cancer patients in Medicaid have a 2.8 percent mortality rate, compared with 2.2 percent for the uninsured. A study of Florida’s Medicaid patients found they were more likely to have late-stages of prostate cancer, breast cancer, and melanoma at diagnosis than the uninsured.

Part of the problem is that Medicaid’s reimbursements are so low that many doctors refuse to take patients enrolled in the program. Those low payments have paved the way for massive amounts of fraud and abuse in the system. Yet simply paying more—and more and more and more—is not an option. Indeed, over the past few decades, we’ve vastly expanded the amount of resources the program uses. Between 1970 and 2000, the program grew from $29 billion to $250 billion in 2010-adjusted dollars. And since its inception, Medicaid spending has almost always grown at a faster rate than its counterpart, Medicare.

So what to do? As appealing as axing the whole thing and starting over from scratch might be, there’s little to no chance it will occur in the current political environment. But at least in theory, it’s possible that the program will dwindle over time. As ObamaCare’s implementation nears, it’s possible, as the Heritage Foundation’s Edmund Haislmaier has suggested, that some states will simply choose to drop out of the program entirely.

In the meantime, we ought to follow the recommendations of John Hood, who argues in the most recent issue of National Affairs that Medicaid should be more like welfare—a temporary assistance program that includes time limits and work requirements. At the same time, we ought to put a stop to the matching grant process, in which states get extra federal money for each dollar they spend. Instead, the program should be funded by a single block grant indexed to the rising cost of health care.

ObamaCare’s reliance on Medicaid to expand coverage has dimmed the prospects for reform. But the alternative is the status quo, in which we devote ever-more resources toward a program that fails both taxpayers and patients. It’s all too easy to imagine a world beset by broken government programs. Shouldn’t we also be able to imagine one in which utterly dysfunctional programs no longer exist?

Peter Suderman is an associate editor at Reason magazine.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Tman||

    I always thought the best argument against government run single payer health care was always just to point at what a disaster Medicaid and Medicare have become. Because that's the US Govt model.

  • CatoTheElder||

    Don't forget about the VA!

  • Fiscal Meth||

    I'm pretty sure politicains have good health care.

  • Old Mexican||

    Just yesterday, the Senate voted to put $16 billion toward extending a temporary boost in Medicaid funding contained in the stimulus.

    It's for the children . . . of the elderly. So they don't have to burden themselves by providing for those that merely gave them life.

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  • Old Mexican||

    Ah, that is Medicare. Sorry, profligacy is always confusing...

  • ||

    Actually a lot of old people do end up on Medicaid, esp. if they need long term nursing home care. When they spend down their own resources to a certain point they will qualify for Medicaid.

  • poopy||

    Medicaid is for the poor, for children and the elderly.

    Any criticism of it means you hate the poor, the children and the elderly.

    Anyone who hats the poor, the children and the elderly is not worth listening to.

    So no criticism of Medicaid will be heard.

  • Jen||

    I didn't know putting hats on poor, old, and young people was such a terrible thing!

  • fart monkey||

    There is nothing wrong with voluntary charity.

    Involuntary charity, the kind where if you don't chip in then men with guns will drag you to court, is immoral and wrong.

  • Tim||

    With a handle like Fart Monkey, I'm guessing you don't get invited to many parties...

  • fart monkey||

    At least it's not unimaginative and boring like, I dunno, Tim.

  • Tim||

    Don't flost around with me, pal.

  • fart monkey||

    My father told me it's not nice to engage in a battle of the wits with someone who is unarmed, so I will leave you be.

  • Tim||

    Oh Yeah? Well the Jerk Store called and said that they're running out of you!

  • Fiscal Meth||

    Jesus Tim! Take it easy on the poor guy. I know he was asking for it but you really lost control man. I mean, that was just a blood bath. You'd better get out of here.

  • fart monkey||

    Careful Tim. You wouldn't want me to fly out of your butt.

  • Edwin||

    I think the word for that is actual "to behat" - transitive verb

  • Fiscal Meth||

    Ant> "to dehat"

  • Soonerliberty||

    Of course, he could be talking about a hat that fits around a smaller part of the man's body, the real thinking part. In that case, hatting poor, the children, and the elderly would be eugenics.

  • ||

    It is if they have the little propellers on top.

  • Some Guy||

    In the meantime, we ought to follow the recommendations of John Hood, who argues in the most recent issue of National Affairs that Medicaid should be more like welfare—a temporary assistance program that includes time limits and work requirements.

    So only those who are healthy enough to work should be able to get free healthcare?

    That may be the only worse idea than Medicaid as it is now.

  • pmains||

    I was wondering how we'd work the race card into this. Let me get into full agitation mode.

    <OUTRAGE!!!>
    John Hood? The Confederate general? Racist!
    </OUTRAGE!!!>

  • Colonel_Angus||

    I read that as meaning government subsiized health insurance should be means tested. Obviously if you can't work, you would qualify.

  • ||

    Private charity....first and only.

  • ||

    If you aren't healthy enough to work you qualify for the disability portion of Medicare, which is a far better option care-wise than Medicaid.

  • Joe||

    Nobody's surprised at this approach.

    It's the same approach that the administration is taking in Afghanistan--the current plan isn't working, so we should throw more money at it.

  • normcash||

    "results in demonstrably worse health outcomes than having no insurance at all." While I believe our health care system is a mess, there is no possible way this statement is true. There is no accounting for the people who suffer and die totally outside the traditional system. With Medicaid, they at least can participate to some extent in receiving a modicum of care, albeit on the margins. Medicaid is the new middle class health insurance.

  • Soonerliberty||

    Ever heard of the Hippocratic oath? People get treated no matter what here. That's why even "private" insurance premiums are rising and the state system is burdened. People aren't dying on the streets, no matter how badly one wants to find such an anecdote.

  • fart monkey||

    Some things can be paid for out of pocket.

    Some health care providers offer uncompensated care for those who do not have insurance but do not qualify for Medicaid.

    Sometimes if the patient is a member of a church the congregation will chip in to help.

    No insurance does not mean no care.
    It just means that the care is not paid for by insurance.

  • ||

    Also, they can just go to the emergency room and get free care. The hospital has to treat them.

  • iamtheeviltwin||

    Just because the ER is forced to treat the patient does not mean that the ER does not bill them, so the care is not "free".

    It's another matter whether that bill ever gets paid.

  • Colonel_Angus||

    "Medicaid is the new middle class health insurance."

    Bullshit.

  • ||

    People should never be forced to pay for something for someone else.

  • ||

    "results in demonstrably worse health outcomes than having no insurance at all." While I believe our health care system is a mess, there is no possible way this statement is true.

    I'm not sure how that result can be supported either, as I don't know what kind of control group they have (you'd need a group of Medicaid-eligible folks who weren't on Medicaid.) Just comparing Medicaid outcomes to non-Medicaid outcomes won't cut it, because the Medicaid demographic isn't as healthy and tends to be pretty goddam non-compliant with their treatment.

    That said, being on Medicaid means you get blackballed by a lot of doctors who won't take Medicaid patients, so its not impossible. . . .

  • Tim||

    "being on Medicaid means you get blackballed ...."

    Is blackballed a racist term?

  • fart monkey||

    no

  • Jen||

    I would bet at least part of it is also because the "uninsured" includes those who qualify for Medicaid but have chosen not to enroll (presumably because they're healthy), as well as the 10-15 million or so who make more than enough to pay for their own insurance but choose not to do so. So while the uninsured also obviously includes some poor and sick, it's not a monolithic group.

    Medicaid, on the other hand, must be comprised of those who make little enough to qualify for it, and low income is a factor in health outcomes right away. I also suspect that Medicaid enrollment often works the way the public "option" would have: no one enrolls until they have to because they got sick. If that's true, then there should be a higher percentage of the sick among Medicaid participants than among the uninsured.

    That's just a reasoned guess, by the way.

  • iamtheeviltwin||

    Here is a good talk @ CATO about the uninsured and health outcomes

    If you are not lazy you can find and read the reports cited during the discussion, many of which do control for income, education, etc.

    There are many areas where actual health outcomes are the same or worse for people with Medicaid/Medicare and the uninsured. It is an interesting discussion.

  • Contrarian P||

    Yes, we're jerks for actually wanting to get paid for working. Guess that whole "blackball" thing means we're evil. Damn.

  • ||

    The article was fine until the prescriptions at the end, which sucked.

    There is only one reason health care is rising in cost. It's regulation and institutions are bureaucratized.

  • ||

    All charity should be voluntary. The government should stay the hell out.....as always.

  • ||

    Part of the problem is that with government limiting pay during the world war employers started using insurance to add to benefits. It grew totally out of control to where if you need a splinter pulled you have to be insured! Insurance should be strictly for catastrophic events, not for birthing babies or lancing boils. My parents paid for me, they didn't just make a $20 copay. The number one thing government could do to fix this mess would be to not allow employers to pay ANY portion of an employees health insurance. Your employer doesn't pay your car insurance or food bill, your health care is your own responsibility. As it is you can't even buy just catastrophic health insurance, the states mandate insurers have to have all kinds of coverage for ALL policies. I'm a 50 year old hermit, I don't need birthing insurance.

  • ||

    Pay attention to where costs are most reasonable in health care. Cosmetics, where insurance doesn't cover it. I remember when vision and dental were almost never in insurance policies and you could afford to pay out of pocket. Now that almost all insurance covers them a pair of glasses cost a paycheck.

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  • Mary Medicaid||

    I work in healthcare billing, which can be a rather low paying field. I have never understood why they can't open the Medicaid program to the working poor on a sliding scale, like the CHIP program. I have worked with too many young women who have no healthcare coverage because they can't afford it on $9.00 an hour. Why do people who can't work get benefits, while those who are making an effort get nothing?
    For thirty years I have listened to Medicaid recipients complain because they can't get brand names, insist that they need their prescriptions delivered(and when you get to the house, there are several healthy people who could have easily picked them up), and buy cigarettes while they are waiting for their free prescriptions. Not all, but many. I can understand why some providers stop accepting Medicaid. Reimbursement is low, and in my state(PA), the reimbursement from the Medicaid HMOs is set at 60-70% of the Medicaid fee schedule. It is becoming difficult for people to find physicians who will accept their insurance. Who is this helping? Oh, right, politicians.

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