Reforming Our Awful Medicaid Program Requires Massive Doses of Political Courage

Republicans don't know how to roll back Obamacare's massive expansion of this lousy program.


Medicaid is arguably the civilized world's worst health insurance program. And while the bulk of the commentarati has been fixated on reforming Obamacare's

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exchanges, the far bigger political challenge will be dealing with the law's expansion of Medicaid.

Even before Obamacare was foisted on an unwilling nation, this joint federal and state program had become firmly entrenched in every state because Uncle Sam on average gives states 50 cents for every dollar they spend on purchasing health coverage for the poor. Because of this federal largesse and incentive to spend, Medicaid has grown astronomically, becoming the single biggest ticket item on virtually every state budget. But it's not just expensive — it provides lousy coverage, too!

Unfortunately, instead of fixing this terribly flawed program, President Obama essentially money-bombed states into expanding it even further. He offered to pick up 100 percent of the tab for the first three years for every additional person they covered up to 138 percent of the poverty level. After that, he'd taper it to 90 percent in perpetuity. Thirty-one states and the District of Columbia accepted the offer. But 19 states refused. Liberals will tell you that these GOP-run states are helmed by heartless monsters who don't care about the health of poor people. But the truth is that they just didn't want to be left holding the bag in case Uncle Sam reneged on Obama's unsustainable promise.

Of the 16.6 millions previously uninsured Americans who obtained ObamaCare coverage between December 2013 and September 2016, only a net of 2.8 million did so via private coverage, according to Heritage Foundation's Edmund F. Haislmaier. The balance — a whopping 13.8 million — got it through Medicaid and its companion program for children, called CHIP.

In total, Medicaid now covers almost 75 million Americans. And even before ObamaCare took effect, Medicaid paid for almost half of all births in America. That is stunning — and it's a number that has surely grown post-Obamacare.

Medicaid's massive footprint would be acceptable if the program offered quality care at affordable prices. But it doesn't. The combined annual cost of the program now exceeds half a trillion dollars (with the feds' share at 63 percent and states' at 37 percent) — which adds up to roughly $7,000 for every man, woman, and child covered by the program. This is on par with the costs for private coverage. But do Medicaid recipients get comparable service? Far from it.

Several reputable studies have found that Medicaid patients experience no better health outcomes than uninsured people, and arguably even slightly worse outcomes. But the most stunning of all was a 2013 study on Oregon's Medicaid program co-authored by ObamaCare architect Jonathan Gruber of MIT. By luck, it was the closest thing in real life to a controlled experiment.

Here's what happened: Thanks to a budget crunch, Oregon was forced to rely on a lottery to distribute Medicaid coverage to 30,000 out of 90,000 applicants. These people were similar in every essential respect except that some got Medicaid and others didn't. Gruber compared the health outcomes of both groups and concluded that Medicaid "generated no significant improvement in measured physical outcomes" for diabetes, high cholesterol, high blood pressure, and even mortality rates. (Medicaid patients did report better mental health outcomes.)

Liberals claim that repealing ObamaCare will kill people. But at least as far as ObamaCare's Medicaid component is concerned, the opposite might in fact be closer to the truth.

Nor is it hard to understand why. Medicaid reimburses doctors so poorly that providers literally shun recipients. This means that Medicaid patients face far longer wait times to see primary care doctors, specialists, or get surgery. Often they end up in the emergency room just like the uninsured. And in non-emergency situations, the uninsured might in fact get better care than Medicaid patients because doctors have more flexibility to charge them market prices.

Clearly, the program is crying for radical surgery. And Republicans, to their credit, have some pretty decent ideas for how to perform it.

The leading GOP idea is to block grant Medicaid and give states an annual lump sum tied to inflation, basically ending the open-ended entitlement that's burning a hole in federal and state coffers. (Again, for most states, Medicaid is the single biggest — and the fastest growing — budget item.) Republicans would also get rid of the federal mandates that force states to offer a prescribed set of benefits and, instead, let them experiment with alternative arrangements. For example, states could offer beneficiaries the option of buying catastrophic coverage to guard against some unforeseen and costly illness and combine it with a Health Savings Account — basically a tax-free IRA — to pay for routine care and other out-of-pocket expenses. Any balance at the end of the year would roll over into the next year.

This arrangement would give patients a good reason to shop more prudently. Over a period of time, this would curb health care inflation and lower overall spending. The Congressional Budget Office has estimated that block grants could cut Medicaid spending by up to a third over a decade.

This is hardly a new idea. But the reason it hasn't gone anywhere is because liberals hate the notion of anything less than full-blown, guaranteed public insurance that in theory covers everything, never mind the sordid practical reality. But after ObamaCare, the politics of such reform are going to be even more intractable.

Here's why:

Essentially, if the block grant to each state is calculated based on its pre-ObamaCare Medicaid population, many of the newly covered would lose insurance, surely triggering a popular revolt. However, if the block grants were based on the post-ObamaCare Medicaid population, the 19 states that did the fiscally responsible thing and didn't sign up for ObamaCare's Medicaid expansion would be unfairly penalized. And given that all these states have Republican governors, GOP lawmakers on Capitol Hill would have to face the wrath not only of liberals but also their own party. It's hard to imagine President Trump, a man obsessed with polls, signing up for either of these outcomes.

The other alternative would be to give all states enough money to cover everyone at 138 percent of the poverty level. But this would mean that the GOP's repeal-and-reform would be even costlier than ObamaCare itself.

Republican Gov. John Kasich of Ohio, a Medicaid expansion state, has indicated that he would be willing to accept block grants covering only people up to 100 percent of the poverty level in exchange for more operational control. However, convincing dozens of other governors to go along with telling millions of Americans they no longer get Medicaid would be… an uphill task. Making things even more difficult: This would have to be settled before April so that it could be included in the budget reconciliation bill that Republicans want to push out before insurers finalize their 2018 plans for participating in ObamaCare.

ObamaCare is like a Rube Goldberg contraption. Taking it apart and reassembling it is easier said than done — even if it's the right and smart thing to do. And if Republicans can't figure out a way to do so, American patients and taxpayers will be the big losers.