The Medicaid Fallacy

As are many states, the Maine legislature is fighting tooth and nail to expand Medicaid under the hope that if more people have health-care coverage, the more healthy the population will be. In reality it is the opposite. You may ask how can that be. The short answer is Medicaid drives up costs and produces poorer medical treatment outcomes. That sounds backwards doesn’t it. Lets take a closer look to see why.

Medicaid is a publicly funded health insurance program run by the state and subsidized by the federal government. The Federal government matches Maine’s spending at 61.8% That means for every dollar Medicaid spends 61.8 cents comes from Washington. There is no cap on this subsidy so the more Maine spends, the more Washington pitches in.

Because of the matching fund formula states like Maine are reluctant to adopt cost-reducing policies. This creates a bias in favor of maintaining or expanding the program. Additionally, any savings a state realizes must be shared equally with the federal government, further reducing incentives to cut costs.

Medicaid payments for care vary from 58% to 75% of what private insurance pays for the same care. In addition excessive and complex paperwork result in late payments or denial or payment. As a result Doctors are reluctant to accept Medicaid clients. Or the reduced reimbursement fee is passed on to patients with private insurance. The end result is an over all reduction the availability of health care for Medicaid recipients.

Medicaid contributes to poorer treatment outcome. Limited access to doctors and treatment are likely to cause patients to put off seeing doctors and are more likely to use emergency care. Medicaid recipients are three times more likely to use emergency room than patients with private insurance. As a result patients on Medicaid have a greater frequency of a late diagnosis. As a result patients on average stay an extra three days in hospital visits over patients with private insurance. The mortality rate among Medicaid patients is twice that of a patient with private insurance.

Last but not least Medicaid has shown no overall positive effect on health for the general population. Data from the Oregon Study ( a two-year randomized controlled study) suggests that Medicaid has no real impact o the over all health of Oregon’s population. The two-year study revealed that there was no change in hypertension or high cholesterol. In fact the risk of diabetes increased. The only positive outcome was a reduction in depression.

Instead of expanding Medicaid it should be at a minimum be reformed. For example, replacing the matching grant formula with fixed payment will give states freer reign to adopt reform without seeking permission and give states stronger financial incentives and greater ability to manage their programs. By using block grants you can create a fixed grant, that is indexed to inflation. Block grants do not increase as program spending increases. This gives states a stronger incentive to control costs without penalizing them.

In conclusion Medicaid is the largest public health program for low-income individuals and families. Expanding Medicaid recipients will add significantly to the cost of health care and will result in lower patient outcomes for the poor enrolled in Medicaid and no significant change in the overall health. Clearly private insurance is a better alternative. it should be the goal of the federal and state government to exit the insurance market all together and let free markets and consumers control costs.

Sources: “Oregon Experiment – Effects of Medicaid on Clinical Outcomes” New England Journal of Medicine and “The Economics of Medicaid” Mercatus Center


About TimUwe

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