Other State Level Reforms:

1)  The Elevator Effect of Premium Support

Freeing states from federal mandates would allow states to implement, on a voluntary basis, with converting Medicaid to a sliding scale premium support system. Currently, individuals lose Medicaid benefits once they reach a given income threshold. This discourages those on Medicaid from seeking employment that might surpass that threshold (taking such employment would cost them healthcare benefits).

By changing a portion of Medicaid to a sliding scale, a premium support system would allow patients on Medicaid to purchase better private coverage (if they so chose) rather than remain confined to the government run system. Not only would this mechanism give individuals on Medicaid improved access to primary care and preventative medicine, it would allow upward mobility as lower income Americans expand their skills to achieve higher paying jobs.

As the income of these individuals rise, the premium support would scale back. Many people presently locked into the Medicaid system could re-enter the work force. Over time this would have the effect of reducing Medicaid rolls.

2)  Direct Pay for Primary Care

According a 2009 Medical Group Management Association report, the average physician office requires 4.43 support staff for every provider. That number rises to 5.24 staff per physician for “better performers.”* The billing and administrative burdens of Medicare, Medicaid, and traditional insurance drive much of this need for excessive staffing.

By dropping all third party payers, a North Carolina physician (Brian Forrest, MD) reduced this ratio to 1.0 support staff per working physician. Running a direct pay / low overhead practice enables Dr. Forrest to spend more time with patients and achieve better outcomes at a fraction of the cost of a traditional practice. If a physician office can nearly triple its efficiency by ridding itself of the billing, collections, and administrative overhead of third-party payers, this massive inefficiency provides a target ripe for reform.**

What were the primary reasons for Dr. Forrest’s increased efficiency? His model eliminates unnecessary overhead and restores free-market forces. Patients know precisely how much a given visit or test will cost before seeking care; posting all prices on the web site and in the waiting room provides 100 percent transparency. The fact patients pay for his service incentivizes high quality care and gives patients some ownership of their healthcare decision-making. This represents free-market forces working at their best.***

Because Dr. Forrest does not bill Medicaid for his services, his Medicaid patients must pay the entire bill themselves. The fact these patients still choose to pay out-of-pocket to see Dr. Forrest, even though they could receive “free” healthcare at another clinic, speaks volumes regarding the degree of dysfunction in Medicaid. (Based on Wake County data, Dr. Forrest carries three times more patients on Medicaid than his peers).

Medicaid block grants would empower states to transform a portion of Medicaid to a low cost / high deductible plan combined with an HSA to capitalize on this efficiency. Patients on a direct-pay plan could access these high efficiency clinics and use their HSA to cover the cost. This would redirect routine medical care away from expensive emergency rooms toward primary care clinics where quality care can be given at a fraction of the cost.

Preliminary data (publication pending) suggests the increased efficiencies of this system would reduce state Medicaid spending by a minimum of 5 percent.#*

3) Other Constructive Alternatives

In February of 2011 Arlene Wohlgemuth, Brittani Miller, and Spencer Harris published an extensive analysis entitled “Medicaid Reform: Constructive Alternatives to a Failed Program.” Their paper examines many of the free market principles outlined above.#** States such as Rhode Island, Indiana, and Florida have all experimented with free market reforms.

After instituting basic Medicaid reforms, Rhode Island only spent $1.7 billion of the $2.6 billion planned for the first year. Wohlgemuth et. al. concluded, “Flexibility and lack of federal strings attached to the money are the factors generally credited for the savings.”#***

Indiana began its waiver program in 2008 resulting in a $100 million reduction in state Medicaid spending from 2007 to 2009. Wohlgemuth et. al. noted, “The Healthy Indiana Plan (HIP)… is modeled after a high-deductible health plan paired with a health savings account.”##*

These common sense benefits explain why Medicaid block grants enjoy bipartisan support, a rare phenomenon in today’s political environment. Not only did the blue state of Rhode Island launch the idea and the blue state of Washington seek to expand on it, block grants were embraced by Republican Congressman Paul Ryan’s balanced budget proposal.

Conclusion

Medicaid’s current system of an unlimited federal match fuels Medicaid’s current runaway spending. Over the past two decades, state Medicaid spending has grown by approximately 200 percent, quadruple the rate of growth of spending on elementary and secondary education, five times the rate of spending on higher education, and nine times faster than spending on transportation.##** Unless the current system of an unlimited federal match is fundamentally reformed, the explosive growth of Medicaid spending will crowd out state spending on other essential elements of a functional society.

This out of control spending now threatens both state and federal budgets. Yet, in spite of spending $427 billion a year on the program, patients on Medicaid have more difficulty finding a physician, and have poorer outcomes, than patients that remain uninsured. States must gain the flexibility needed to restructure their Medicaid programs to remain within budget and find novel solutions to reimburse physicians and hospitals at least the cost of delivering care.

Medicaid block grants provide a substantive yet practical solution to both the fiscal and the healthcare challenges America faces today. They:

•     Carry bipartisan support.
•     Could save enough money at the federal level to stabilize Medicare for seniors and avert the projected SGR cuts.
•     Give states the ability and incentive to create lean, efficient Medicaid programs.
•     Enable states to restructure their spending patterns to reflect what they feel best meets the needs of their citizens.

Standard & Poor’s recently downgraded the United States’ credit rating. The national debt now stands at $15 trillion. President Obama’s last budget predicted trillion dollar deficits as far as the eye can see. America must rethink its entitlement programs and find politically achievable solutions. In an age of relentless partisan gridlock, the time to transform Medicaid from a system of unlimited federal matches into a system of limited block grants is long overdue.