Pursuit of Truthiness

my gut tells me I know economics

Win-Win Medicaid Reform

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In my recent post on a way forward after a ruling for the plaintiffs in King vs Burwell, I suggested Republicans use the opportunity to do a sort of Medicaid privatization along the lines that Arkansas has done. While my post was just obsoleted by the fact that the Supreme Court ruled the other way, I now think that the case for states to do their own reforms is even stronger.

In order to make the ACA Medicaid expansion politically palatable for Republicans, Arkansas did a sort of privatization of Medicaid- using Medicaid funds as “premium assistance” to allow recipients to choose a private plan from the ACA exchanges.

While the Obama administration wasn’t crazy about this idea, they (and some progressives) decided it was better than no Medicaid expansion, and so granted a waiver from the usual Medicaid rules to allow this to proceed.

There are some real potential problems with the Arkansas full privatization approach.

First, Arkansas hopes to save money- or at least not lose it- by privatizing.  This is actually a condition of the federal waivers allowing their experiment. This may or may not work out- private plans might operate more efficiently and reduce costs through cost-sharing, but they also make higher payments to providers.

Second, while Medicaid is in some ways bad insurance (because many providers do not accept it), in one way it is better for recipients than just about any private plan- it requires little to no cost-sharing. In many states, Medicaid plans have a $0 deductible and $0 co-pays for all covered services. Federal Medicaid rules prevent deductibles and co-pays from getting anywhere near as high as normal plans, the thought being that Medicaid recipients are too poor to afford them.

These costs, of course, are offset by benefits- especially the greater access to providers through private plans. Do the benefits outweigh the costs? After years of studying what happens in Arkansas, we will get some idea of whether privatization is more or less expensive than traditional Medicaid, and of whether the provider-acceptibility benefits outweigh the poor-people-paying-deductibles costs. But we don’t have to wait to see what the average person thinks- we can just let each individual choose.

Tell each Medicaid recipient that they can either get traditional Medicaid, or choose a plan from the ACA exchange. If you are worried about how much this will cost the state budget, estimate how much traditional Medicaid spends per enrollee and limit the choice of exchange plans to those that cost less than that.

This is a win-win-win: taxpayers save money, Medicaid recipients that value traditional Medicaid’s low cost-sharing can keep their plans, and Medicaid recipients that are willing to put up with some cost-sharing in order to get providers to actually see them can do so.

This should have been bloody obvious. It took me months after hearing about Arkansas to think of it. But apparently people in Iowa are ahead of the curve, and seem to be doing exactly this.

After the King vs Burwell ruling, it is clear that the ACA exchanges are here to stay. It is time to stop trying to fight them and start seeing the incredible pro-poor, pro-market possibilities for reform they create.

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Written by James Bailey

June 28, 2015 at 5:35 pm

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