Reforming Medicaid In Ohio: A Framework for Using Consumer Choice and Competition to Spur Improved Outcomes
Ohio's spending on health care for low-income families, the disabled, and the elderly is enormously expensive. With 2003 direct spending of over $7.5 billion on the state's Medicaid program, and a combined budget of more than $10 billion, the program costs taxpayers almost $661 per year for every man, woman and child in the state ($2,644 per year for a family of four). Direct Medicaid costs are expected to increase by 66 percent over the next three years.
Ohio's Medicaid costs have risen faster than health costs in the private sector generally. Part of the reason is Ohio Medicaid pays for health care in ways that needlessly contribute to rising health care costs. The state currently pays for 13,000 empty nursing home beds. Another problem is Ohio has not taken advantage of cost-control techniques widely used in the private sector. As much as 75 percent of the expansion of Medicaid nationwide has been offset by a reduction in private insurance.
Traditional reform efforts are unlikely to achieve significant long-term savings - they simply won’t change the rules of the game sufficiently to create better outcomes. Cutting pharmaceutical drug coverage, for example, could lead to higher costs by encouraging the use of more expensive or less effective traditional services. More promising approaches focus on changing the way Ohio pays for medical care. More specifically, the state should:
- Follow the lead of private insurers and choose hospitals based on the lowest price for a given level of quality;
- Pay for services rendered and outputs, not costs incurred or inputs;
- Enroll substantial numbers of beneficiaries with disabilities into managed care programs designed to meet their special needs; and
- Consider block granting Medicaid funds to innovative localities.
The creative use of federal waivers could increase quality and lower costs by:
- Giving Medicaid enrollees an opportunity to enroll in employer plans;
- Giving beneficiaries who do not qualify for a private-sector plan opportunities to enroll annually in a plan that provides a Medical Savings Account (MSA) option;
- Exploring a consumer driven grant system for nursing home care;
- Restructuring benefit levels and options for people with disabilities and low-income families.
Overall, the authors estimate savings of as much as 15 percent, or $1.5 billion per year in the near term and more than $100 billion in the long term.
Michael T. Bond, Ph.D., is Director of the Center for Health Care Policy at The Buckeye Institute and
a professor in the Department of Finance at Cleveland State University.
John C. Goodman, Ph.D., is President of the National Center for Policy Analysis, a national think
tank based in Dallas, Texas.
Ronald L. Lindsey is a Senior Fellow at the National Center for Policy Analysis and principal of
Lindsey and Associates, a private consulting firm specializing in public-management issues.
