Improving Medicaid Through Choice and Competition
The cost of providing insurance for the poor and disabled in Ohio is out of control. With a 2003 direct budget of more than $7.5 billion, Ohio’s Medicaid program costs taxpayers almost $661 per year for every man, woman and child in the state. [1] That is over $2,500 annually for a family of four.
This is just the beginning. If current trends continue, Medicaid will double every eight and a half years and could literally bankrupt the State of Ohio.
Under these circumstances, it is important to recognize that minor changes to the system will not solve the problem. Ohio can’t just cut current spending to solve the problem. A one time cut merely delays the inevitable. In order to stop Medicaid from consuming Ohio’s budget, reform must fundamentally change the system in a way that slows future as well as current spending.
Ohio needs to change the way it pays for medical care. The effect of this change, outlined in the Buckeye Institute study Reforming Medicaid in Ohio, has been estimated to produce savings of as much as 15 percent or $1.5 billion per year in the short-term and more than $100 billion by 2025. One way to accomplish this is by allowing patients to control some of their own health care dollars. This is effective at controlling costs and is a better way to ensure higher quality. In fact, there is every reason to believe the state could have higher quality care for less money.
Federally mandated Medicaid enrollees should have the opportunity to enroll in employer plans or other private sector plans with the state subsidizing their premiums. Beneficiaries who do not qualify for an employer plan should have the opportunity to enroll annually in a plan of their choice through an insurance exchange, also called a “health mart,” organized and operated by the state.
Once in place, a health mart plan shifts the state from being a health insurer to a health financier. The role would become that of assisting Medicaid beneficiaries in the selection of an individually owned health insurance plan. Participants could choose between competing companies offering HMO-type plans, preferred provider plans, or plans with a Medicaid Benefit Account that would allow savings for more discretionary medical care.
An insurance exchange such as this would increase consumer choice while also reducing costs and encouraging innovation through competition. For instance, let’s say that a single mother Medicaid beneficiary is about to choose a plan. Under the current system, choice is not an option. Her plan is no different than any other beneficiary at her eligibility level.
With access to the health mart she has the ability to choose — with the guidance of state Medicaid advisors — the insurance plan that best meets her needs. Not only that, but companies now have an incentive to compete in terms of both price and quality for her dollars.
For the elderly and disabled populations, increasing the use of managed and home-based care would provide opportunities to save costs while allowing for improved outcomes. Giving the elderly grants for nursing home care would allow the beneficiaries to shop around for the provider best suited to their needs.
That’s quite a change from a system that currently pays companies based on how many services they perform or how many beds or staff the companies deem necessary. There would no longer be an incentive for nursing homes to have empty beds, for example, as the entire program would shift away from paying for inputs and toward paying for results.
The current approach to containing costs with eligibility and benefit cuts does not address the long-term health of this program. Ohio policymakers should view the current budget crisis as an historic opportunity to make systematic changes to the Medicaid program to increase its efficiency, thereby assuring its future.
Notes
[1] When combined with other programs, Ohio spends nearly $10 billion providing health insurance to low-income individuals and families. For a detailed list of Ohio Medicaid spending, see The Medical Care Advisory Committee of the Ohio Department of Job and Family Services, “Ohio’s Medicaid Plan: Acute Services,” testimony before the House Select Committee on Medicaid Reform, Ohio House of Representatives, September 18, 2002.
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.
