Ohio Medicaid Should Follow Russian Path
To solve the Medicaid crisis facing Ohio, Gov. Bob Taft and the state legislature established the Ohio Commission to Reform Medicaid (OCRM). It consists of nine distinguished Ohioans who are donating their time and skills to resolve the enormous problems facing the Ohio Medicaid Plan.
I was very honored to testify before the commission and offer my views on reforming Medicaid. This is to share those views, but first some background.
Medicaid is the federal-state health plan that provides health care to the poor, the disabled and the elderly in need of nursing home care. The plan faces an enormous unfunded liability that threatens the long-term fiscal stability of Ohio (and most other states as well). In addition, there are serious questions about the quality of many Medicaid services.
The reform commission has been examining all aspects of Medicaid and soliciting the views of many experts regarding the program's problems. These include Medicaid administrators, providers, beneficiaries, researchers and other interested parties.
I believe that OCRM could benefit greatly from soliciting the testimony of another group quite knowledgeable on how to fix government-run health plans: the Russians.
The Russians? Yes, indeed! The Russian government, which at one point under communism attempted to determine 24 million prices by government decree from Moscow, has continued its march towards free enterprise. In a recent policy change the Russian government is moving towards a new system where cash grants to beneficiaries will replace remnants of the Soviet welfare state, including health care. Russian citizens will now use the funds to purchase their own health care rather than relying on the government's provision.
"The goal is to move from pure populism to actually implementing our obligations to create a modern, market driven economy," said Finance Minister Alexei Kudrin. [1] Nikolai Petrov, an expert with the Carnegie Center in Moscow, said, "The fact is that the government's theoretical welfare obligations are twice as great as the resources available to pay them. Many of the benefits being cancelled were never actually delivered." [2] Reform proponents say the old system was a godsend for corruption and that many rural beneficiaries lacked access to health care and drugs, according to the Christian Science Monitor. [3]
Doesn't that sound remarkably similar to Medicaid? The plan in Ohio and across the country is actuarially bankrupt, produces low quality care and is sometimes ripped off by providers in a host of ways. From ordering unnecessary tests under Medicaid's fee for service system, to nursing homes being paid for costs instead of the services they provide, and to outright theft, the plan is an unmitigated failure. Medicaid needs to follow the new Russian model and put the funds in the hands of the beneficiaries.
I've recommended the following framework for implementing this type of reform. [4] Ohio Medicaid should create an Insurance and Provider Exchange (IPE). This is nothing more than a mart where Medicaid beneficiaries would buy the services they need. Providers would bid for the business from eligible Ohioans. Medicaid would then award credits to eligible beneficiaries to purchase the medical, disability and nursing home services that they would need. With buyers shopping for the best deal and sellers competing for Medicaid dollars, the IPE would produce quality health care while slowing the growth of Medicaid costs.
Some question whether Medicaid beneficiaries are sophisticated enough to buy their own health care. The carefully designed Rand Health Insurance Study of the 1980s strongly suggests that they can. [5] When faced with significant cost sharing, families used less health care. Further, the decline in spending did not differ significantly by income group. In addition, Medicaid "cash and counseling" programs in Florida, New Jersey and Arkansas have been very successful. These programs provide direct cash to beneficiaries to spend on their health and support needs. All are very popular with satisfaction rates exceeding 90 percent.
The Achilles heel of Medicaid is the fallacious belief that the government can spend the poor and elderly's money better than they can. By following the Russian model of putting funds in the hands of beneficiaries, we will improve the quality of Medicaid while controlling program costs. If old KGB communists such as Vladimir Putin can learn this - why can't the state of Ohio?
*Michael Bond, Ph.D., is a senior fellow in health care policy for The Buckeye Institute for Public Policy Solutions and a professor of finance at Cleveland State University. Notes[1] Christian Science Monitor, July 8th, 2004.
[2] Ibid
[3] Ibid
[4] See Buckeye Institute Web Site for my Medicaid Commission Testimony
[5] Newhouse, J., "Free For All: Lessons From The Rand Health Insurance Experiment," February 1996, Harvard Press
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.
