NCPA - National Center for Policy Analysis


May 25, 2006

The Oklahoma Legislature is working to create personal health accounts (PHAs) for Medicaid enrollees. Are we on the verge of consumer revolution in health care, ask Sen. Tom Coburn (R-Okla.) and Regina Herzlinger, Harvard Business School professor and senior fellow at the Manhattan Institute?

It is too soon to tell, but Medicaid needs fundamental change. Although the program subsidizes care for 52 million low-income people, its price tag threatens the financial stability of many states, say Coburn and Herzlinger:

  • South Carolina's expenses, for instance, have virtually doubled in the past decade, and may consume nearly one-fourth of the state's budget in 2010.
  • Nationwide, Medicaid spending grew 9.1 percent in 2004 alone, and is projected to be at nearly half a trillion dollars in less than a decade.
  • Fiscally conscious governors and state legislatures have traditionally controlled Medicaid expenses through reductions in enrollment, benefits and provider reimbursement.

But Oklahoma, South Carolina and Florida have embarked on a path that is more radical: all three states have taken the step of permitting Medicaid enrollees to choose PHAs, say Coburn and Herzlinger:

  • Private accounts will introduce market incentives into the Medicaid system, lightening obligations all around.
  • Medicaid enrollees can shop for care and increase their chances of receiving the care they need, and health-care providers, compelled to compete for Medicaid customers will likely offer more consumer-oriented services at competitive costs.

Critics argue that Medicaid enrollees are either not educated enough to be trusted with their own health, or lack access to necessary sources of information; however, we now stand at a crossroads, and strong-arming enrollees and providers with rationing tactics is not the only way, and surely not the best way, to control Medicaid costs, say Coburn and Herzlinger.

Source: Tom Coburn and Regina Herzlinger, "They'd Sooner Fix Medicaid," Wall Street Journal, May 18, 2006.

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