NCPA - National Center for Policy Analysis

The Time Has Come for a "Pro-Patient" Approach to Health Care

February 18, 2003

Medicaid is enormously expensive. For the second year in a row, spending on Medicaid (for the poor) will exceed spending on Medicare (for the elderly). At $280 billion this year, Medicaid costs almost $1,000 for every man, woman and child in the country -- or $4,000 for a family of four. Indeed, it is likely that many taxpayers are paying more in taxes to fund health insurance for the poor than they pay for private health insurance for themselves and their own families.

Why are Medicaid costs rising so rapidly? Part of the problem is that most states have not taken advantage of cost-control techniques widely used in the private sector. For example:

  • Because Texas' method of paying for hospital care is largely cost-based, Medicaid pays some Dallas hospitals three times as much as other hospitals for the same services.
  • Because Ohio's method of paying for nursing home care is essentially cost-based, the state is paying for 13,000 empty beds.

The time has come for a "pro-patient" approach to health care. The following are some elements of that approach:

  • Convert Medicaid into a defined-contribution system, under which the state determines how much it is willing to spend and patients (along with their doctors) choose how to spend it.
  • Provide Medicaid enrollees with access to private sector plans, including the plans of their employers.
  • Change Medicaid to private, portable insurance -- where enrollment continues even after eligibility for Medicaid has lapsed.

Out-of-control increases in Medicaid costs are not inevitable. But if reforms are not made soon, the question in a few years will be: Why didn't policy-makers take control of our destiny when they had the chance?

Source: Michael Bond, John C. Goodman, Ronald Lindsey and Richard Teske, "Reforming Medicaid," Policy Report No. 257, February 2003, National Center for Policy Analysis.

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