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A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.

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$100 Billion of Bad Medicine
Medicaid is broken, and the lavish stimulus bill doesn’t fix it.
4 February 2009

In his inauguration speech, President Obama vowed to transcend partisan arguments about the size of government and to focus instead on “whether it works.” The nation’s massive health-care entitlement for the poor, Medicaid, is a good starting point for that discussion. Unfortunately, as Congress stands poised to expand the federal share of Medicaid funding dramatically, it has failed to ask whether the program is working.

The stimulus bill currently before Congress contains $87 billion in new funding for existing state Medicaid programs. In a radical departure from Medicaid’s original purpose, an additional $11 billion is slated to finance Medicaid coverage for the newly unemployed, regardless of income. For Democrats, as Robert Pear notes in the New York Times, the bill has become “a tool for rewriting the social contract with the poor, the uninsured and the unemployed, in ways they have long yearned to do.”

Medicaid’s schizophrenic financing scheme already makes it extraordinarily difficult to control costs and correct problems. On average, the federal government pays for 57 percent of the program, with states picking up the rest. This arrangement tempts state policymakers to view the program as a free lunch—during boom times, expanding eligibility and services to reward interest groups like hospitals and health-care unions, and during harder times, going hat in hand to Uncle Sam. As a result, the program is in dire need of fiscal reform. In 1970, the country as a whole spent just 0.4 percent of GDP on Medicaid; today, that fraction is more than 2.3 percent, or $332 billion. And in 2008, the Office of the Medicaid Actuary estimated that spending would increase 7.9 percent annually over the next ten years, reaching a staggering $673 billion by 2017.

Does more spending automatically translate into better results for Medicaid recipients? It doesn’t look that way. Consider New York State’s Medicaid program, the nation’s most expensive. New York spends significantly more per enrollee than the national average—$400 more per child, $1,400 more per adult, $9,400 more per elderly enrollee, and $12,000 more per disabled enrollee, according to 2005 data from the Kaiser Family Foundation. But these extraordinary costs don’t yield better health outcomes, as New York policymakers admit. In particular, high-need patients with chronic illnesses aren’t well served; according to a 2008 briefing by the state’s Department of Health and Human Services, 24 percent of these patients had gone without seeing a specialist or primary-care physician over a 12-month period, while 65 percent had resorted to expensive emergency rooms for treatment.

In a 2007 report, moreover, the federal Agency for Healthcare Research and Quality rated New York’s overall health-care performance as “weak” or “average” for cancer, diabetes, heart disease, maternal and child health, and respiratory disease. New York also rated worse than average on several Medicaid-specific measures, such as the ease of getting doctors’ appointments for adults and children—even when they were ill or injured. In a Commonwealth Fund ranking of state health systems, New York ranked 21st in number of uninsured, 30th in quality of care, 30th in public health, and 39th in avoidable hospital use.

True, New York is an outlier when it comes to spending. But evidence suggests that Medicaid as a whole suffers from the same quality and access problems. Studies have found, for example, that Medicaid patients show poorer outcomes for diseases like AIDS and cancer than patients covered by private insurance. Some of this may be because Medicaid patients are in worse shape to begin with, but it’s also likely that many of the tools that state policymakers use to restrain program costs—low reimbursements for physicians, restrictions on access to newer and more expensive prescription drugs—keep Medicaid patients from getting needed care or force them into acute-care settings that aren’t suited to chronic illnesses. Almost half of all physicians polled in a 2006 survey from the Center for Studying Health System Change had stopped accepting or limited the number of new Medicaid patients in their practices. Medical insurance doesn’t amount to much if it doesn’t provide access to care.

By sinking another $100 billion into Medicaid without holding substantive hearings, Democrats in Congress are making true health-care reform more difficult while angering Republicans, who correctly see the stimulus bill’s health-care provisions as a stalking horse for socialized medicine. Obama has surrounded himself with health-care experts who know that throwing more dollars at programs won’t improve the quality of care. But he seems to have adopted a tactic from President Bush—acquiescing to his party’s desire for new spending now in the hope of getting real reform later—and we all know how well that worked out.

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