Time to Nationalize Medicaid Before States Reach the Breaking Point

Before the extra federal money for Medicaid that Congress approved last year runs out in June, many states are accelerating their payments to doctors and hospitals so that Uncle Sam will foot a higher percentage of the bills. After that, though, providers will face a slashing of Medicare payments that will dwarf anything that they've seen up to now. The only way to head off this disaster is for the feds to take over Medicaid.

When Congress created Medicare and Medicaid in 1965, it took a different approach to each program. Medicare was conceived as a health insurance program for all seniors, regardless of income, and it was financed by a federal payroll tax. So it was administered by the national government. Medicaid, in contrast, was viewed as an extension of social welfare programs that the states already administered. So naturally, the states ran Medicaid, albeit with a big contribution from Washington.

A distinction with a big difference
Now, however, that distinction has become outdated. Bowed down by persistent high rates of unemployment and diminishing tax revenues, most states can no longer afford to fully fund their Medicaid programs in order to keep pace with the rapidly rising cost of healthcare.

The simplest and most elegant solution, as I suggested several months ago, would be for the federal government to take over Medicaid and run it like Medicare. The states would transfer their current Medicaid budgets to the U.S. Treasury. But their contributions would be fixed at the present amount plus annual increases limited to the rate of inflation.

In the current political climate, of course, anything that sounds like a government takeover of healthcare would be a natural target for Republican attacks. Yet the nationalization of Medicaid would help a lot of cash-strapped states, and it's clearly superior to the alternatives.

And the other options are...
Topping that list is the option for states to drop Medicaid, as some Texas conservatives proposed recently. That would work fine so long as you don't mind stepping over dying people in the street.

Another possibility would be for state Medicaid programs to contract with HMOs to provide care at a fixed cost, as Florida legislators are now considering. But that wouldn't work for long, because health costs would keep rising and no insurance company would renew a money-losing contract.

Some observers believe that Medicaid programs will follow Medicare's example by offering shared-savings contracts to the new accountable care organizations (ACOs), which are groups of doctors and hospitals willing to be accountable for the cost and quality of care. It's not known at this point, however, whether ACOs could save money under such a program -- particularly if the Medicaid pot were smaller than the potential Medicare savings.

A more promising approach would be for ACOs to take full financial responsibility for caring for Medicaid patients. Particularly if they focused on care management for the sickest patients, ACOs could reduce costs more easily than Medicaid HMOs could. But ACOs are still in the early stages of development, and there's only so much they can do to restrain cost growth on their own -- even if they're willing to accept global financial risk.

Of course, if the federal government did take over Medicaid, it would probably work with managed care firms, ACOs and other any entities that might help control costs. But the feds are much more likely than the states to keep Medicaid payments from falling below the point at which providers would exit the program en masse. In states like Texas, Medicaid payments are already approaching that point, and they'll decline further after the federal bonus to states disappears.

It's time for the politicians to put politics aside and consider the welfare of the people. Whether they'll do it this time is anyone's guess -- but it's a long shot.

Image supplied courtesy of Flickr.

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Ken Terry

Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.

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