July 15, 2012


The New Tug of War Over Medicaid (TYLER COWEN, July 14, 2012, NY Times)

Unfortunately, Medicaid has some of the worst features of single-payer systems. Typically, a single-payer system will bargain down medical prices, thus adding to affordability, but at the risk of having long lines of patients waiting for care. As it stands now, though, the low reimbursement rates of Medicaid already lead to long lines, or an inability to find a good doctor altogether, while the higher reimbursement rates of Medicare and private insurance keep health care costs high.

Along another possible path, the subsidized private insurance market -- a central feature of the new law -- will gradually displace Medicaid. And, eventually, another feature of the law will grow more important: the excise tax on employer-supplied health insurance, which will cover increasing numbers of employer-based plans over time. This could be accompanied by a gradual migration out of workplace-based coverage. Over time, the system might evolve toward means-tested private insurance vouchers, with the insurance sold on exchanges rather than tied to employment.

That would have the unfortunate effect of channeling people into what will be the most expensive segment of health care coverage. That's because the new law offers insurance subsidies to eligible incomes up to 400 percent of the current poverty line, a fiscal burden that would be unsustainable if it replaced Medicaid, which, with all its problems, is now the cheapest way to provide basic insurance coverage.

There is one way this might work: by limiting the subsidies for insurance. Note that the law itself mandates cuts if those subsidies exceed a certain percentage of gross domestic product by 2018. Most likely, the reform could not stop there, because the insurance cost burden for many Americans would feel intolerably high without the subsidies.

The next step, therefore, would lower costs by limiting the mandate to covering catastrophic conditions. Yet a further step would remove the mandate for noncatastrophic coverage, thus giving people more control over how much they want to spend on health care versus other priorities.

We would then have government-subsidized and mandated catastrophic insurance, and a freer market for other health care expenditures. We might even return to a health savings account approach on the noncatastrophic side.
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Posted by at July 15, 2012 8:08 AM

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