October 21, 2005

It's Morning in Medicaid

How did this manage to slide by unnoticed? (Warning, you have to click past the advert.)

U.S. Gives Florida a Sweeping Right to Curb Medicaid
By Robert Pear
Published: October 20, 2005

WASHINGTON, Oct. 19 - The Bush administration approved a sweeping Medicaid plan for Florida on Wednesday that limits spending for many of the 2.2 million beneficiaries there and gives private health plans new freedom to limit benefits.

The Florida program, likely to be a model for many other states, shifts from the traditional Medicaid "defined benefit" plan to a "defined contribution" plan, under which the state sets a ceiling on spending for each recipient.

Children under the age of 21 and pregnant women will be exempt from the limits.

Medicaid is, of course, the federal/state system for insuring the poor (Medicare insures the aged and the disabled). Traditional Medicaid is a classic "defined benefits" plan, where the state decides on the benefits and then shops for the cheapest way to pay for them; when such plans run into financial trouble, their only alternatives are to cut benefits or raise taxes, neither of which is politicall palatable.

Florida's new system is a "defined contribution" plan, joining a number of other states that have gotten federal wavers to shift from defined benefits to defined contributions or otherwise reform their broken Medicaid programs.

"Defined contribution" has long been considered the Holy Grail for libertarian and conservative analysts of programs like Medicare, urged by both the Cato Institute and the Heritage Foundation; it relies upon consumer choice to keep costs down. Cato writes:

Under the traditional defined benefits approach, an institutional purchaser such as an employer determines what range of services it will cover, then seeks or creates a plan that will provide those services for an acceptable price. It has become increasingly difficult to sustain a defined benefit system. A steady stream of emerging technologies requires an equally steady stream of decisions about which ones will be covered by the plan. Moreover, it has become nearly impossible to provide such benefits economically, in the face of rising health care inflation and increasingly impotent cost-cutting tools.

In contrast, under defined contribution, the employer determines up front how much it will spend for health care, then typically provides an array of options from which beneficiaries can choose (Wye River Group on Healthcare et al., Parrish 2001, Blumenthal 2001). Those options can assume various forms. In the oldest, most familiar version, the contribution essentially represents a voucher for a conventional health plan. The employer assembles a collection of plans from which employees can choose, and then defines its own contribution according to the least expensive of those plans.

Unlike a defined-benefits plan, under the new system, recipients will be able to select more expensive health-care plans than the state is willing to pay for, so long as the recipient picks up the rest of the tab. The recipient gets an expensive plan for little of his own money, and the state keeps its own costs down.

Florida is not the first state to make the transition, of course; but I believe they are the biggest. And while states like Vermont have pilot programs, Florida is actually implementing the changes system wide.

The new Florida plan also incorporates private medical care into the state Medicaid program:

Joan C. Alker, a senior researcher at the Health Policy Institute of Georgetown University, said: "Florida's proposal is one of the most far-reaching and radical proposals we've seen to restructure Medicaid. The federal government and the states now decide which benefits people get. Under the Florida plan, many of those decisions will be made by private health plans, out of public view"....

For each beneficiary, Florida will pay a monthly premium to a private plan. Insurance plans will be allowed to limit "the amount, duration and scope" of services in ways that current law does not permit.

The Florida plan includes many of the very same features that President Bush has proposed for national Medicaid. From the New York Times article:

• Recipients must select a private health-care "Medicaid" plan. If they do not, the state will automatically enroll them in a private plan of the state's choosing.
• Recipients can choose to completely opt out of the Medicaid system; in that case, Medicaid will partially subsidize the employee share of an employer-sponsored health-insurance program (the article doesn't say how this works with the self-employed). Such persons will still pay the same co-payments, and they will have the same deductables as other members of that same employer-sponsored health insurance.
• Recipients who enroll in weight-loss or stop-smoking programs will receive Medicaid subsidies to help pay for them.
• The state and feds will pool money to spend up to $1 billion per year on hospitals that treat a large number of indigent or uninsured patients.

President Bush has been flogging Medicaid reform since his first days in office, at least since August, 2001. But the administration has finally begun to focus like a laser beam (as Clinton used to say) on presenting a fleshed-out proposal... which likely will look a lot like the Florida program.

We certainly could do worse; we're doing worse right now! But with these reforms, most of the projections of massive future liabilities will melt away, because market forces will actually hold costs down -- for the same reason that Cadillacs don't cost a million dollars: too much competition. Perhaps a successful program in the fourth largest state in the United States will spur Congress finally to enact such reforms nationwide and encourage other states to follow suit.

Then Medicare could be reformed the same way; and the public-private partnerships in Medicare/Medicaid could remove some of the terror on the Left, allowing meaningful Social Security privatization before the entire system crashes and burns. Although privatization of "entitlement" programs is inherently conservative, it is not inherently anti-Leftist. They're only against it because conservatives favor it.

I expect only two of these (probably Medicaid and Medicare) to be enacted during Bush's presidency; but that in itself would be a stunning conservative domestic legacy, especially coupled with his tax cuts, with the Patriot Act and other criminal justice reforms, and (I still hope) general tort reform. As we begin to see the benefits of a free market in what was previously thought to be sanctified to dictatorial bureaucracy, anything could happen.

Hatched by Dafydd on this day, October 21, 2005, at the time of 9:51 PM

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