Medicaid Reform: Giving Michigan's Poor a Chance

There can be little doubt that the Medicaid program has been one of the great failures of American government-with taxpayers, health care providers, and the poor whom the program was intended to serve all being victimized or short-changed. That assertion may come as a surprise to many, who have become so accustomed to the program and all of its defects that they never give any thought to a genuine alternative.

Costs in the Medicaid program have skyrocketed since its inception in the mid-1960s. Currently, most states are experiencing annual increases in double digits-at least twice the rate of medical inflation in the private sector. Reforms instituted by the Engler administration have cut Michigan's annual increase to about half the national average, but Medicaid cost problems are still a major headache for state government.

As these costs rise, states are cutting back on their payments to health care providers. They typically reimburse at rates well below the market for services of physicians and hospitals, prompting massive cost-shifting onto the shoulders of people with private insurance. At the same time, fewer and fewer providers are willing to even treat Medicaid patients and when they do, they often receive "second class" health care.

The time has come for radical reform. Vouchers for Medicaid recipients to purchase private insurance in place of the current government program may be just what the doctor ordered. Privatization by way of vouchers would cut state expenditures, streamline Medicaid programs, improve service quality, and provide access to a greater number of needy families.

The value of each voucher should be sufficient to permit the purchase of private insurance that covers what Medicaid now does. In most states, that would work out to between $3,000 and $4,000 for a family of three. Recipients could pool vouchers for the purpose of purchasing group policies. For example, residents of a public housing project might choose to pool their vouchers and purchase a group policy for all of the project's residents.

A voucher program would have substantial benefits for Medicaid recipients, health care providers, and taxpayers. Recipients would no longer be treated differently from the privately-insured precisely because they themselves would have private insurance. A recipient going to a hospital or to a physician and presenting his insurance card would be indistinguishable from any other patient. Furthermore, by purchasing private insurance, the patient would no longer be subject to bureaucratic restrictions and limitations inherent in the program that minimize his choices. The patient would have an expanded number of providers to choose from, no longer excluded from physicians who refuse Medicaid.

Insurers would compete for the voucher dollars of former Medicaid clients on the basis of the benefits offered, crafting policies to meet the needs of the purchaser. Individuals could purchase policies that more closely meet their individual requirements, rather than those which Congress or the bureaucracy dictate. That would mean a smorgasbord of plans with varying deductibles and co-payments, a diversity of benefit options, even lifestyle incentives and rebates for non-use.

The Medicaid system encourages over-utilization. Recipients, who have no financial stake in cost-control and who have trouble finding physicians who will accept Medicaid, often turn up for treatment of any and every problem at hospital emergency rooms. A recent study from the federal Department of Health and Human Services estimated that 55 percent of emergency room visits in 1992 were for non-emergencies. Furthermore, many Medicaid recipients forego preventive care and early interventions that could save money later on. By bringing them into the private insurance system, they will have greater access to preventive care and a stronger incentive to be mindful of costs.

Under a voucherized system, reimbursements would be at the same rates as under all other private insurance. Health care providers would no longer be short-changed for treating the poor, which would eliminate cost-shifting and have a beneficial effect on all consumers in the health care marketplace.

State governments should press Washington to adopt Medicaid vouchers or they should work separately to create them on their own. With the appropriate federal waivers, Michigan could set up a voucher program that would incorporate most, if not all, of the present Medicaid required benefits, few of the bureaucratic intrusions, and all at undoubtedly less cost than taxpayers are incurring now.

It is time we give the poor a choice in their health care and the taxpayers and those with private insurance a break on the bills they pay for the Medicaid program. A voucher program falls short of getting the government out of the business of health care altogether (an option which looks ever more appealing to a lot of people), but it does represent an incremental, common-sense approach to solving a serious national problem.