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Medicaid: False Solutions vs. American Solutions

David McKalip, M.D.
Campaign For Liberty
Tuesday, February 9th, 2010

In Florida, as in the rest of the country, Medicaid is on the Ropes. Medicaid is the government run single payer system for the poor. This fiscally unsustainable program created during the 60’s Great Society utopian dream is failing like all of its other programs. Sadly it is the people who need the help the most — the poor — that are needlessly suffering. There are ways to modify the program so the government can provide help that taxpayers can afford while allowing real help through the best parts of our society: the free market and charity. But it will require that politicians stop promising something for nothing – promises that can’t be kept.

Problems and false solutions

Medicaid’s problems are numerous but action by Florida government is appropriately motivated by its enormous cost. Medicaid currently consumes nearly 29% of the Florida’s $66.5 billion budget and serves 2.9 million of Florida’s 18.9 million people. This number has grown more rapidly lately given Florida’s 11% unemployment rate, but unemployment is not the main reason for Medicaid’s problems. The state needs $19.1 billion ($19,000,000,000) to serve the 2.9 million people who enter the program if they earn less than 100% of the federal poverty level. The state budgeted $17.5 billion for the 2009-2010, but now is about $1.8 billion short which may climb to $3 billion. Now the health insurance companies are vying to take over the $19.1 billion in spending. They claim they can save money for the state by imposing “managed care” models on the medical care these patients receive. Unfortunately, the problems faced by Medicaid patients don’t stem from lack of management of their care by bureaucrats — they stem from a failed economic model to help the poor: a government program. But let’s first dissect the broad principles of a managed care take over.

Clearly, Florida’s health insurance industry would enjoy adding a gross revenue of $19.1 billion to its balance sheet and can then plan on a guaranteed profit margin that will result in another billion or so for its stock holders and CEO’s. While Profits in companies operating in a truly free market should be celebrated, profits from taxpayers should be derided when they rely on companies engaging in “rent-seeking” behavior off of the government. This is also known as “corporate welfare” or profiting from the rent paid by taxpayers to a non-governmental entity. At some points, the bailouts will start. Insurance companies control doesn’t mean there will be more money for patient care. In fact, under the mandated Medicaid managed care model, available funds for patient care will actually decrease as companies necessarily take unnatural profits for their services from these limited funds. That profit will be made by decreasing spending on patients.

The insurance companies, and governments, like to claim that they can squeeze “efficiencies” out of the system by ensuring that the “right care”, is delivered at the “right time” to the “right patients”. In this model, every episode of care will be given a global or “capitated” budget. For instance, if the insurance company arbitrarily decides it will spend no more than $10,000 on a patient’s heart surgery over a 90 day episode, it will do everything it can to force medical care to meet this budget. They will offer incentives to doctors and hospitals who will receive more money if they spend less on medical care. Voluntary capitation system has its place in a free (voluntary) market. But at some point advanced medical care actually does cost significant dollars and no amount of bureaucratic planning or tinkering can fix that without hurting patients. It also hurts the doctors who won’t compromise their professionalism with high volume, lower quality care at cut-rate prices and interference in the patient-physician relationship. The insurance companies and government will seek to intimidate doctors into taking less and punish them if they are deemed “inefficient” with withheld bonuses. This is known as a “pay for performance” program and requires the companies to withhold financial “incentives” that actually came from lowering payments to all those doctors who choose not to participate for many good reasons. In addition, when insurance companies own all Medicaid dollars, they will force doctors to accept them if they want to take private patients. This will mean an increase in cost to private patients to compensate, or doctors dropping out of some private plans and becoming unavailable to private patients.

While the third parties to the patient-physician relationship (government and insurance companies) claim they are acting in the name of “quality”, they are motivated only by cost. In fact “value-based purchasing” programs have been shown to lead doctors and hospitals to avoid higher risk (sicker) and costlier patients and game the system to get a good report card. Pay for Performance has actually been scientifically demonstrated to have no beneficial effect on patient’s actual health or lifespan and has also been proven to hurt patients. For instance, the government required all hospitals to publicly report how frequently patients got beta-blockers within 24 hours after a heart attack. This is a generally a good clinical practice when doctors make the right decision about giving the right patients the drug at the right time. The doctor. Unfortunately, the committees and bureaucrats that created these policies prompted automatic delivery of these drugs to patients in the emergency rooms whether it was right for the heart attack patient or not (to get a good report card). Sadly, there are patients that should not receive these drugs- those with congestive heart failure. They got them and went into shock resulting in earlier deaths. As a result, the government committees “retired” this “quality” measure — but only after four years of damage being caused to patients. There are many similar stories about the failures of centrally planned and delivered medical care by committee. These examples should teach everyone that this is not the way to help patients. Such quality initiatives should not be hijacked by insurance companies and government as an excuse to justify a cost-savings or rationing program.

Medicaid patients also face tremendous problems accessing the care they need. Right now these patients can’t easily find specialists and don’t have rapid access to the same primary care doctors others do. There reason is simple: Medicaid pays doctors 56% of what Medicare pays. Medicare already limits the amount of money a doctor can collect for their services to a price that is lower than the cost of care. When Medicaid adopts nearly half that rate, doctors disappear. It is thus hard to find neurologists, orthopedic surgeons, neurosurgeons, cardiologists and pain management specialties for them. They enter primary care situations where nurses serve as the doctor. They also end up using the emergency room about twice as often as even the uninsured (per the Urban institute) since they can’t get rapid and needed primary care in the community. There is no solution in Tallahassee, Washington D.C. or the insurance company board room that will solve this problem. Most government plans turn the system over to insurance companies, force money from taxpayers, borrow it from china or simply have the Federal Reserve print it like monopoly money. In fact the state of Florida is receiving over $12 billion in borrowed and printed federal “stimulus” money just to stay afloat now. These approaches are having very negative effects on Americans and our national security and are failing to meet the needs of the most vulnerable people with health problems: the poor.

An American solution for Medicaid

But there is an American solution already present in our society to help those in need. It is time start activating the most powerful anti-poverty programs in the history of mankind: the free market and charitable activity. Right now, the government forbids patients who receive Medicaid from having a charity donate money to assist in the care of Medicaid patients. If a family member wants to help pay the bill of a Medicaid patient, they too are forbidden. I had a brain tumor patient show up in the ER and tell me that a large cancer center wouldn’t take care of her since she had Medicaid. Her story helped inspire me to found a charity to help patients like her and others. We would raise private money and give her a check so that the cancer center could take what Medicaid can pay and the charity would pay the rest. The only problem that this is currently against the law! The state calls that “balance billing” and feels it is inappropriate for purely political reasons. It is also against the law for Medicare and the insurance industry wants to outlaw it for private insurance so they can force doctors to be controlled by their payment policies that hurt patients. It is worth noting that the right of patients to privately contract with their doctors for balance billing in exchange for faster and desired care was allowed until the end of the ‘80’s. Doctors always adjusted rates voluntarily in this system to help the poor as well. A great American solution would have politicians change the law to allow charity to grow and flourish and provide the financial help patients need while allowing the taxpayers and government to provide the limited, economically sustainable and temporary help they can afford.

Another American solution involves restoring the free market in health care. (The over-regulated insurance industry engaging in rent seeking and reliant on government bailouts is not a true free market). We can lower the costs of health care and health insurance if we encourage people to pay for routine annual medical care out of pocket through health savings accounts that build up tax free (the government let’s you keep your own money). People should also consider buying lower cost high-deductible health insurance and use it only rarely when they have a medical catastrophe. In fact, we can fund health savings accounts for Medicaid patients, match funds into them through charity, and stop treating them like they aren’t smart enough to spend money on medical care wisely. I know they are capable, because I have taken care of so many patients on Medicaid. They could also benefit from participating with everyone else in society in low cost catastrophic insurance pools.

We could also ease regulation to permit insurance companies to offer lower cost basic health policies people want rather than saddle them with expensive “benefits” many don’t need: like a hair prosthesis, marriage counseling or acupuncture. It has also been shown that when people who aren’t poor pay out of pocket for medical care, they drive down costs for all- including the poor. Costs have gone up with government and insurance company control and their solutions aren’t helping Americans or the poor. Florida should change the law to allow charity and families to supplement Medicaid spending and work to encourage growth of health savings accounts and catastrophic health insurance plans. They should encourage the growth of more basic health insurance plans and allow Floridians to buy cheaper plans across state lines. Applying these American solutions will give people better care at lower cost than any plan concocted by politicians, a government committee or insurance company. Then the government can send billions back to the taxpayer, instead of to insurance companies — money that will be used to create jobs and actually lower the number of poor requiring assistance.

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