Republican Senate healthcare plan is a better Rx than California single-payer

By Marc Joffe
June 26, 2017

Mainstream media are taking a short break from their 24/7 Trump-Russia conspiracy theorizing to bash the Senate Republican healthcare proposal. Viewers are being told that the proposal would gut Medicaid and kill thousands. Like any piece of complex legislation, the Senate bill is far from perfect, but it is an important step in the right direction and contrasts very favorably with the single-payer bill recently passed by the California state senate.

News headlines focus on the number of individuals who would be uninsured: incorrectly conflating insurance with access to care. Under a 1986 federal law, any hospital that takes Medicare must provide emergency treatment to all patients regardless of ability to pay.  Our nation also has a long history of charity care, under which both emergency and non-emergency treatments are offered irrespective of ability to pay. On the other hand, insurance is meaningless if providers are unavailable: federal statistics show that in California only 54% of doctors accepted Medi-Cal, the state’s Medicaid program.

Key provisions of the Republican bill limit the growth of Medicaid spending and increase states’ flexibility in administering the program. These reforms should be welcome by anyone concerned with the country’s long run fiscal health.

In 2015, Medicaid spending averaged $7492 per enrollee. While that’s less than Medicare or private insurance, it is higher than overall per capita healthcare spending in most other advanced countries. OECD statistics show per capita health expenditures of $4003 in the United Kingdom, $4150 in Japan, $4608 in Canada and $5267 in Germany. All these countries have higher life expectancies than the US, so they appear to be providing adequate care by our standards.

With high medical price inflation and greater enrollment, Medicaid costs are exploding. According to Medicaid actuaries, total program spending (state and federal) has nearly tripled since 2000 – rising from $206 billion to a projected $596 billion this year. Actuaries project a further increase to almost one trillion dollars by 2025.

The Senate plan slows down these increases. The Congressional Budget Office forecasts that under current law federal Medicaid spending will rise 58% between 2017 and 2026. Under the Republican Senate plan, CBO projects that the increase would be limited to 18%. Although critics characterize this as an $800 billion cut – slowing the rate at which spending on a program increases is not a “cut” in the sense that most of us use the word.

By capping the growth in federal Medicaid spending, the Senate proposal promises to rein in the program before it triggers a fiscal crisis. Medicaid is one of three federal entitlements that are threatening to swallow the entire federal budget. With the other two programs – Social Security and Medicare – placed off-limits by President Trump, Medicaid reform provides the only opportunity to stabilize the federal government’s long-run spending outlook under the current Administration.

In exchange for slower growth of their federal Medicaid matching payments, the plan gives states more flexibility in how they manage their plans. This will provide states the option to implement cost control measures that will allow them to provide beneficiaries with better health care for less money. Right now, Medicaid generally takes the form of reimbursements for individual medical services, with no deductibles or copays. There are carve-outs and waivers that permit some managed care under Medicaid, but “fee for service” dominates.

Fee for service medicine without copays and deductibles is a recipe for duplicative and unnecessary care. The better alternative is a Health Management Organization like Kaiser Permanente under which the provider receives a fixed amount of money to meet the health needs of a large population. Kaiser and other HMOs are conceptually similar to the UK National Health Service or a Canadian provincial health plan – which also operate under a fixed budget.

Unlike traditional Medicaid or Medicare, these systems actually ration care. In the real world (as opposed to a Bernie Sanders fantasy), rationing is the way that supply and demand are balanced. We normally look to the price system to ration goods and services. Government rationing – like we see in Canada and the UK is imperfect, but it at least recognizes limits on society’s ability to pay.

A better alternative is to rely on markets, entrepreneurs and non-profits to bring down costs and increase access. For example, a new start-up, Lemonaid Health, is now provides on-line medical consultations for $15. In Texas, uninsured patients can go to Walmart and have a full visit with a nurse practitioner for $59-$99. Meanwhile, foreign hospitals provide surgeries for a fraction of the cost of US facilities – roundtrip travel included.

With the Senate Medicaid reforms, states can make these cost saving options available to more low-income patients and give them incentives to choose lower cost alternatives. This approach contrasts sharply with the California State Senate’s single-payer bill (SB 562) that locks in costly fee for service medicine, provides no incentives for patients and providers to economize, and does not even impose any form of government healthcare rationing. The bill was such a fiscal train wreck that even Anthony Rendon – the Democratic leader of the State Assembly and a single-payer advocate – placed the bill on hold so that Assembly members would not have to vote on it and face the wrath of unions and progressives.

Progressive health proposals like SB 562 and “Medicare for All”, sound good in theory but won’t work in practice. Health care products and services are not costless and their use must be rationed. If we pretend otherwise, state and federal budgets will overflow with red ink drowning our economy in the process. The Republican Senate healthcare proposal recognizes and tries to address this fundamental reality.

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