Brian Schwartz OpEd in Denver Post

The August 5, 2007 Denver Post printed the following excellent OpEd by Brian Schwartz, PhD:

Don't model state reforms on Medicaid
How should Colorado lawmakers fix a broken system?
By Brian T. Schwartz

Colorado's Blue Ribbon Commission for Healthcare Reform recently selected four proposals for further analysis and eventual legislative review. The so-called 208 Commission's goals include improving access, encouraging personal responsibility, and supporting a "financially viable, sustainable and fair" system. Yet, these proposals preserve or expand Medicaid, which fails to meet these goals.

Colorado's Medicaid spending has almost doubled since 1997, eats up 20 percent of your state taxes, and increases prescription drug prices. The National Association of State Budget Officers reports that "increases in Medicaid costs will far outstrip the growth in state revenues into the future." But why should state-level administrators be frugal? For each dollar state taxes compel you to donate, the feds pitch in another by taxing someone else.

One of the four proposals being considered recommends that Medicaid switch from its current "fee-for-service" model - where taxpayers pay doctors at government-set rates - to HMO-style managed care. However, a National Bureau of Economic Research study concluded that switching from "fee-for-service to managed care was associated with a substantial increase in government spending but no observable improvement in health outcomes."

Medicaid and managed care are not insurance, but prepaid health care. Tiny or non-existent copayments and deductibles discourage prudent spending. Medicaid patients spend someone else's money, so providers need not reduce costs. Because the federal tax exemption for employer-paid premiums has transformed insurance into prepaid health care, the privately insured do the same. This tax policy makes medical costs skyrocket.

Medicaid recipients also have poor access to medical care. Doctors are five times more likely to refuse seeing new Medicaid patients than privately insured patients, who also have greater access to physicians after ER visits. Increasing reimbursement rates won't induce many doctors to see Medicaid patients; more than two-thirds of doctors reported being overwhelmed by Medicaid's billing requirements, paperwork, and delays in payment.

Medicaid erodes personal responsibility. Many recipients avoid higher-paying jobs and saving money because such admirable behavior disqualifies them from benefits. Hence, Medicaid keeps those it "aids" helpless, on their backs and dependent on government.

Medicaid is a bully. It unfairly competes with private insurers and private charities, crowds them out of the market, and hence forces some to depend on government for inferior health care. Harvard's George Borjas found that Medicaid cutbacks have significantly increased immigrant enrollment in employer-sponsored insurance. And USA Today reports that "many workers choose Medicaid over insurance offered by their employers."

One state proposal advocates significantly expanding Medicaid eligibility. This would further crowd out insurers and subject yet more Coloradans to Medicaid. The "single-payer" proposal advocates squashing private insurance entirely - forcing us all to depend on government for health care. A scary thought, given Medicaid's track record. If Medicaid is as good as its defenders claim, why not let it compete fairly with insurance companies and voluntary charities for customers and donations?

An alternative to Medicaid is consumer-directed health care, which combines low-premium, high-deductible policies with tax-deductible Health Savings Accounts (HSAs). Patients spend their own HSA funds until reaching their deductible, after which the policy's coverage applies. With savings from lower premiums, employers often contribute to employee HSAs, which employees own even after changing jobs. Further promoting consumer choice and affordable insurance entails eliminating laws mandating minimum benefits; these laws criminalize the sale of economical insurance policies. Empowering consumers provides quality, affordability and portability.

Patients spending their own money on medical care empowers them to consume wisely, take personal responsibility for their health, and gives doctors incentives to satisfy patients instead of bureaucracies. The RAND Health Insurance Experiment found that patients with the equivalent of consumer-directed plans spent 30 percent less than those with prepaid plans - with negligible effect on their health.

Consumer-driven health care is not foreign to Medicaid. Cash & Counseling programs have high participant satisfaction and Colorado's Consumer-Directed Attendant Support operated 21 percent under budget in its first two years.

Medicaid fails to meet the 208 Commission's criteria for cost, quality, access, personal responsibility, and fairness. The Colorado legislature should choose consumer-directed over authority-directed health care. Health care is too important to be left to government.

Brian Schwartz is an optical engineer in Boulder. This article was adapted from his proposal to Colorado's Blue Ribbon Commission on Healthcare Reform, called FAIR: Free-Markets, Affordability, and Individual Rights. The proposal is available at WhoOwnsYou.org.