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Medicare and Medicaid: rewarding failure

David Balat and Dr. Deane Waldman of the Texas Public Policy Foundation wrote an interesting op-ed which discusses some of the problems with government-run health care. In particular, why it’s crazy for Americans to think growing these programs is a good idea. The piece starts off by detailing the long-term viability of Medicare:

In the world of commerce, the market rewards success with profit and punishes mismanagement with bankruptcy. In health care, mismanagement is rewarded. Witness Medicare, which provides medical care for 51.2 million Americans aged 65 years and older, as well as 8.8 million disabled.

The latest report about the Medicare Trust indicates that the “depletion date” of Medicare hospital insurance is 2026. Simply put, Part A of Medicare program will be insolvent within seven years and will not have the funds to pay for senior hospital care.

Whether you blame the influx of baby boomers (long known in advance), the explosion of expensive technologies such as life-saving cancer treatments, or inaction by Congress, the Trust has been mismanaged.

Working Americans contributed to the Medicare Trust for 40 years or more. They expected Washington to make good on its promise of necessary medical care in their golden years. Due to mismanagement, that promise will inevitably be broken.

Medicaid, just like Medicare, has serious shortfalls in its financing, efficiencies, and market impact:

Medical outcomes in Medicaid enrollees are either no better than privately insured and sometimes worse. For instance, cancer victims, surgical patients, and those infected with Hepatitis C that “have public insurance have independently higher mortality” than privately insured.

Medicaid finances are also problematic for two reasons: the crowd-out effect and reducing access to care. After New Mexico expanded its Medicaid program, the costs of compliance of federal mandates was greater than the financial support provided by Washington. The resulting budget shortfall, $417 million, forced the state to reduce already low reimbursement schedules even further. This reduced the pool of physicians willing to care for Medicaid patients.

Because Medicaid spending is federally mandated, it tends to crowd out spending on other state priorities. Additionally, federal support for Medicaid insurance can crowd private insurance out of the market.

Washington handled Medicaid mismanagement the same way as Medicare. Rather than restructuring or canceling the program, failure was rewarded again with expansion. The ACA expanded Medicaid and sought to entice states to do so by offering financial support. Never mind that the cost of ACA insurance mandates was greater than the amount of federal support (as shown above). But even with the predictable shortage of physicians willing to care for Medicaid enrollees (as documented in New Mexico and Texas), some states that did not initially expand Medicaid are now seeking to do so.

These are some of the reasons why, here at the John Locke Foundation, we believe expanding the Medicaid program in North Carolina is not the right path forward. No emphasis on cutting costs, budget instability and crowd-out, and private insurance crowd-out:

The sane response is to identify the root cause for failure and address it. Medicare is failing financially because it lacks free market forces. The solution is to infuse these forces: At retirement, the program should begin returning to its enrollees the money they contributed over the years, and let them purchase their own insurance and care. That’s how Social Security works; it sends a check — it doesn’t purchase recipients’ food for them.

Rather than rewarding (or even punishing) failure, we should identify the root cause and treat that. The root cause is Washington with its one-size-fits-all approach to health care. The best solution is to remove Washington from health care. Let the states decide what health care is best for their residents — they are more in touch with both local needs and local resources than Washington. State-specific healthcare replacing federal one-size-fits-all is the cure for the sick U.S. health care system.

Jordan Roberts / Health Policy Analyst

Jordan joined the Locke Foundation in the summer of 2018 as Health Care Policy Analyst. He analyzes state and national health policy issues with an eye toward removing governm...

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