By Kelly McCutchen
Expanding Medicaid under the inflexible federal regulations currently in place would not be a good long-term decision for Georgia, but that doesn’t mean states shouldn’t propose a more effective alternative.
But the question should not be limited to whether to expand a specific program such as Medicaid it should be how to best provide access to quality health care to our poorest citizens in a way that is fiscally sustainable.
Public hospitals are required to provide care to anyone who comes into the emergency room, regardless of their ability to pay. So even if Medicaid did not exist, taxpayers and citizens would be paying for health care for the poor and uninsured. Although the uninsured often pay a portion of the cost of their care, the majority of the cost is left for the rest of us to pay through higher taxes and increased medical costs.
What if there was a better solution? To answer that question we first need to understand the problem.
While about one in five Georgians is uninsured, not all of the uninsured are indigent. About two-thirds of Georgia’s uninsured have family incomes above the poverty level. Uninsured patients as a whole pay for about one-third of the cost of the care they receive. The balance is referred to as uncompensated care which, according to one estimate, amounted to $2.8 billion in Georgia in 2011.
The cost of uncompensated care is offset by direct taxpayer subsidies or increasing the prices charged to other patients. Unlike food stamps, where poor individuals are subsidized but still pay the same prices for their groceries as everyone else, cost shifting in health care skews prices and causes unintended consequences. Some of the unintended consequences include:
- More uninsured. Shifting costs to the private sector leads to higher private insurance premiums, which causes more and more middle-income families to drop their insurance.
- Arbitrary winners and losers. Hospitals with high numbers of uninsured patients must raise their prices to cover their costs, driving away patients with private insurance who can find lower prices elsewhere, even if the hospital is providing high quality service. With fewer private paying patients, the remaining patients must pay more, leading more to leave, creating a vicious cycle.
What is the right amount to spend on insurance coverage for the poor? At the least, we should be willing to spend what we already spend on uncompensated care. If the total cost of uncompensated care is about $2.8 billion and there are roughly 1.9 million uninsured individuals, that equals about $1,500 per person in uncompensated care costs.
Georgia has estimated that expanding the Medicaid program would cost $3.7 billion, which equates to more than $5,200 per newly insured person. A more affordable and more effective alternative to full expansion would have two parts:
1) Georgia could offer low-income uninsured individuals and families a credit of $1,500 per person toward the purchase of private health insurance.
Would $1,500 per person be sufficient?
- The average annual premium for an individual policy in Georgia is $2,640. The savings necessary for an hourly wage earner to make up the difference between the $1,500 credit and a $2,640 private policy would be the equivalent of 57 cents an hour. Setting up Health Savings Accounts would enable friends, family and/or charitable organizations to make tax-free deposits to help make up the difference.
- The latest annual capitated (per-person) rate for low-income Medicaid recipients in Florida’s pilot program is $1,585. This includes all Medicaid mandates, rules and regulations. For a plan without those Medicaid restrictions, $1,500 would be viable.
- It’s possible that new hospital provider networks would be willing to offer affordable coverage plans.
2) If these individuals choose not to accept the $1,500 credit to purchase insurance, the money would be directed to safety net providers in their community.
Georgia hospitals provided $1.5 billion in uncompensated care in 2010, according to the Georgia Hospital Association. This fits with national estimates showing that hospitals provide over half of the uncompensated care in the nation, with various primary care providers and clinics making up the remainder.
A couple of benefits of this approach include:
- Hospitals that serve a disproportionate number of uninsured individuals would no longer be financially handicapped.
- With uncompensated costs covered, hospitals would no longer have to shift costs to other patients. This, in turn, should reduce the cost of private insurance for everyone, enabling more middle-income families to afford insurance. To the extent that state and local governments pay for uncompensated care, it would also allow for lower tax rates.
The state could then allocate the remaining funds to address primary care.
- Hospitals could use these funds to proactively reduce costs by investing in efforts to make primary care services more convenient 24 hours a day in order to reduce expensive emergency room visits. Efforts to engage uninsured individuals with chronic diseases could also reduce costs. The Medical Center of Central Georgia led a similar successful effort several years ago, Community Health Works, which is still working well today.
- Support could be provided to private organizations such as the Georgia Charitable Care Network, which is already serving about 400,000 uninsured and indigent Georgians.
- Investment in Georgia’s telemedicine network and mobile health could leverage Georgia’s supply of doctors and enhance access to primary care physicians as well as specialists. Efforts like the REACH program, programs to address high-risk pregnancies by the Georgia Department of Public Health, school clinics by the Georgia Telehealth Network and other efforts could make Georgia a national leader.
For less than $2.8 billion a year, almost a billion dollars a year less than the cost of Medicaid expansion, Georgia could address the challenge of uncompensated care, put hospitals on a level playing field, dramatically enhance access to health care for the uninsured and provide funding for insurance to more than 600,000 uninsured Georgians.
This comprehensive solution addresses the costs of providing care to the uninsured who would not be eligible for any proposed Medicaid expansion. The federal government accomplishes its goal for hundreds of millions of dollars less a year. Georgia addresses its uninsured problem and puts its hospitals on solid financial ground. Rather than simply saying no to Medicaid expansion, Georgia should seek a waiver to implement this positive solution.
[To view the full study, “Uncompensated Care and An Alternative to Medicaid Expansion,” go to https://www.georgiapolicy.org/ftp_files/UncompensatedCare.pdf.]
Kelly McCutchen is president of the Georgia Public Policy Foundation, an independent, state-focused think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
©Georgia Public Policy Foundation (April 26, 2013). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.