• Commentary

Designing An Alternative to Medicaid Expansion

Key components for an alternative to Medicaid expansion:

  • Catastrophic insurance. A private insurance policy provides catastrophic coverage, protecting individuals (and taxpayers) from large, unexpected expenses and giving individuals peace of mind that they are covered if they need major surgery or need expensive treatment for a condition such as cancer. Private insurance means individuals avoid the problems with many providers refusing to see new Medicaid patients.
  • Reasonable cost sharing. The coverage is not free, but requires reasonable payments of up to 5 percent of income. This limits “crowd out” where individuals who are already paying for insurance drop their private insurance for the “free” government coverage. According to the Census Bureau, 222,000 adults with income below the Federal Poverty Line are currently covered by private insurance. When government makes a product or service “free” it “crowds out” charitable efforts as well as individuals who are buying that product or service with their own money.[1] Not only does this weaken personal responsibility, but it makes the program far more expensive than necessary.
  • Price signals. Just as with private insurance, individuals who visit the emergency room unnecessarily face a higher payment. Healthy Indiana recipients used the emergency room less than when they were uninsured, but they do not forgo needed care. Compare this to studies showing that traditional Medicaid beneficiaries use the emergency room 40 percent more than the uninsured.
  • Health Savings Account. Funds for routine primary care should be placed in a Health Savings Account so individuals can decide how best to spend the money and savings accrue over time. These funds would provide immediate help to meet co-payments and deductibles. The funds could be used for care at clinics, via telemedicine visits or from a physician under a Direct Primary Care plan. These funds could also be used for other services such as dental care.
  • Charity Care. It is nearly impossible to eliminate the uninsured. Georgia leads the nation in charity care, but needs still outweigh resources. Providing a limited amount of funds to help replicate successful charity clinics would be money well spent. 

Overview

True Insurance

Insurance was designed to protect us from unexpected, catastrophic expenses. Just as few of us could afford to rebuild our home if it burned down, few of us could afford a heart transplant or other expensive medical procedure without the aid of health insurance.

For most of us, we are protecting our own assets from being wiped out by a catastrophic event. But for low-income individuals, there are few assets to protect.

Most hospitals are required to provide care to all who come into the emergency room, regardless of their ability to pay, so that’s where many of the uninsured obtain their care. The uninsured often pay a portion of the cost of their care, but the majority of the cost is left for the rest of us to pay through higher taxes and/or increased medical costs. So even if Medicaid did not exist, taxpayers and citizens would still be paying for health care for the poor and uninsured.

The unpaid medical bills (uncompensated care) accumulated by the uninsured amount are estimated to be $2.8 billion in Georgia each year.[2] With about 1.9 million uninsured Georgians, that’s about $1,500 per person. Much of this cost is due to unnecessary use of hospital emergency rooms.

What if we used the money taxpayers are already spending to instead buy private, catastrophic insurance for uninsured individuals below the poverty line?[3]

This concept was first put forward over a decade ago by John Goodman,[4] who proposed the following principles for an ideal health care system:

1. Subsidize those who insure and penalize those who do not. Since we have a social interest in encouraging people to have health insurance, we should incentivize its purchase — say, with a subsidy through tax credits. The penalty for not being insured would be the absence of the subsidy. Why not simply require people to purchase insurance without any subsidy? Because the only practical way to enforce such a mandate is by fining people who disobey it. And, since a fine is a penalty, the absence of the penalty is a subsidy to those who purchase insurance. A penalty/subsidy system, in other words, is all the leverage that is needed or desired.

2. The subsidy for private insurance should equal the value society places on insuring individuals, at the margin. We should decide how much we care (in money terms) whether a person is insured, and that should determine the size of the subsidy/penalty.

3. The revealed social value of insurance is the amount we spend on free care for the uninsured. Since none of us is a mind reader, how do we know how much it’s worth collectively to insure a given individual? If we are willing to take the political system as dispositive, it’s the amount we expect to spend on free care if the person is uninsured.

4. The penalties paid by the uninsured should be used to compensate those who provide safety net care. What should be done with the penalties (extra taxes) paid by those who continue to elect to be uninsured? These funds should be made available to those who operate the health care safety net in the community where each uninsured person lives. In this way, the uninsured would help finance their own “free” care.

5. The subsidy for each newly insured individual should be funded by reducing the expected amount of spending on free care for that person. If every uninsured person suddenly obtained insurance, we would no longer need to fund our nation’s very expensive health care safety net. Further, money that was previously funding the safety net could then be used to subsidize health insurance for the newly insured. In this way, people who cease being insured free up the funds that subsidize their choice. In general, as individuals move from uninsured to insured status, we should reduce safety net spending and use the newly freed-up money to help subsidize the newly acquired insurance.

6. Subsidies for being insured should be independent of how the insurance is purchased. The social value of insurance is independent of how it is purchased. Accordingly, the subsidies for private insurance should be the same, whether purchased individually or through an employer. On a level playing field, the role of the employer would be determined in the marketplace — not by tax law as it is now.

7. The optimal number of uninsured is not zero. The social goal is to reach a point at which the additional cost (in terms of subsidy) of the last person we induce to insure is equal to the additional benefit (in terms of the reduction in cost of free care). At this point, there will almost certainly be some people who remain uninsured by choice.

8. The principles of reform apply to all citizens, regardless of income. People who earn $100,000 a year can incur medical bills they cannot pay almost as easily as people who earn $30,000. For that reason, the social interest in encouraging insurance is largely independent of income. Accordingly, health insurance subsidies should be independent of income.

9. Health insurance subsidies need not add to budgetary outlays. Getting all the incentives right may involve shifting around a lot of money by reducing subsidies that are currently too large and increasing subsidies that are too small. But there is no reason to believe our health care system spends too little money right now. Nor is it necessary to add new money in order to adhere to these 10 characteristics.

10. The federal government’s role should remain strictly financial. Aside from an interest in encouraging catastrophic insurance, there is no social reason why government at any level should dictate the content of health insurance plans. Although federal subsidies for private insurance exceed $141 billion a year, currently the federal government places comparatively few restrictions on the content of insurance plans. And except for certain portability requirements, federal law is silent about the conditions under which insurance is bought and sold. The federal role is largely a financial one. It should remain so.

Even if shifting uncompensated care subsidies only covered catastrophic insurance, low-income individuals would at least have the peace of mind that major expenses would be covered. Even with no other government funding, community resources could fill the smaller gap. Doctors and community clinics could provide primary care at no cost (see below), affordable alternatives such as Direct Primary Care arrangements could be allowed to flourish and innovative solutions such as telemedicine could be better utilized.

Primary Care

One of the problems with Medicaid is that low reimbursement rates limit the number of doctors willing to see new patients, causing Medicaid recipients to use hospital emergency rooms, the most expensive place possible, for non-emergency health care needs. Giving individuals a Medicaid eligibility card without access to primary care is like giving them an ATM card with no money in the account.

If we want to truly help people, giving them access to primary care is critical. Increasing the capacity of charity care clinics and exploring direct primary care options are good first steps.

Charity Care

Regardless of Georgia’s decision on Medicaid expansion, hundreds of thousands of Georgians will remain uninsured. One immediate way to help the uninsured (and save money) is to provide access to primary care clinics instead of expensive and unnecessary trips to emergency rooms. Thanks to leadership and private support, Georgia is a national leader in charity care.[5] Leveraging this great asset should be the first step to helping the indigent and uninsured.[6]

Direct Primary Care

Direct primary care (DPC) is “an emerging model that has gained some attention in California and nationally in recent years.[7] Sometimes referred to as ‘retainer practices,’ DPC practices generally do not accept health insurance, instead serving patients in exchange for a recurring monthly fee — usually $50 to $80 — for a defined set of clinical services,” according to the California Healthcare Foundation.[8]

Dave Chase, writing in Forbes magazine[9], explains how DPC could be used for low-income individuals:

The issue of using DPC for the poor is from my point of view a no brainer. Why use the most expensive inflationary system available (by which I mean the insurance system, whether public or private) to take care of those with the least money and most in need of basic services? The structure that makes sense to me is to create a thriving marketplace in direct primary care, competing on price, access and quality – and working exclusively for our patients. Then add a fixed monthly stipend for primary care for every Medicaid patient in the United States – a stipend that covers the lowest priced/highest functioning primary care available. This could be a voucher or credit card account for each Medicaid patient. The allowance could only be spent on primary care and the patients could buy up to higher priced practices if they saw value worth purchasing. That would convert the Medicaid patient from being a low paying, high utilizing patient to a valued customer who can pay cash for care at a reasonable price. This makes all kinds of sense economically:

  • No government management system to control or manage care – it manages itself with the patient at the helm
  • Converting dependent impoverished citizens into patients with economic clout and respectful treatment
  • Eliminating the cost overhead of insurance billing on both the MD and the government side
  • No more barriers to basic care for Medicaid patients – they can use all they need
  • Eliminating the fee-for-service incentive disaster that produces massive overutilization and huge downstream expenses
  • Financially stabilizing the primary care world with consistent monthly fee payments to cover our fixed costs while allowing those docs with better ideas or higher prices to go for the upscale patients or those wanting better art work and longer visits
  • Free up primary care docs to further improve their quality, access and patient centered services – not their billing savvy

One of the drawbacks of participation in DPC is that physicians are not allowed to treat Medicare patients due to federal laws that prohibit charging rates lower than Medicare rates. This would preclude many rural doctors from participation unless this federal mandate could be waived.

Retail Clinics

Many health care institutions have established after hours clinics. In addition, the private sector has responded with retail clinics that are often found in grocery stores or other retail settings. These clinics are staffed by nurse practitioners and offer convenient, low-cost primary care services.

 

Cost Comparisons of Alternatives for Giving the Poor Access to Health Care:

 

Annual Cost 

Per Person

Estimated Georgia Medicaid Expansion cost

$5,800

Estimated average cost of unpaid medical bills for uninsured individuals

$1,500

Refundable Low-Income Tax Credit (Rep. Tom Price’s reform proposal)[10]

$2,000

Florida Medicaid Expansion Alternative

$2,000

Universal refundable Tax Credit (National Center for Policy Analysis proposal)[11]

$2,000

Florida’s Current Medicaid Reform Plan Cost[12]

$1,585

Direct Primary Care contract (estimate)

$780

 

 

 

 

 

 

 

 

Suggested Reading:


[1] “Crowd-out 10 years later: Have recent public insurance expansions crowded out private health insurance?” Journal of Health Economics, February 2008, http://economics.mit.edu/files/6422

[2] “State Progress Toward Health Reform Implementation: Slower Moving States Have Much to Gain,” Urban Institute, Table 2, Page 7, http://www.urban.org/UploadedPDF/412485-state-progress-report.pdf. Some believe this estimate is too high due to inflated estimates from providers.

[3] “Uncompensated Care and An Alternative to Medicaid Expansion,” Georgia Public Policy Foundation, April 2013, https://www.georgiapolicy.org/ftp_files/UncompensatedCare.pdf

[4] “Characteristics of an Ideal Health Care System,” National Center for Policy Analysis, April 2001, http://www.ncpa.org/pdfs/st242.pdf

[5] “Georgia Should Maintain its Leadership in Charity Care,” Georgia Public Policy Foundation, February 2014, https://www.georgiapolicy.org/georgia-should-maintain-its-leadership-in-charitable-primary-care-clinics/

[6] “Creating a ‘Good Samaritan’ Network of Charity Clinics,” Galen Institute, October 2013, http://www.galen.org/topics/creating-a-good-samaritan-network-of-charity-clinics/

[8] “On Retainer: Direct Primary Care Practices Bypass Insurance,” California Healthcare Foundation, April 203, http://www.chcf.org/~/media/MEDIA%20LIBRARY%20Files/PDF/O/PDF%20OnRetainerDirectPrimaryCare.pdf

[9] “The Marcus Welby/Steve Jobs Solution to the Medicaid-driven State & County Budget Crisis,” Forbes, March 11, 2012, http://www.forbes.com/sites/davechase/2012/03/11/the-marcus-welbysteve-jobs-solution-to-the-medicaid-driven-state-county-budget-crisis/

[11] “Health Care for All Without the Affordable Care Act,” National Center for Policy Analysis, October 2012, http://www.ncpa.org/pdfs/ib116.pdf

[12] Florida Agency for Health Care Administration, http://www.fdhc.state.fl.us/mchq/managed_health_care/mhmo/docs/MCAID/1112_Rates/AttachI-Exhibit2_R_RatesEff_9-2011.pdf 

Key components for an alternative to Medicaid expansion:

  • Catastrophic insurance. A private insurance policy provides catastrophic coverage, protecting individuals (and taxpayers) from large, unexpected expenses and giving individuals peace of mind that they are covered if they need major surgery or need expensive treatment for a condition such as cancer. Private insurance means individuals avoid the problems with many providers refusing to see new Medicaid patients.
  • Reasonable cost sharing. The coverage is not free, but requires reasonable payments of up to 5 percent of income. This limits “crowd out” where individuals who are already paying for insurance drop their private insurance for the “free” government coverage. According to the Census Bureau, 222,000 adults with income below the Federal Poverty Line are currently covered by private insurance. When government makes a product or service “free” it “crowds out” charitable efforts as well as individuals who are buying that product or service with their own money.[1] Not only does this weaken personal responsibility, but it makes the program far more expensive than necessary.
  • Price signals. Just as with private insurance, individuals who visit the emergency room unnecessarily face a higher payment. Healthy Indiana recipients used the emergency room less than when they were uninsured, but they do not forgo needed care. Compare this to studies showing that traditional Medicaid beneficiaries use the emergency room 40 percent more than the uninsured.
  • Health Savings Account. Funds for routine primary care should be placed in a Health Savings Account so individuals can decide how best to spend the money and savings accrue over time. These funds would provide immediate help to meet co-payments and deductibles. The funds could be used for care at clinics, via telemedicine visits or from a physician under a Direct Primary Care plan. These funds could also be used for other services such as dental care.
  • Charity Care. It is nearly impossible to eliminate the uninsured. Georgia leads the nation in charity care, but needs still outweigh resources. Providing a limited amount of funds to help replicate successful charity clinics would be money well spent.

Overview

True Insurance

Insurance was designed to protect us from unexpected, catastrophic expenses. Just as few of us could afford to rebuild our home if it burned down, few of us could afford a heart transplant or other expensive medical procedure without the aid of health insurance.

For most of us, we are protecting our own assets from being wiped out by a catastrophic event. But for low-income individuals, there are few assets to protect.

Most hospitals are required to provide care to all who come into the emergency room, regardless of their ability to pay, so that’s where many of the uninsured obtain their care. The uninsured often pay a portion of the cost of their care, but the majority of the cost is left for the rest of us to pay through higher taxes and/or increased medical costs. So even if Medicaid did not exist, taxpayers and citizens would still be paying for health care for the poor and uninsured.

The unpaid medical bills (uncompensated care) accumulated by the uninsured amount are estimated to be $2.8 billion in Georgia each year.[2] With about 1.9 million uninsured Georgians, that’s about $1,500 per person. Much of this cost is due to unnecessary use of hospital emergency rooms.

What if we used the money taxpayers are already spending to instead buy private, catastrophic insurance for uninsured individuals below the poverty line?[3]

This concept was first put forward over a decade ago by John Goodman,[4] who proposed the following principles for an ideal health care system:

1. Subsidize those who insure and penalize those who do not. Since we have a social interest in encouraging people to have health insurance, we should incentivize its purchase — say, with a subsidy through tax credits. The penalty for not being insured would be the absence of the subsidy. Why not simply require people to purchase insurance without any subsidy? Because the only practical way to enforce such a mandate is by fining people who disobey it. And, since a fine is a penalty, the absence of the penalty is a subsidy to those who purchase insurance. A penalty/subsidy system, in other words, is all the leverage that is needed or desired.

2. The subsidy for private insurance should equal the value society places on insuring individuals, at the margin. We should decide how much we care (in money terms) whether a person is insured, and that should determine the size of the subsidy/penalty.

3. The revealed social value of insurance is the amount we spend on free care for the uninsured. Since none of us is a mind reader, how do we know how much it’s worth collectively to insure a given individual? If we are willing to take the political system as dispositive, it’s the amount we expect to spend on free care if the person is uninsured.

4. The penalties paid by the uninsured should be used to compensate those who provide safety net care. What should be done with the penalties (extra taxes) paid by those who continue to elect to be uninsured? These funds should be made available to those who operate the health care safety net in the community where each uninsured person lives. In this way, the uninsured would help finance their own “free” care.

5. The subsidy for each newly insured individual should be funded by reducing the expected amount of spending on free care for that person. If every uninsured person suddenly obtained insurance, we would no longer need to fund our nation’s very expensive health care safety net. Further, money that was previously funding the safety net could then be used to subsidize health insurance for the newly insured. In this way, people who cease being insured free up the funds that subsidize their choice. In general, as individuals move from uninsured to insured status, we should reduce safety net spending and use the newly freed-up money to help subsidize the newly acquired insurance.

6. Subsidies for being insured should be independent of how the insurance is purchased. The social value of insurance is independent of how it is purchased. Accordingly, the subsidies for private insurance should be the same, whether purchased individually or through an employer. On a level playing field, the role of the employer would be determined in the marketplace — not by tax law as it is now.

7. The optimal number of uninsured is not zero. The social goal is to reach a point at which the additional cost (in terms of subsidy) of the last person we induce to insure is equal to the additional benefit (in terms of the reduction in cost of free care). At this point, there will almost certainly be some people who remain uninsured by choice.

8. The principles of reform apply to all citizens, regardless of income. People who earn $100,000 a year can incur medical bills they cannot pay almost as easily as people who earn $30,000. For that reason, the social interest in encouraging insurance is largely independent of income. Accordingly, health insurance subsidies should be independent of income.

9. Health insurance subsidies need not add to budgetary outlays. Getting all the incentives right may involve shifting around a lot of money by reducing subsidies that are currently too large and increasing subsidies that are too small. But there is no reason to believe our health care system spends too little money right now. Nor is it necessary to add new money in order to adhere to these 10 characteristics.

10. The federal government’s role should remain strictly financial. Aside from an interest in encouraging catastrophic insurance, there is no social reason why government at any level should dictate the content of health insurance plans. Although federal subsidies for private insurance exceed $141 billion a year, currently the federal government places comparatively few restrictions on the content of insurance plans. And except for certain portability requirements, federal law is silent about the conditions under which insurance is bought and sold. The federal role is largely a financial one. It should remain so.

Even if shifting uncompensated care subsidies only covered catastrophic insurance, low-income individuals would at least have the peace of mind that major expenses would be covered. Even with no other government funding, community resources could fill the smaller gap. Doctors and community clinics could provide primary care at no cost (see below), affordable alternatives such as Direct Primary Care arrangements could be allowed to flourish and innovative solutions such as telemedicine could be better utilized.

Primary Care

One of the problems with Medicaid is that low reimbursement rates limit the number of doctors willing to see new patients, causing Medicaid recipients to use hospital emergency rooms, the most expensive place possible, for non-emergency health care needs. Giving individuals a Medicaid eligibility card without access to primary care is like giving them an ATM card with no money in the account.

If we want to truly help people, giving them access to primary care is critical. Increasing the capacity of charity care clinics and exploring direct primary care options are good first steps.

Charity Care

Regardless of Georgia’s decision on Medicaid expansion, hundreds of thousands of Georgians will remain uninsured. One immediate way to help the uninsured (and save money) is to provide access to primary care clinics instead of expensive and unnecessary trips to emergency rooms. Thanks to leadership and private support, Georgia is a national leader in charity care.[5] Leveraging this great asset should be the first step to helping the indigent and uninsured.[6]

Direct Primary Care

Direct primary care (DPC) is “an emerging model that has gained some attention in California and nationally in recent years.[7] Sometimes referred to as ‘retainer practices,’ DPC practices generally do not accept health insurance, instead serving patients in exchange for a recurring monthly fee — usually $50 to $80 — for a defined set of clinical services,” according to the California Healthcare Foundation.[8]

Dave Chase, writing in Forbes magazine[9], explains how DPC could be used for low-income individuals:

The issue of using DPC for the poor is from my point of view a no brainer. Why use the most expensive inflationary system available (by which I mean the insurance system, whether public or private) to take care of those with the least money and most in need of basic services? The structure that makes sense to me is to create a thriving marketplace in direct primary care, competing on price, access and quality – and working exclusively for our patients. Then add a fixed monthly stipend for primary care for every Medicaid patient in the United States – a stipend that covers the lowest priced/highest functioning primary care available. This could be a voucher or credit card account for each Medicaid patient. The allowance could only be spent on primary care and the patients could buy up to higher priced practices if they saw value worth purchasing. That would convert the Medicaid patient from being a low paying, high utilizing patient to a valued customer who can pay cash for care at a reasonable price. This makes all kinds of sense economically:

  • No government management system to control or manage care – it manages itself with the patient at the helm
  • Converting dependent impoverished citizens into patients with economic clout and respectful treatment
  • Eliminating the cost overhead of insurance billing on both the MD and the government side
  • No more barriers to basic care for Medicaid patients – they can use all they need
  • Eliminating the fee-for-service incentive disaster that produces massive overutilization and huge downstream expenses
  • Financially stabilizing the primary care world with consistent monthly fee payments to cover our fixed costs while allowing those docs with better ideas or higher prices to go for the upscale patients or those wanting better art work and longer visits
  • Free up primary care docs to further improve their quality, access and patient centered services – not their billing savvy

One of the drawbacks of participation in DPC is that physicians are not allowed to treat Medicare patients due to federal laws that prohibit charging rates lower than Medicare rates. This would preclude many rural doctors from participation unless this federal mandate could be waived.

Retail Clinics

Many health care institutions have established after hours clinics. In addition, the private sector has responded with retail clinics that are often found in grocery stores or other retail settings. These clinics are staffed by nurse practitioners and offer convenient, low-cost primary care services.

Cost Comparisons of Alternatives for Giving the Poor Access to Health Care:

 

Annual Cost 

Per Person

Estimated Georgia Medicaid Expansion cost

$5,800

Estimated average cost of unpaid medical bills for uninsured individuals

$1,500

Refundable Low-Income Tax Credit (Rep. Tom Price’s reform proposal)[10]

$2,000

Florida Medicaid Expansion Alternative

$2,000

Universal refundable Tax Credit (National Center for Policy Analysis proposal)[11]

$2,000

Florida’s Current Medicaid Reform Plan Cost[12]

$1,585

Direct Primary Care contract (estimate)

$780

 

 

 

 

 

 

 

Suggested Reading:


[1] “Crowd-out 10 years later: Have recent public insurance expansions crowded out private health insurance?” Journal of Health Economics, February 2008, http://economics.mit.edu/files/6422

[2] “State Progress Toward Health Reform Implementation: Slower Moving States Have Much to Gain,” Urban Institute, Table 2, Page 7, http://www.urban.org/UploadedPDF/412485-state-progress-report.pdf. Some believe this estimate is too high due to inflated estimates from providers.

[3] “Uncompensated Care and An Alternative to Medicaid Expansion,” Georgia Public Policy Foundation, April 2013, https://www.georgiapolicy.org/ftp_files/UncompensatedCare.pdf

[4] “Characteristics of an Ideal Health Care System,” National Center for Policy Analysis, April 2001, http://www.ncpa.org/pdfs/st242.pdf

[5] “Georgia Should Maintain its Leadership in Charity Care,” Georgia Public Policy Foundation, February 2014, https://www.georgiapolicy.org/georgia-should-maintain-its-leadership-in-charitable-primary-care-clinics/

[6] “Creating a ‘Good Samaritan’ Network of Charity Clinics,” Galen Institute, October 2013, http://www.galen.org/topics/creating-a-good-samaritan-network-of-charity-clinics/

[8] “On Retainer: Direct Primary Care Practices Bypass Insurance,” California Healthcare Foundation, April 203, http://www.chcf.org/~/media/MEDIA%20LIBRARY%20Files/PDF/O/PDF%20OnRetainerDirectPrimaryCare.pdf

[9] “The Marcus Welby/Steve Jobs Solution to the Medicaid-driven State & County Budget Crisis,” Forbes, March 11, 2012, http://www.forbes.com/sites/davechase/2012/03/11/the-marcus-welbysteve-jobs-solution-to-the-medicaid-driven-state-county-budget-crisis/

[11] “Health Care for All Without the Affordable Care Act,” National Center for Policy Analysis, October 2012, http://www.ncpa.org/pdfs/ib116.pdf

[12] Florida Agency for Health Care Administration, http://www.fdhc.state.fl.us/mchq/managed_health_care/mhmo/docs/MCAID/1112_Rates/AttachI-Exhibit2_R_RatesEff_9-2011.pdf