Want to Spend Less on Medicaid Expansion? Copy Maryland’s Price Controls

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The Commonwealth Foundation has been trying to persuade people that a Medicaid expansion is a bad idea for two reasons. One argument is that Medicaid is a bad insurance plan, and the other is that Medicaid cost growth is unsustainable.

On the first point, I would simply point out that having Medicaid is definitely better than being uninsured, and also the Affordable Care Act does a lot of different things to improve coverage within Medicaid. One of the better things we can do to improve Medicaid is just add more people into the pool. This helps in two ways – by raising the political status of the program as more middle class people come to identify with it, and by giving the program more market power over hospitals and other provider interests.

That leads into the second argument about the cost issue. It’s not Medicaid that’s rising in cost, it’s the stuff Medicaid pays for. There’s too much price inflation driving up the cost of the products and services that Medicaid buys from hospitals, pharmaceutical companies, medical device makers, etc. This doesn’t mean we should enroll fewer people in Medicaid, it means we should enroll more, and use the power that comes with having more enrollees to push down the final price of treatments.

There’s actually a very simple way to lower the prices, which is completely legal for states to do, and which is used by the state of Maryland. Right across PA’s southern border, they are paying lower prices for health care.

As Sarah Kliff explains, Maryland keeps health care affordable by controlling the prices hospitals can charge for procedures. And not just for Medicaid, but for private insurance plans too:

It turns out that we don’t even have to look internationally to find an example of success at holding down health cost inflation: Maryland has been quite successful at this for about four decades now. It is the only state that uses rate-setting for hospitals, meaning that the state government decides what all Maryland hospitals can charge for a given procedure.

That system went into effect in 1976, when Maryland had hospital costs 26 percent higher than the rest of the the country. Just over three decades later, in 2008, the average cost for a hospital admission in Maryland was down to national levels. ”From 1997 through 2008, Maryland hospitals experienced the lowest cumulative growth in cost per adjusted admission of any state in the nation,” the state concluded in a 2010 report.

If Pennsylvania politicians want to make the Medicaid expansion even more affordable, adopting the Maryland model is a no-brainer.

Naturally hospitals hate this idea, and are trying to elect politicians like Jim Gerlach who don’t want to control costs, and are reliable votes in favor of keeping health care price inflation painfully high.

But if we actually want universal coverage, we’re going to have to do what all other developed countries do, and use price controls to push down the prices of the stuff Medicaid and Medicare pay for.

This entry was posted in Budget, Health.

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