“Medicaid” Isn’t Unaffordable – It’s the Prices

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“Medicaid” is just the insurer. The actual problem is that the prices that Medicaid has to pay hospitals and doctors are unaffordable.

That’s why our neighbors to the south in Maryland are attacking the problem at the root – by capping prices that providers can charge for medical procedures. From Sarah Kliff:

For Maryland, the new rules build on past success. Since the mid-1970s, it has been the only state to set the prices that hospitals charge patients. Typically, hospitals negotiate with each health insurer individually, leading to disparate rates. In Maryland, all customers — whether a private insurance plan, public program or uninsured patient — pay the same price. Researchers estimate the system has saved $45 billion for consumers over four decades and prices have grown more slowly in the state.

Under the old system, prices in Maryland couldn’t grow faster than the prices set by the Medicare program. But as the cost of health care rose rapidly in recent years, the state struggled to hit that target.

State officials also worried about the old system creating perverse incentives: The best way for a hospital to make money was to provide the highest volume of services, regardless of whether that care made patients healthier. That meant payers would simply sign checks for as many treatments as the hospitals recommended. The new system intends to end that revenue strategy by capping total spending.

Tom Corbett’s plan does the opposite of this. Rather than setting one price per procedure for all payers, Corbett would double down on the fragmented payer market that’s driving up the prices hospitals can charge.

$45 billion in savings over 4 decades is a ton of money, and Maryland has about half the population of Pennsylvania. Our population skews older, so it’s hard to know exactly how much more we’d save, but do the math.

We’re currently set to get about $4 billion a year from the federal government for real Medicaid expansion for the first 10 years – that’s 100% of the cost.

After those 10 years are up, we’ll have to come up with 90% of the cost, which Tom Corbett thinks is too expensive. But even if we only saved as much as Maryland, despite having double the population, the savings we’d get from all-payer rate setting alone would be more than double the $400 million a year we’d need to come up with.

This entry was posted in Economy, Governor, Health.

2 Responses to “Medicaid” Isn’t Unaffordable – It’s the Prices

  1. Adam Smith says:

    Because the government does such a great job negotiating the prices for medical care…

    See, e.g., http://oig.hhs.gov/oas/reports/region7/71205024.pdf