Medicaid Expansion or Something Else?

Whether one believes it or not, most know that the theory behind providing healthcare via universal coverage is that doing so will REDUCE costs by leveraging the buying power that results from everyone being insured to bargain costs down while using the volume of care delivered to unify processes, measure results with standard metrics and improve efficiency, allowing MORE care to be provided at less cost. The reality of this theory is hotly debated but a cursory comparison of healthcare delivery via

  • Medicare -- offered to ALL over 65 under a single national program
  • Medicaid -- offered to low-income citizens under 65 via inconsistent partnerships between state governments and the federal government based upon the states' political willingness to participate and fund
  • Private group insurance -- paid for by companies for employees and sold / administered by for-profit firms
  • Private individual insurance -- paid for by individuals and sold / administered by for-profit firms

would clearly show efficiency goes DOWN and per-person costs go UP as the size of the pool of individuals being covered gets smaller. But that's in a perfect world where words mean what they're supposed to mean and corporations and politicians haven't conspired to publicly adopt "universal coverage" concepts while actually implementing something entirely different.

An opinion piece in Forbes uses an example of "Medicaid expansion" in North Carolina to shed light on a practice being adopted in multiple states across the country. In general, a substantial number of states across the country have been politically unwilling to expand Medicaid availability for their citizens, even when federal funding was available to shoulder most of the cost. More recently, some of those states have seemed to relax their opposition and have begun joining the federal program and expanding Medicaid benefits. The Forbes piece, written by Ge Bai, a professor of accounting and public policy at Johns Hopkins, explains the financial slight of hand going on behind the scenes in many of these so-called expansions, citing North Carolina as an example.

https://www.forbes.com/sites/gebai/2024/03/31/cms-invites-hospitals-to-raise-prices-and-buy-physician-practices/?sh=52437da2387a

Medicaid, like the national Medicare program, normally drives much of the cost savings required to provide more coverage by imposing a rigid fee schedule for a vast number of routine procedures and treatments with costs significantly lower than "retail" rates for such procedures. These costs are typically lower than rates charged to group insurance or individual insurance plan members. As with Medicare, the bargain between the "insurer" (in this case, the federal / state government partnership) and providers is that providers will gain access to a much larger pool of patients in exchange for collecting significantly lower fees on a per-procedure basis. By understanding that dynamic up front, both parties can optimize for operating within that dynamic and the government and taxpayers can save money and the providers can make more money.

That is not what is happening in North Carolina.

In North Carolina, politicians and providers processed the pressures imposed on them differently and landed on a different deal. North Carolina politicians were split into two factions. One faction wanted to expand Medicaid to improve care for the poor and likely reduce total costs via better preventative care being offered earlier. The other faction did not support Medicaid expansion because of normal conservative concerns about "big gummint", out of control entitlement spending and some generalized fear of being helpful to the poor. But that second faction also objected to Medicaid expansion because giant hospital chains feared massive reductions in revenue due to the obviously lower reimbursement rates offered by Medicaid versus traditional private insurance or full-retail rates charged to those without insurance. (Note... The careful, logical reader just needs to suppress any recognition of the fallacy of this concern given that, by definition, those benefitting from Medicaid expansion were previously unable to afford private insurance or services at uninsured retail rates to begin with. Providers would not LOSE any revenue by adding Medicaid coverage for people who couldn't afford healthcare at all.)

Because Medicaid benefits are provided as a partnership between participating states and the federal government, the exact mechanics of Medicaid are negotiated independently and vary between states. In essence, the federal government is trying to encourage state participation and alters terms of the partnership based on political forces at work in each state. In the case of North Carolina, politicians in the previously "hell no" faction pushed back during negotiations and, speaking for major health provider chains operating in the state, said the state will only participate if reimbursement rates paid to provider chains for Medicaid patients are significantly higher than typical Medicaid rates.

In fact, the rate structures adopted in North Carolina's Medicaid plan agreed to pay nearly RETAIL rates for most services to these major provider chains. KEY POINT. Paying "retail" rates for services violates the core financial assumption of this insurance model. That core assumption is that expanding the pool of insured increases patient VOLUME and providers are to find efficiencies from that higher volume to REDUCE per-patient costs yet still make more money than they would had those patients remained uninsured and not sought any treatment.

But the North Carolina plan went beyond that to break the model even further. The final deal didn't apply that near-retail reimbursement fee to ALL providers statewide. The deal only applied to the large, politically powerful hospital chains. Individual doctors operating their own unaffiliated practices are still expected to provide services at the lower rates typical of Medicaid across the country. KEY POINT. This sweetheart deal for major chains has resulted in an arbitrage opportunity for major chains to compete against small practices, net more dollars for the same services, then use the extra dollars as a carrot to continue buying out small practices (a trend well underway for over a decade). This is consolidating MORE doctors into the giant chains and resulting in MORE care being delivered that will be reimbursed at RETAIL rates rather than discounted rates. So the real dynamic is MORE PATIENTS getting services charged at RETAIL rates which WILL result in skyrocketing healthcare costs and skyrocketing profits for these chains.

Yet the resulting system will still be called "Medicaid" and when the inevitable reckoning arrives for the exploding costs, opponents of socialized medicine will say "we told you so." But this is not socialized medicine. This is a state government sanctioned creation of a healthcare oligopoly benefiting a handful of large hospital chains and insurance companies. Since the reduced competition and higher costs may not be recognized for a few years, politicians on either side of the philisophical debate at both the state and federal levels have little incentive to correct this distortion. Medicaid costs are split between the federal government and state participants but it's not nearly a 50/50 split. In 2021, total Medicaid program costs were $728 billion but the federal government picked up 69 percent of the costs and states paid for the other 31 percent.

This cost imbalance alters incentives for state politicians, even those opposing the program, to allow this kind of deal. State level opponents may not like Medicaid expansion but if it's going to happen, they can promise windfall profits to powerful corporations while leaving the federal government picking up the majority of the tab. State level proponents for Medicaid can similarly gain credit for delivering X dollars of new benefits to citizens while only picking up a fraction of the tab. And both proponents and opponents can buddy up to the large healthcare providers in the state and claim credit for the windfall profits headed their way. Even federal politicians in favor of Medicaid expansion can use this flawed model to claim credit for expanding the program, even though the actual implementation bears no resemblance to the traditional financial operating model that actually lowers costs. That will be somebody else's problem down the road.


WTH
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Of course, all of these assume that health care needs to be provided via some kind of insurance, where someone (patient, employer, government) pays an insurance premium for the benefit of the patient. And that is the real flaw of the system.

All depend on some third party (either an insurer or Medicare/Medicaid) getting in between the doctor and the patient. That third party adds little or no benefit to the medical care. Instead, they just add to the cost of care.

Why don’t we ever consider something along the lines of the VA system? Directly employ the doctors and nurses and others required to run a medical clinic or a hospital. Provide the care people need rather than providing insurance. You’d save costs by completely eliminating the billing function. No more procedure codes or pre-approvals or second guessing by some administrator. No one has to pay anything for the services provided.

Of course, the costs would have to be paid via a change to the tax system, but for both businesses and individuals, it should be a shifting of costs from health insurance and co-payments to that tax instead. And by cutting out insurance company profits and executives of questionable utility, overall costs should be reduced.

I would not force everyone onto this system - independent doctors and hospitals and insurance would still exist. If you want to go elsewhere, that’s perfectly fine.

The current medical system is broken. We must try something radically different.

–Peter

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ABSOLUTELY CORRECT.

I wrote about this even prior to passage of ACA.

The purpose of insurance is to protect individuals from large financial risks whose occurrence cannot be accurately predicted at the individual level but CAN be accurately predicted over a larger group over a larger period of time over a larger geographic area. (snip) When you buy a car, no one offers you insurance for oil changes, tires and timing belts because the costs are small, predictable and directly related to the normal use of the car. In situations with predictable and directly related costs, the overhead of formalizing coverage, collecting premiums, analyzing claims and cutting checks greatly exceeds the value of the “protection” so it is cheaper to pay those expenses directly. (snip) No one has trouble understanding why car insurance doesn’t cover oil changes, but the lesson has been completely forgotten in the world of healthcare insurance.

I would estimate that 30-40 percent of the “volume” of healthcare interactions going through the current insurance based system are totally predictable expenses where the processing costs (direct and indirect in the form of extra clerks within doctors’ offices and extra paperwork time imposed on actual doctors) are nearly equal to the value of the service delivered to the patient. The equivalent of filing a claim with State Farm to pay for your $39.99 oil change every 5000 miles.

Inserting a third party between a “producer” and “consumer” injects incentives into the equation that have nothing to do with the service being provided and inflate the cost. If the cost is a $120,000 open heart procedure, well that may make sense to get different eyes on that claim. If the cost is $120 for a 20 minute visit to the GP for a sinus infection, running that through an insurance model turns that 20 minute chat for $120 into a $290 claim that two people in the doctor’s office have to touch, probably another two people at the insurance company to verify all the billing codes and makes the doctor wait 2-3 months to get paid their $120 dollars.

The current operating model for healthcare in the US is literally insane.

WTH

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I’d like to see mental health care serve as an intro to sanity. No one likes it - insurers won’t pay much, doctors are hard to find, inpatient is almost non existent (except for the expensive and incredibly profitable addiction treatment centers).

Prepare some facilities, hire the doctors and therapists and various and sundry assistants, and start providing care to anyone who walks through the doors.

And there’s some added benefits. Improving mental health will likely have fallout benefits in reductions in crime and homelessness and drug addiction. What’s not to like about it?

With a successful toe in the door there, duplicating the system for the rest of medical care might be a bit easier.

–Peter

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I’d like to see mental health care serve as an intro to sanity. No one likes it - insurers won’t pay much, doctors are hard to find, inpatient is almost non existent (except for the expensive and incredibly profitable addiction treatment centers).

Unfortunately, mental health treatment facilities and autism care facilities are the next sectors of care being targeted by companies that have already captured the hospital and primary care provider sectors. This is mentioned in The Big Fail by Joe Nocera and Bethany McLean. I reviewed that on my blog (and here) back in October 2023.

I expect the same forces to begin impacting the booming “memory care” market for long-term assisted living for those with dementia and Alzheimers. In my neck of the woods, enormous new complexes have been built over the last 5-10 years that are essentially promoted as assisted living condos for providing “memory care.” Without exaggeration, the number of new units in these complexes seems to exceed the number of beds in “traditional” legacy nursing homes.

I don’t doubt the NEED for a solution in this area but I cannot fathom the economics of this growth. A large portion of current retirees did not save adequately for a normal retirement, much less one ending in a scenario where an extended stay is required at a facility that can cost $2000-$3000 per month. The children of these retirees have their own retirement savings problems looming and don’t have enough for their OWN retirement much less paying for this type of care for parents.

So where is the money coming from? These new facilities aren’t built using a low-cost, shared facility “dorm” model. Each unit is literally a standalone apartment or condo, likely decked out with hardwood floors, granite countertops, etc. Many are structured with different “plattes” offering increasingly advanced services from “independent living” to “assisted living” to “memory care” to “respite / hospice care”. I think one of the financial schemes used to drive sales is to allow residents to buy in in their 60s for “independent living” then allow them to advance as needed through the other stages as part of a single financial arrangement. But still, where is the money coming from?

What becomes apparent from visiting the web sites of these new communities is that they are not local businesses. These are being built by national corporations building identical complexes in dozens of cities all over the country. They’ve clearly figured out some angle to at least temporarily shift money from patients to investors.

Watch this space…

WTH

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American healthcare insurance is not insurance, it’s prepaid medicine. A terrible waste of money and a loss of choice, you are stuck with a ‘plan.’

The Captain

o o o o o o o o o o o o o o o o o o

A very long time ago, my cousin’s husband, a doctor in LA, told me that when he had a patient on Medicare (or Medicaid, I don’t know which) he would treat them free of charge, the bureaucracy was too much of a hassle.

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We were blissfully unaware of the above until recently, having simply been on corporate healthcare for decades. Even after retirement, we had retiree healthcare provided by DH’s employer. We unfortunately are losing retiree healthcare now that DH qualifies for Medicare, forcing me to get coverage on the open market, as I am 4 years younger than he.

Medicare itself has crazy regulations. Because DH is a type 1 diabetic and wears an insulin pump with a continuous glucose monitor, (CGM,) Medicare insists that instead of his routine once a year visit with his endocrinologist, he now has to go quarterly. The primary reason for this seems to be to make sure that he does not sell his pump on Ebay, or some such venue. His prescriptions and consumable products needed for the pump/CGM cannot be ordered until you are 2 weeks from running out, as opposed to the 90 day supply he got from corporate care. The result is greater expense for every honest person, and tethering us to the general area at a time when we were expecting to be able to travel extensively. Getting this information is problematic, with those who should know giving varying answers to the same question, with the incorrect answers from SS/Medicare causing us to make significant decisions we are now trying to reverse. Tread gently and put off any changes until you have a chance to experience Medicare IRL.

The insanity for me has revolved around trying to find a decent health care plan that meets our needs. Heck, trying to find out where to look was overwhelming. Because of DH’s pre-existing conditions, we never looked beyond corporate healthcare, but at the moment I am without pre-existing conditions, having finally put long Covid in the rear mirror without permanent issues. I take no meds, and can’t remember the last time I had a prescription to fill. The first place we were directed to was the state Marketplace, which is all ACA plans. Where we live, as we have come to realize that all government healthcare coverage is state based, not national, the ACA plans are HMOs, basically with everything out of your zipcode out of network. This again causes problems for our plans to travel for months at a time, going from state to state, or even for our spending extended time at our vacation home at the other side of the same state. They also tend to have high deductibles and not insignificantly high premiums, which we would not get subsidized for. Not looking for subsidies, but it is clear that I would be paying for those with pre-existing conditions.

Somehow, in his searches for me, DH got his number on a clearing list for health care brokers. The phone started ringing immediately, and we were swarmed with endless calls from obnoxious young men, who seemed to believe that berating you was the best way to force you to buy their cr@p product. We hung up on several, but the calls kept on coming. However, one broker offered another product for those without pre-existing conditions. He was polite and spent a considerable amount of time with us. I had to go through underwriting and was accepted onto the plan, which was about 2/3 the price of the Bronze ACA I was looking at, with zero deductible for doctors and about $4,500 deductible for meds. Max out of pocket was lower as well. Best of all, it’s a PPO that my existing doctors take, and available nation wide. Doesn’t cover pregancy, mental health, or addiction services, none of which I fear needing. Best of all, the broker was able to put our number on a do not call list, and stopped the obnoxious ones from calling.

Had the ACA offered a PPO, I would have likely signed up with them and not looked further. We are more fortunate than most, and I don’t object to having my premiums support a system that works for those with pre-existing conditions, but an HMO does not work for us.

Our new coverage started yesterday, and as hard as we looked, as many questions as we asked, the devil will be in the details and how customer service deals with problems. In hindsight, I wish we had put off making any non-healthcare decisions until we had been in our plans for at least a year, but whatever happens will be fine.

Insane is accurate.

IP

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