After decades of excuse-making and buck-passing, policymakers finally seem ready to embrace Medicaid reform. The federal insurance program for low-income Americans, which costs taxpayers more than $800 billion yearly, has had few detectable effects on enrollees’ health, even with its astounding cost.
Now, lawmakers are advancing legislation requiring able-bodied Medicaid recipients to document 80 hours monthly of community engagement. This includes work, job training, education and volunteering. Lawmakers are also instituting more frequent eligibility checks to ensure that beneficiaries continue to meet Medicaid’s requirements.
While these changes are steps in the right direction, Congress and the administration can do far more to make Medicaid work for low-income Americans. By incorporating more private insurance into the mix of Medicaid payers, policymakers can ensure a better and more cost-effective program.
Proposed Medicaid “community engagement” requirements have more than their fair share of critics. As People’s Policy Project founder (and work requirement critic) Matt Bruenig points out, there are 4 million able-bodied, working-age Medicaid beneficiaries without dependents who work less than 80 hours each month. The figure may actually be closer to 6 million, depending on how researchers count newly minted beneficiaries and beneficiaries who have worked at least 80 hours in previous months but not recently.
Even taking the conservative estimate of 4 million, taxpayers spend $40 billion annually on benefits for these unemployed or underemployed individuals. And, even if these individuals legitimately cannot find a job, volunteering hours — along with job training and education — will count toward the “community engagement” requirement. Caregivers for elderly or sick family members will not be subject to these requirements.
While $40 billion in annual savings is a sizable chunk of change, it amounts to 5 percent of total Medicaid spending and does nothing to address the program’s abysmal standard of care. A more comprehensive approach would be a means-tested, refundable tax credit of $550 monthly for individuals to go out and purchase the private healthcare plan of their choice. This would allow households to purchase mid-tier “silver” health insurance plans (which typically cost less than $550 monthly in low-income states such as Mississippi).
Assuming a beneficiary population base of 75 million, this would save taxpayers $300 billion yearly. Even if Congress used half of those annual savings to reimburse miscellaneous expenses (e.g., high co-pays, out-of-pocket medication costs), taxpayers would still save $150 billion annually, or $1.5 trillion over the next 10 years.
Alternatively, policymakers could pursue a combination of lower tax credit subsidies (say, $400 monthly) and direct reimbursements to hospitals providing free care. These alternative policies would be better for taxpayers and give low-income households a far better (private) insurance product. According to a 2021 analysis by the Medicaid and CHIP Payment and Access Commission, “physicians were significantly less likely to accept new patients insured by Medicaid (74.3 percent) than those with Medicare (87.8 percent) or private insurance (96.1 percent).”
Only 63 percent of doctors practicing internal medicine accept Medicaid, compared to 99 percent acceptance of private plans. This large discrepancy is not because Medicaid reimbursement rates are lower. About a fifth of Medicaid claims are not paid in full, compared to 5 percent of private claims.
As Vox healthcare correspondent Dylan Scott explains, “The healthcare providers then must invest time and money to sort out any rejected or disputed claims. … And when you consider the disparity in the initial claims, with Medicaid already paying much less than Medicare or private insurance, these costs of incomplete payments eat up 16 percent of the value of a Medicaid visit for doctors, significantly more than the 7 percent for Medicare and 4 percent for private coverage.”
Empowering low-income residents to purchase private health insurance is far better for providers and patients than maintaining or expanding a deeply dysfunctional federal insurance plan. Policymakers should build on recent Medicaid proposals by pursuing choice, flexibility and cost savings for taxpayers and consumers.