They'd Sooner Fix Medicaid -- Can market incentives save the system?
By Sen. Tom Coburn and Regina Herzlinger
The Wall Street Journal Editorial Page
May 18, 2006
OKLAHOMA CITY--The state Legislature here is working to finalize an agreement for Medicaid reform legislation creating personal health accounts (PHAs) for Medicaid enrollees. This comes hard on the heels of similar innovations in South Carolina and Florida. Reform is in the air--much the way it was when Wisconsin revolutionized its welfare system in the early 1990s, forerunning a stunning national success. Are we on the verge of consumer revolution in health care?
It is of course too soon to tell, but the Oklahoma case study is auspicious. The state's antiquated Medicaid bureaucracy has fostered, by turns, a lack of patient choice, provider dissatisfaction, a 9.5% payment error rate, and an escalating price tag of some $3.5 billion. Against these discouraging trends, state leaders spent six months last year formulating stopgap measures with state agencies, policy innovators, providers and beneficiaries.
Instead of assuming the indigent are incapable of decision-making, Oklahoma legislators proposed that Medicaid beneficiaries be given a risk-adjusted allowance to purchase private health insurance. A PHA would be established for annual out-of-pocket expenses without a "use it or lose it" penalty--that is, the unspent balance could be used for future health-care needs. They state would not mandate a homogenous set of benefits; instead, it would provide financial assistance and patient counseling.
The reform passed the Oklahoma State House in March and recently won Oklahoma State Senate approval. The bill's sponsors, Republican Rep. Kris Steele, and Democratic Sen. Tom Adelson, are working to craft a durable bill to send to the governor by the end of this year.
Oklahoma is simply coming to grips with reality--Medicaid needs fundamental change. Although the program subsidizes care for 52 million low-income people, Medicaid's price tag threatens the financial stability of many states. South Carolina's expenses, for instance, have virtually doubled in the past decade, and may consume nearly one-fourth of the state's budget in 2010. Nationwide, Medicaid spending grew 9.1% in 2004 alone, and is projected to be at nearly half a trillion dollars in less than a decade. Fiscally conscious governors and state legislatures have traditionally controlled Medicaid expenses through reductions in enrollment, benefits and provider reimbursement. Tennessee governor Phil Bredesen, for instance, culled 190,000 from the Medicaid rolls.
Dr. Coburn is a Republican senator from Oklahoma. Ms. Herzlinger is the Nancy R. McPherson Professor of Business Administration at the Harvard Business School and a senior fellow at the Manhattan Institute.
