S.C. Statehouse Report
Sunday, Aug. 14, 2005
VIEW: http://www.statehousereport.com/columns/05.0814.risk.htm

Medicaid plan looks risky, costly
By Andy Brack
SC Statehouse Report

AUG. 14, 2005 - More than 700,000 South Carolinians may be used as guinea pigs to see if the marketplace can lower costs in providing health care.

Gov. Mark Sanford and the folks at the state Department of Health and Human Services requested a waiver from the federal government in June - - just five days after lawmakers went home for the year - - to test a controversial new way of delivering Medicaid services.

Medicaid, which provides health care services to the poor children and the elderly, consumes about 20 percent of the state budget and has been growing at 9 percent a year. Traditional ways of dealing with escalating costs are cutting benefits, decreasing rates to doctors for services provided or cutting people from receiving the health services.

Sanford and his pals want to try something different - - to hold down costs using the holy grail of the marketplace as Medicaid's savior.

Advocates and some analysts say the program should be given a chance because it provides a new paradigm that will encourage the insurance market to develop innovative new health plans that will allow the poor and elderly to choose.

According to DHHS, "It is desirable to bring market place principles to the Medicaid program. It is essential to both enable and require that the Medicaid beneficiary participate as a prudent buyer of health care services." Or according to the waiver application: "We plan to create an environment where providers and insurers are freed from unnecessary bureaucratic requirements and can compete for the consumer's dollar."


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Translation: The Republican way of doing business is to figure out a clever way to cut government programs and let the market rule.

Critics say the Sanford salvation is still half-baked. One of the biggest reasons is, "The proposal rests on untested assumptions, such as the belief that a system of managed care plans and provider networks will rapidly emerge in the state to serve Medicaid beneficiaries," according to the Center on Budget and Policy Priorities.

In a scathing report, the Center (http://www.cbpp.org) described the Sanford plan as a radical way that seeks to privatize Medicaid.

"For beneficiaries - - the vast majority of whom have incomes below the poverty line - - the result would be much less health coverage at considerably greater cost. Private plans would not be required to provide the range of benefits now offered under Medicaid. All beneficiaries, including pregnant women and children, would face a significant increase in out-of-pocket costs for health care."

In other words, the people who can least afford health care increases may have higher costs, which means they likely will show up more in emergency rooms, which will raise overall costs of health care even more.

The Sanford plan essentially calls for Medicaid privatization in three ways. First, the state would create personal health accounts for Medicaid users, who would self-direct their care dollars to the doctor of their choice. Second, Medicaid users could use the money to purchase private insurance, which may reduce benefits. Or third, Medicaid recipients can join use the money to join private networks, which would run like a health maintenance organization and could limit benefits.

In addition to hurting the most vulnerable, the Center says the proposal has a number of obvious weaknesses:

  • It's risky. It would rely on a delivery system that currently doesn't exist, according to the Center.

  • It's theoretical. There's no evidence that relying on the marketplace would really lower costs. In fact, bringing in the marketplace has the advantage of encouraging competition, but multiple avenues of service delivery also encourage inefficiencies and reduce economies of scale.

  • It may be more expensive. If you have 10 companies doing the same thing that one bureaucracy is now doing, administrative costs are higher. Studies show Medicaid's administrative costs are about half of private health plan administrative costs. Furthermore, South Carolina's administrative costs are only 4.6 percent of total program costs, more than 2 percent below the national average.

Some may admire the Sanford administration for trying to do something about Medicaid, but at this point, the proposal seems like it has too much of a chance of hurting the poor, elderly and children. They shouldn't be experimental subjects to test a Republican political theory.

This proposal doesn't appear to be much different than what the Bush Administration tried to do nationally to privatize Social Security, an idea that failed miserably when most people figured out it wasn't in their best interests.

Go back to the drawing board.


8/14: New interpretation

Another great cartoon from Bill McLemore:


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Recent feedback:

Ahead on modernization

This section tracks past forecasts by Statehouse Report with other media reports:

In Statehouse Report:

6/19/05: Tax modernization should be on the front burner: "Beyond the constant political rhetoric about taxes, it's time for the state to take a long look at modernizing our tax system. Over the summer, lawmakers are planning big pow-wows on the property tax. But instead of a small fix here or a minor tweak there, lawmakers need to look at equity and fairness to make sure the whole structure is as balanced as possible."

In Spartanburg Herald Journal:

8/9/05: Lawmakers should be careful about changing tax system. "Lawmakers should be careful about how they tinker with the system. To begin with, the state needs to take a comprehensive look at its tax system. Lawmakers have passed many measures of piecemeal tax relief and economic development incentives. They have created a more complex and less fair system that has shifted more of the burden from industries to commercial businesses and homeowners. Another quick fix for the property tax won't fix the larger problem."


Here's a "thumbs up" and "thumbs down" related to various political events from the past week:

Thumbs up

Budget and Control Board. Hats off to the board for voting to add medical coverage to the state health plan for state workers who want to quit smoking.

Thumbs down

Eckstrom. Lawmakers are right to question whether Comptroller General Richard Eckstrom can shift $105 million of surpluses to cover accounting glitches. Sounds an awful lot like appropriating, and whose job is that? More.

Sanford. The governor's arrogant move to privatize Medicaid smacks of class warfare.

Shedd. Seems like the government could do a little better and save money for office space for federal Judge Dennis Shedd than building a $2.5 million palace just a few miles from the federal courthouse.

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