When the Affordable Care Act Becomes Unaffordable

Allowing privatized Medicaid, at potentially huge cost, is a bad way of buying Republican cooperation with the Affordable Care Act.

The New York Times reports that U.S. President Barack Obama's administration is encouraging Republican-led states to follow Arkansas's lead and use Medicaid expansion dollars to buy private insurance for people with low incomes. This is going to make a lot of people happy. But it's not good for taxpayers or for the project of making medical costs sustainable.

Many Republicans are drawn to the Arkansas plan because, though it is an expansion of government-funded health care, it works through private channels. Doctors and hospitals, who already liked the Medicaid expansion because it was going to give them more customers and diminish the problem of uncompensated care, like this plan even better because it will pay them more. Low-income patients will probably be better off, too, because private insurance is more widely accepted than Medicaid, though some could be hurt by the need to make higher co-payments. And the Obama administration will be happy because more states will participate in the Medicaid expansion.

The only losers will be everyone else. Pleasing all those constituencies will cost money. Medicaid expansion through private insurance, if spread to many states, will sharply drive up the cost of implementing the Patient Protection and Affordable Care Act. Arkansas Governor Mike Beebe admits to the Times that his plan will likely cost more than a regular expansion of Medicaid, with federal taxpayers picking up nearly the whole tab.

If the administration starts letting other states take the Arkansas route, it's hard to see how we don't end up with a privatized Medicaid expansion in 50 states, for the same reason that some sort of Medicaid expansion in every state is inevitable. When the federal government offers states free money, sooner or later they are going to take it. The Arkansas plan comes with even more free money than the already rich Medicaid expansion deal.

Now, maybe that will make the plan moot. Federal law says that privately purchased Medicaid must be "comparable" in cost to traditional Medicaid. But nobody knows yet what "comparable" means, and if Republicans increasingly decide they can make peace with the Medicaid expansion through privatization, there could be pressure for a liberal reading of the term or even a legislative fix. It's happened before: Republicans love Medicare Advantage, a privatized version of Medicare benefits, so much they agreed to spend more per beneficiary on it than traditional Medicare.

The appeal of privatized Medicaid won't be limited to red states. Republicans have a particular ideological interest in privatizing Medicaid. But doctors, hospitals and, to some extent, patients who will benefit from private Medicaid have pull with both Republican and Democratic officeholders. And while liberals tend to love single-payer Medicare, they are likely to be more open to ditching the single-payer model with Medicaid, on the grounds that the program provides second-rate coverage.

It's even possible that privatized Medicaid is a good idea. Perhaps the government should be increasing its commitment to the poor by providing them with health insurance that is better, more widely accepted and more expensive than Medicaid. But it's something whose worth we should consider carefully -- only after we let Arkansas experiment and see how expensive privatizing Medicaid is. We should also examine whether it would be better and cheaper to remake Medicaid in Medicare's image: still single-payer, but with higher reimbursement rates that draw more providers to participate.

My bias is to say that we shouldn't do either of these things and should instead look for ways to keep Medicaid cheap. The Affordable Care Act already expands the government's fiscal commitment to health care at a time when health costs are growing faster than the economy (though not as fast as they used to be). The act did this for good reasons and will largely fix the problem that tens of millions of Americans cannot afford health insurance. But with the coverage expansion done, going forward the main focus of health policy should be cost control, not more benefits.

Privatizing expanded Medicaid through the back door without a proper pilot program would undermine the goal of cost control and give ammunition to those who would claim that the Affordable Care Act is a budget-buster. Cost control is never politically easy, but it's important, and the administration is erring by sacrificing it in order to bribe states into expanding Medicaid. Instead, it should simply tell states beyond Arkansas that they must take or leave the Medicaid expansion as it is -- and then wait for them to realize that turning down free money is silly.

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