Medicaid Is Too Cheap

Conservatives are wrong: Medicaid isn't expensive. If anything, it's too cheap.

See you next year?

Photographer: Joe Raedle/Getty Images

On New Year's Day, an Obamacare provision that temporarily boosted Medicaid payments to primary-care doctors expired. The pay doctors receive for seeing those patients will drop by an estimated 43 percent on average. The change could cause more doctors to stop seeing people on Medicaid, which covers the poorest Americans.

Conservatives will undoubtedly present the change as further proof that Medicaid, which is expanding thanks to the health-care law, is inherently flawed. There's another interpretation: If the goal is to cover lots of people at minimum cost, Medicaid is extremely effective. If anything, it's too cheap.

toastered graphic, with sourcing

The chart above compares two trends. The dark blue line shows total annual Medicaid spending, divided by the number of people covered that year. The light blue line shows per-capita U.S. spending on health-care services. All figures are in 2013 dollars, to control for inflation.

The chart shows that Medicaid spending per beneficiary is lower than average per-capita health costs. It also shows that, as of 2013, Medicaid spending was lower, in real dollars, than it was a decade earlier. (The uptick in 2013 probably reflects, in part, the extra money for primary-care doctors provided by Obamacare.)

The optimistic interpretation is that Medicaid is a tremendously efficient program. The pessimistic one is that state administrators of Medicaid are pushing payments to unrealistically low levels.

The second interpretation is probably closer to the truth. And at some point, conservative warnings about the dysfunctions of Medicaid will become self-fulfilling: Providers will stop participating, pushed out by spending restraint that no other health-insurance program would dare match.

If that happens, the program won't be to blame. While some states are boosting Medicaid payment rates in response to the end of the Obamacare top-up, many aren't. So those most responsible for doctors dropping out will be the state officials who complain about out-of-control costs, even as they squeeze Medicaid ever more tightly.


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