Republicans are in a bind. In order to give substance to their new budget bill, they need to cut Medicaid spending by billions of dollars. Yet the White House and many congressional Republicans insist that they do not want to cut Medicaid benefits.
Here is where DOGE can come to the rescue. In mainstream economics there is a technical definition of “waste.” A system is wasteful if it is possible to make a change that can in principle make everyone better off.
Fortunately, Medicaid is so inefficient that it provides us with a rich bundle of opportunities. We can make changes that vastly improve services for the beneficiaries and free up billions in savings for the tax bill—at the same time.
Here are some examples.
Paying mar ket prices. When people are newly enrolled in Medicaid, their visits to the ER increase by 40 percent! A likely reason is that many doctors won’t see Medicaid patients and even if they do, they are the last patients doctors want to see. Also, many of our best medical centers won’t take Medicaid managed care.
Medicaid rates are often half the prices charged at walk-in clinics and urgent care centers. Even if some accept Medicaid fees, they rarely locate in areas where Medicaid enrollees live.
One answer is to let Medicaid patients buy medical care the way they buy food. In the supermarket, low-income shoppers are free to combine food stamp funds with out-of-pocket money and pay market prices. In health care we have made that option illegal.
In a reformed system, Medicaid enrollees could still get free care at the emergency room, and possibly lose a day’s pay. (The in-and-out time at Parkland, a safety net hospital in Dallas, is almost 6 hours!) Or they could save time and taxpayer money by getting care where middle-class patients go.
If this reform (coupled with the 24/7 primary care described below) cut Medicaid emergency room spending in half, it would save the federal and state governments as much as $135 billion over 10 years.
Roth Health Savings Accounts. Private companies managing Medicaid (or the state itself) should be ableto make deposits to an account that would cover, say, all primary care. Enrollees would be restricted to using the money for health care during an insurance year.
Afterward, they could withdraw any unspent funds for any purpose. If there were no penalties for non-medical withdrawals, health care and non-health care would trade against each other on a level playing field under the tax law. People wouldn’t spend a dollar on health care unless they got a dollar’s worth of value.
An early study by the RAND Corporation suggests that these accounts would reduce Medicaid spending by 30 percent. Aside from payments for the disabled and nursing home care, if Medicaid spending could be reduced by 30 percent, the savings would amount to almost $1 trillion over ten years. This saving would be shared by the beneficiaries and the taxpayers who fund Medicaid.
We could probably double that number by creative programs of self-management and self-directed care for the rest of the Medicaid population.
24/7 primary care. What we used to call concierge medicine is now commonly called “direct primary care” (DPC) and the prices have come way down. In a national model that originated in Wichita, Kansas, the monthly fee is $50 for a mother and $10 for a child. In return the family gets the doctor’s phone number and 24/7 access to all primary care. This is a competitive market and if at any time the family is unsatisfied, they can switch to another DPC doctor.
Currently, employers are not allowed to put funds in an HSA to be used for DPC. By contrast, the Roth HSAs for Medicaid described above would be a perfect vehicle to facilitate DPC.
Reducing fraud. According to the General Accounting Office, fraud in Medicare and Medicaid amounts to $100 billion a year, and the office admits that’s a low estimate.
In principle, credit card fraud should be much easier to commit than health care fraud. (Think of how often your card goes out of sight in the possession of a waiter or othe r vendor.) Yet losses to credit card fraud amount to a fraction of 1 percent of spending. If the federal government could manage Medicare and Medicaid as efficiently as the credit card industry (or maybe contract out to them) the savings would approach $1 trillion over ten years.
An optional Medicaid block grant. State governments should have the option of receiving 90% of their federal Medicaid dollars in the form of a block grant—saving federal taxpayers the other 10%. With their share, the states could do some of the things already discussed. They could create Roth HSAs outside the federal tax system. They could make deposits to these accounts and let enrollees pay market prices for their care.
They could also allow HSA money to be used to pay the fees of direct primary care doctors, providing 24/7 care.
If every state accepts the deal, taxpayer savings would be about $630 billion over 10 years.
Legislation. A number of the ideas discussed here are already in legislation co-authored by Rep Pete Sessions (R-TX) and his colleagues. So, a good part of the reforms described here could be achieved by little more than cut and paste.
