Whether one believes it or not, most know that the theory behind providing healthcare via universal coverage is that doing so will REDUCE costs by leveraging the buying power that results from everyone being insured to bargain costs down while using the volume of care delivered to unify processes, measure results with standard metrics and improve efficiency, allowing MORE care to be provided at less cost. The reality of this theory is hotly debated but a cursory comparison of healthcare delivery via
- Medicare -- offered to ALL over 65 under a single national program
- Medicaid -- offered to low-income citizens under 65 via inconsistent partnerships between state governments and the federal government based upon the states' political willingness to participate and fund
- Private group insurance -- paid for by companies for employees and sold / administered by for-profit firms
- Private individual insurance -- paid for by individuals and sold / administered by for-profit firms
would clearly show efficiency goes DOWN and per-person costs go UP as the size of the pool of individuals being covered gets smaller. But that's in a perfect world where words mean what they're supposed to mean and corporations and politicians haven't conspired to publicly adopt "universal coverage" concepts while actually implementing something entirely different.
An opinion piece in Forbes uses an example of "Medicaid expansion" in North Carolina to shed light on a practice being adopted in multiple states across the country. In general, a substantial number of states across the country have been politically unwilling to expand Medicaid availability for their citizens, even when federal funding was available to shoulder most of the cost. More recently, some of those states have seemed to relax their opposition and have begun joining the federal program and expanding Medicaid benefits. The Forbes piece, written by Ge Bai, a professor of accounting and public policy at Johns Hopkins, explains the financial slight of hand going on behind the scenes in many of these so-called expansions, citing North Carolina as an example.
Medicaid, like the national Medicare program, normally drives much of the cost savings required to provide more coverage by imposing a rigid fee schedule for a vast number of routine procedures and treatments with costs significantly lower than "retail" rates for such procedures. These costs are typically lower than rates charged to group insurance or individual insurance plan members. As with Medicare, the bargain between the "insurer" (in this case, the federal / state government partnership) and providers is that providers will gain access to a much larger pool of patients in exchange for collecting significantly lower fees on a per-procedure basis. By understanding that dynamic up front, both parties can optimize for operating within that dynamic and the government and taxpayers can save money and the providers can make more money.
That is not what is happening in North Carolina.
In North Carolina, politicians and providers processed the pressures imposed on them differently and landed on a different deal. North Carolina politicians were split into two factions. One faction wanted to expand Medicaid to improve care for the poor and likely reduce total costs via better preventative care being offered earlier. The other faction did not support Medicaid expansion because of normal conservative concerns about "big gummint", out of control entitlement spending and some generalized fear of being helpful to the poor. But that second faction also objected to Medicaid expansion because giant hospital chains feared massive reductions in revenue due to the obviously lower reimbursement rates offered by Medicaid versus traditional private insurance or full-retail rates charged to those without insurance. (Note... The careful, logical reader just needs to suppress any recognition of the fallacy of this concern given that, by definition, those benefitting from Medicaid expansion were previously unable to afford private insurance or services at uninsured retail rates to begin with. Providers would not LOSE any revenue by adding Medicaid coverage for people who couldn't afford healthcare at all.)
Because Medicaid benefits are provided as a partnership between participating states and the federal government, the exact mechanics of Medicaid are negotiated independently and vary between states. In essence, the federal government is trying to encourage state participation and alters terms of the partnership based on political forces at work in each state. In the case of North Carolina, politicians in the previously "hell no" faction pushed back during negotiations and, speaking for major health provider chains operating in the state, said the state will only participate if reimbursement rates paid to provider chains for Medicaid patients are significantly higher than typical Medicaid rates.
In fact, the rate structures adopted in North Carolina's Medicaid plan agreed to pay nearly RETAIL rates for most services to these major provider chains. KEY POINT. Paying "retail" rates for services violates the core financial assumption of this insurance model. That core assumption is that expanding the pool of insured increases patient VOLUME and providers are to find efficiencies from that higher volume to REDUCE per-patient costs yet still make more money than they would had those patients remained uninsured and not sought any treatment.
But the North Carolina plan went beyond that to break the model even further. The final deal didn't apply that near-retail reimbursement fee to ALL providers statewide. The deal only applied to the large, politically powerful hospital chains. Individual doctors operating their own unaffiliated practices are still expected to provide services at the lower rates typical of Medicaid across the country. KEY POINT. This sweetheart deal for major chains has resulted in an arbitrage opportunity for major chains to compete against small practices, net more dollars for the same services, then use the extra dollars as a carrot to continue buying out small practices (a trend well underway for over a decade). This is consolidating MORE doctors into the giant chains and resulting in MORE care being delivered that will be reimbursed at RETAIL rates rather than discounted rates. So the real dynamic is MORE PATIENTS getting services charged at RETAIL rates which WILL result in skyrocketing healthcare costs and skyrocketing profits for these chains.
Yet the resulting system will still be called "Medicaid" and when the inevitable reckoning arrives for the exploding costs, opponents of socialized medicine will say "we told you so." But this is not socialized medicine. This is a state government sanctioned creation of a healthcare oligopoly benefiting a handful of large hospital chains and insurance companies. Since the reduced competition and higher costs may not be recognized for a few years, politicians on either side of the philisophical debate at both the state and federal levels have little incentive to correct this distortion. Medicaid costs are split between the federal government and state participants but it's not nearly a 50/50 split. In 2021, total Medicaid program costs were $728 billion but the federal government picked up 69 percent of the costs and states paid for the other 31 percent.
This cost imbalance alters incentives for state politicians, even those opposing the program, to allow this kind of deal. State level opponents may not like Medicaid expansion but if it's going to happen, they can promise windfall profits to powerful corporations while leaving the federal government picking up the majority of the tab. State level proponents for Medicaid can similarly gain credit for delivering X dollars of new benefits to citizens while only picking up a fraction of the tab. And both proponents and opponents can buddy up to the large healthcare providers in the state and claim credit for the windfall profits headed their way. Even federal politicians in favor of Medicaid expansion can use this flawed model to claim credit for expanding the program, even though the actual implementation bears no resemblance to the traditional financial operating model that actually lowers costs. That will be somebody else's problem down the road.
WTH
