
Dems Must Really Fix Medicaid, Not Just Undo Trump’s Damage to It
The party should use this as an opportunity to build toward universal coverage—working from these seven principles for reforming health care.
DONALD TRUMP’S ONE BIG BEAUTIFUL BILL effectively accomplishes what he failed to do in his first term: repealing much of the Affordable Care Act.
Estimates are that almost 12 million people will lose Medicaid coverage and an additional 5 million will lose insurance because the enhanced subsidies to purchase insurance on the Obamacare exchanges will not be renewed and because of a new rule imposed on the marketplaces. Together, these actions will reverse about 70 percent of the ACA’s coverage gains.
It will be devastating from a public health perspective, with an estimated 51,000 deaths that would have been prevented, and additional suffering and strain on vulnerable American families. From a political perspective, the grim stories and harsh headlines will create an opportunity for Democrats—though perhaps not as simple of one as they hope.
Rather than gnash their teeth and demand the reversal of Trump’s bill, Democrats must propose clear reforms to both Medicaid and the ACA. If they want to really strengthen health insurance and convince the public that they’re a pragmatic, solutions-oriented party, the time is now. They can’t just defend old programs. They should call not just to “Repeal” Trump’s bill but (to borrow a phrase) to “Repeal and Replace” it.
Simply defending Medicaid fails to recognize that the program has serious flaws, ones that have been there from its start, in 1965, when it was built on the model of a failed initiative—Eldercare—that had been launched to encourage states to cover the health care of elderly patients. Sixty years later, Medicaid is showing its own age. It needs to be overhauled, dramatically, to fulfill the goal of giving quality health care to all Americans who lack employer-sponsored insurance or Medicare.
There is a window now for Democrats to begin to call for these reforms—and to do so on their own terms. And in doing so, they can lay out a positive policy agenda bold enough to fire the hopes and imaginations of those dismayed by Trump’s bleak and hostile vision of America.
TO UNDERSTAND WHY MEDICAID NEEDS REFORM, it is important to outline how the program’s problems are both numerous and deep. The first problem is that Medicaid is really 51 different programs—or 56, if you include all the territories. Each state and Washington, D.C. offers distinct benefits and sets its own physician and hospital reimbursement levels with different and mostly outdated eligibility criteria. Such fragmentation makes it hard to coordinate across states, collect data to compare performances, and follow enrollees over time. Consequently, the country wastes billions of dollars, such as when people move between states and remain registered in each and insurers collect multiple payments for the same person.
Another problem is the numerous barriers that prevent Medicaid-eligible low-income adults from getting coverage—barriers that are now going to get worse. Americans have trouble filling out the enrollment paperwork that states intentionally make complex and onerous in order to reduce spending. Under the new Republican law, they will have to recertify enrollment twice per year.
A related problem is significant “churn”—i.e., people moving in and out of Medicaid coverage. People on Medicaid one year might get a job with health benefits and move off Medicaid. Then they might get another job without health insurance but earn enough to get coverage through an exchange. The following year, their income might decline—maybe they get lower tips or their commissions drop because of a recession—and they return to Medicaid. In 2018 alone, 21 percent of people with Medicaid were disenrolled over the year. Within a year, 8 percent were re-enrolled in Medicaid.
Churn leads to higher administrative costs, lack of continuity in care, and delayed care. But probably the worst impact is that it undermines the incentive to invest both in preventive care and in treating chronic illnesses like hypertension and diabetes. If a patient may no longer be on their rolls the next year, why would Medicaid-managed care organizations offer them preventive services? This churn is a major reason why the United States has more of a “sick care” system than a health care system.
Medicaid also is not just a program for low-income Americans to pay for doctor’s visits and hospitalizations. It is the single largest payer for long-term care, covering the costs for two out of every three nursing home residents. But to be eligible for Medicaid nursing-home payments, middle-class Americans must first have exhausted their life savings. This is devastating to families, and it is not sustainable as the U.S. population rapidly ages.
Finally, Medicaid pays very little to those providing care. Depending on the state, health providers may spend more money caring for Medicaid beneficiaries than they receive in reimbursement. Low reimbursement rates create significant access problems, especially to see specialists, and often force hospitals with a high proportion of Medicaid patients to close when payments decline.
That latter problem will be made more acute by the passage of the Republican bill. But the list of other problems with Medicaid could go on and on. And if Democrats still believe, as I do, that the United States must provide health care to all Americans regardless of income or employment, then it is imperative to offer a plan to fundamentally fix Medicaid—not just repair the damage Donald Trump has done.
ANY EFFORT TO FIX MEDICAID must start with these key principles: Reform must ensure the country finally achieves universal coverage. The coverage must be the same for all Americans regardless of where they live, their income, or their employer. It must be simple to use without Kafkaesque rules and paperwork. It should create incentives for health, prioritizing prevention and effective control of chronic illnesses. And to stop forcing families to impoverish themselves, nursing homes, assisted living, and long-term care should be treated as a separate program, not commingled with health insurance.
These are lofty goals, but—as the experience of other high-income countries and many middle-income countries shows—they are eminently achievable. Here are seven core design elements to achieve this vision.
First, combine Medicaid, CHIP—the Medicaid-like program that currently covers 7.3 million children—and the ACA exchanges into one national exchange in which all Americans who lack insurance or Medicare can purchase coverage. Americans in this new national exchange would pay into it based on their income. Those under the poverty line would pay nothing, with payments increasing at higher income levels but not exceeding 8 percent of any family’s annual income. The remainder of the premium would be subsidized. With about 120 million Americans, the new exchange would be actuarially and financially stable and dramatically simplified. To achieve universal coverage, the one national exchange should have automatic enrollment similar to that in Switzerland. The low-income elderly population who currently get Medicare but also qualify for Medicaid—so-called dual eligibles—could get extra subsidies through the Medicare program rather than combine the two different programs.
Second, Americans should be required to pick a plan and stick to it for five years, not annually like today. If you are a Republican concerned about costs, you should celebrate this reform. Longer-term contracts reduce churn, lower advertising and enrollment costs, and decrease other administrative waste. If you want to “Make America Healthy Again,” as the current health and human services secretary and many activists in both parties like to say, then five-year contracts would create huge incentives for health plans to invest in prevention. For those who have changes in circumstances—a marriage, a birth or death in the family, a move, a terrible experience with a particular plan, or a new job—there would be the option to switch health plans.
Third, in this large exchange, choices would be limited to no more than six plans in each geographical unit with at least two plans having to be state or local—not the large, for-profit national insurers. As behavioral economics has shown, limiting the number of options actually simplifies and enhances choice. When confronted with fewer options, people can more easily compare them with less cognitive load and time, and avoid making suboptimal financial selections. Requiring some of the plans to be state or local also limits market concentration while ensuring that insurers have an investment in their local communities.
Fourth, there should be standardization of benefits across the country with low deductibles and copays, such that—like in Germany and most countries—out-of-pocket expenses do not exceed 2 percent of any person’s or family’s income. Competition between insurers should be based on the network of hospitals and physicians they cover and the quality of care they provide, not on benefit designs that are difficult for non-experts to discern and appreciate. This prevents healthy individuals from being tricked by insurance plans with high deductibles because they are unsure of what benefits they will require. More importantly, limiting out-of-pocket expenses to a reasonable amount would ensure that health insurance is insurance, and people who become sick do not forgo services because of stress about potential charges they won’t be able to afford.
Fifth, all provider payments in this new exchange would be increased to match Medicare rates, but recalibrated to incentivize prevention and value. The higher rates would be re-assessed (say, every five years) to make them more uniform and to ensure that they are emphasizing primary care rather than prioritizing surgery and other procedures. All Americans in the national exchange would have to identify a primary-care physician from the insurer’s network. The physician would be paid per patient, with high bonuses for achieving a handful of standardized metrics set by experts in quality improvement for successfully preventing and managing chronic conditions. Those physicians would be responsible for prevention, chronic care, referrals to efficient specialists, as well as mental health conditions. Specialists would be shifted to new value-based payment systems, too, which would increase accountability for the cost of caring for a patient. A patient does not decide what treatment, lab tests, or imaging procedures to order. Their physician decides—and therefore should be responsible for costs. In addition, all surgical and other procedures, such as colonoscopies and cardiac catheterizations, would be paid in a bundled charge—one fee for the physicians, anesthesiologist, surgical suite, hospital room, laboratory tests, imaging, etc. That charge would extend to ninety days after the procedure. Bundle payments incentivize cost-savings as well as high-quality procedures, since surgical-site infections and complications are the financial responsibility of the physician and hospital.
Sixth, while the longer-term contracts, standardized benefits, and value-based payments would reduce administrative waste, it could be further reduced by the creation of a single claims clearinghouse that all the insurers, physicians, hospitals, and others must use. That would require Electronic Health Record vendors to create an electronic submission of bills and quality metrics for each patient. This would cure much of the lack of coordination and communication across states.
Finally, seventh: A separate long-term care program would be established for nursing homes and other assisted-living arrangements for the elderly and disabled. Like Germany and the Netherlands, this would have a separate funding scheme and administrative arrangement. To reduce the need for institutional care and costs associated with it, families should be reimbursed for the care they provide.
ANY COMPREHENSIVE HEALTH CARE PROPOSAL will provoke numerous objections. With 900 health insurance companies operating today, many will object to limiting the numbers in any geographical unit or to standardizing the benefits, deductibles, copays, and payments to physicians and hospitals.
But few Americans will bemoan reining in the insurance companies. They know that the number of insurance companies and their varied offerings largely generate complexity and friction, making it harder to get services, not easier. Standardization will bring simplicity to health insurance, so Americans can rely on services without worrying about the obscure details and hidden exclusions of their policies.
Some people might object that shifting payments to emphasize primary care will induce hospitals and specialists to avoid the new program. But that is unlikely. With a third of all Americans in this new national program, it would be hard for any medical provider to stay in business if they refuse to participate. Furthermore, by raising payments to Medicare levels, there would actually be a pay increase for many physicians.
Other details, of course, remain to be spelled out. For instance, drug prices for this exchange could be pegged to the VA’s prices, which are the lowest in the American health care system. And the new exchange subsidies could be paid for by repealing the Republican bill’s tax cuts for the rich.
This kind of bold plan would also offer Americans a vision with sufficient policy detail to appeal to those frustrated with government bureaucracy but also nervous about what Trump’s bill might mean to them and the health care system. It would convince Americans that there is a plausible alternative to guarantee they have coverage that is simple and standardized; coverage that emphasizes health and protects them from bankruptcy. It would convince Americans that there is a better and cheaper alternative to Trump’s death panels and tax cuts. Articulating such a vision would be a necessary part of persuading Americans that the Democrats are listening and have real ideas for a more compassionate yet simpler and more efficient America.