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Commentary

They'd Sooner Fix Medicaid
Tom Coburn, Regina E. Herzlinger, Manhattan Institute, 5-18-06

U.S. Senator Tom Coburn, from Oklahoma, and Regina Herzlinger, a senior fellow at the Manhattan Institute, discuss Medicaid reform efforts in Oklahoma, which are modeled after similar consumer-driven initiatives in Florida and South Carolina.

The state Legislature here is working to finalize an agreement for Medicaid reform legislation creating personal health accounts (PHAs) for Medicaid enrollees. This comes hard on the heels of similar innovations in South Carolina and Florida. Reform is in the air—much the way it was when Wisconsin revolutionized its welfare system in the early 1990s, forerunning a stunning national success. Are we on the verge of consumer revolution in health care?

It is of course too soon to tell, but the Oklahoma case study is auspicious. The state's antiquated Medicaid bureaucracy has fostered, by turns, a lack of patient choice, provider dissatisfaction, a 9.5% payment error rate, and an escalating price tag of some $3.5 billion. Against these discouraging trends, state leaders spent six months last year formulating stopgap measures with state agencies, policy innovators, providers and beneficiaries.

Instead of assuming the indigent are incapable of decision–making, Oklahoma legislators proposed that Medicaid beneficiaries be given a risk-adjusted allowance to purchase private health insurance. A PHA would be established for annual out–of–pocket expenses without a "use it or lose it" penalty—that is, the unspent balance could be used for future health–care needs. They state would not mandate a homogenous set of benefits; instead, it would provide financial assistance and patient counseling...

Even in the private sector, evidence favors consumer–driven plans. Definity Health and Cigna, both providers of consumer–driven insurance policies, have actually documented a reduction in flare–ups among their diabetic and asthmatic enrollees due to increased testing and drug compliance. McKinsey & Co. found that members of consumer–driven health plans were more likely to follow the complicated treatment routines necessary to hold chronic diseases at bay.

Conventional wisdom is usually posed against reform; and it seems even less trustworthy regarding Medicaid. We now stand at a crossroads, similar to the one 15 years ago regarding welfare. Strong–arming enrollees and providers with rationing tactics is not the only way, and surely not the best way, to control Medicaid costs.

We can move beyond the "Scrooge" option. Letting consumers drive the system is better both for the health of patients and the solvency of their home states. Oklahoma is the latest example of an encouraging trend.



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