Is Medicaid Better?
by John Goodman
Issue 112 - July 23, 2008

A study by the Center on Budget and Policy Priorities (CBPP) claims that Medicaid and SCHIP deliver the same care at a lower cost than private insurance (the study ignored marketing and enrollment costs). Policy conclusion: Enrolling low-income families in government programs is cheaper and better for all concerned than enrollment in private plans.

As an aside, I've never heard anyone, anywhere say he would rather be in Medicaid than private insurance. People who say "Medicaid is better" always mean "for someone else." There are also other reasons to be highly skeptical, even without carefully examining how the study was done.

First, if two patients with the same health condition see the same doctors, enter the same facilities and get the same care, the social cost of care should be the same for each of them. They may not pay the same fees (because there is no real market here) and there may be cost shifting going on. But the real social cost will be the same unless one plan is somehow more efficient than the other.

Second, although it is conceivable that Medicaid could be more efficient, get this: almost two-thirds (63%) of all Medicaid enrollees are having their care managed by private insurers!

Third, although it is highly unlikely that Aetna, United Health, et al., are more efficient in administering Medicaid than they are with private enrollees, Medicaid and SCHIP private plans typically pay Medicaid rates, rather than usual and customary fees. Further, the difference in payment may come disproportionately from the patients. (Indeed, the most important difference in costs measured by CBPP was the difference in out-of-pocket costs.)

Fourth, as has been confirmed many times, lower fees often mean less access and more rationing by waiting. And since health care delayed is often health care denied, the supposition that the care is the same must surely be in doubt.

As for the policy implication, studies show very high crowd-out rates-of 50% or more-as people respond to expanded eligibility in "free" public programs by dropping their private insurance. The result: there is a major shift of financial burden from the private sector to the taxpayers in return for very small gains.

This last point is not even discussed in the study, which is strange for an organization focused on "budget priorities." In fact, none of the points made here are discussed. That is also strange, considering the article appears in a peer-reviewed journal (Health Affairs).

John Goodman is the President of the National Center for Policy Analysis.