Medicare, Medicaid, And A Stark Warning About Having States Execute Reform

The Social Security Act of 1965 created two public insurance programs, Medicare and Medicaid. One proved to be a big success, and the other, not so much. The question everyone should be asking is will this health care package follow the route of Medicare or Medicaid?

Of the two programs, it would be fair to say that Medicare has proven to be the much greater success in terms of policy and politics. Medicare is a much beloved program, and it's benefits have expanded greatly over the years.

Medicaid, on the other hand, ended up the bastard stepchild of the two programs. In some states, it has done a decent job of providing health insurance for the poor, but in many others, it is almost impossible for the poor gain access to the program. Not only does who Medicaid covers vary greatly from state to state, but so does the quality of the coverage. Medicaid lacks the popular support or active voting constituency that Medicare has, leaving it very susceptible to budget cuts and political attacks.

Why has Medicare been so much more successful? I suspect it succeeded for three main reasons: It is a fully federal program, it helps a broad cross section of American people, and it has a sufficiently large base of active users. By being a fully federal program, Medicare is equally as good in red states as it is in blue states. It was not carved up, poorly executed, improperly regulated, or underfunded in many states for ideological reasons, or out of budgetary necessity. Being a fully federal program was very important, and made sure its success with felt by people equally across the entire country.

Having Medicare serve everyone over 65 gave it a strong cross-section of supporters. It benefits the rich as well as poor. It helps everyone--from truck drivers and factory worker, to lawyers, politicians, and doctors--this has ensured that at least some of the people on Medicare are well-organized, politically active members of society. Finally, Medicare covers roughly 13% of Americans, and a greater percentage of voters. This is a large enough chunk voters that it makes messing with Medicare very dangerous politically.

Medicaid lacks all three of those benefits, and this hobbled the program. The political compromise reached back in 1965 to make it a partnership between the federal government and the states has proven to be a disaster. Giving states the power to control the program has ended up hurting millions over the past several decades. Many states heavily restricted who could sign up for Medicaid. This created a vicious cycle: few people are helped by the program, so few people defend it from further cuts.

Medicaid only serves the poor, and that is a group of people that tends to have the least political power, little ability to organize, and low voter turnout. Combined with the fact that some states severely restrict who can sign up for Medicaid, there is not a strong, built-in, national user base to push for improvements to the program or protect it.

What path will this new health care reform bill follow? My strong hope was that the House bill would follow Medicare. It has a national exchange that is funded directly by the federal government. There is national regulation of the insurance industry, and a nationwide public option. The House bill also provides for greater subsidies and higher actuarial value plans. I can envision how the public option and national regulation would help keep costs down, and make this national exchange a decent place to buy insurance. This would give many small- and medium-sized businesses a strong incentive to use the national exchange. The result would be a program with a significant user base that includes a broad cross-section of Americans throughout the country. This creates the political will to expand and improve the program.

With the Senate bill, I simply can't see how it would not take the failed path of Medicaid. All the wrong compromises were made, and all the wrong corners were cut to bring down the CBO price tag. It will not be a federal program, but a program that leaves the bulk of the implementation and regulation to the states. Given the number of red states trying to “opt-out” of the whole reform package, and the general failure of state insurance commissioners to really hold insurance companies accountable, I think it is foolish to expect this state-based structure to work. The federal government doesn't even fund the continued maintenance of the state-based exchanges that are meant to enforce most of the rules. This is the essentially definition of penny wise and pound foolish.

The subsidies in the Senate bill are too small, the quality of the insurance is too low, and in many places, the enforcement will be too weak. These state-based exchange will not be seen as a good place to buy insurance, so only people who must use them will. Businesses, for the most part, will shun them. In some states, it might be executed well, but in many, it will be a failure. The program will be seen as a welfare-like structure that only serves a very small group of mostly lower income and politically less involved Americans. Even the people using the system may appreciate the help, but not feel a strong attachment to the program, due to its low quality of insurance. Costs will continue to grow, and it could easily become a target for budget cuts and the magic power of “de-regulation.” Death by a thousand cuts.

Only now, 45 years after Medicaid was created, has the Federal government finally put it on a path that might fix its inherent flaws and have it live up to its potential. It will begin nationalizing most of the funding, requirements, and benefits. Imagine how much better the last 45 years would have been, if not for the very bad compromise of making Medicaid a state/federal partnership instead of a true federal program. Progressives must not let this health care reform effort suffer the same fate. If progressives do not fight hard to make sure this reform package produces a workable and popular insurance program, it will be a long term disaster. Do not let short-term political expediency saddle this nation with long-term problems. I do not want it to be another 45 years before we finally start trying to fix the inherently broken structure of the Senate bill in a way that we could have done in the first place.