Cash as Medicine?
Let’s allow Medicaid beneficiaries to exchange some of their insurance for cash
The Biden Administration last year began approving pilot programs to use Medicaid money for healthy meals and nutrition counseling. Critics have argued that Medicaid should focus on its core mission of providing health insurance to the needy, and we can understand concerns about mission creep and loss of focus. What's next, is Medicaid going to be covering air conditioners? You might be surprised to hear that, actually, we think there are good arguments to go in that direction, but with some important qualifiers.
Whether you think we spend too much or too little on our social safety net, which is overwhelmingly health insurance through Medicaid, we should all be asking what value Medicaid recipients themselves place on the coverage they receive. Is health insurance coverage the best way to help them?
Unfortunately the answer is no. The best research on this question finds that Medicaid beneficiaries value their Medicaid coverage at between 20 and 40 cents (or even less) per $1 of cost to taxpayers. This is a tragedy, because it means there are millions of Americans for whom we could provide a more robust safety net, at lower cost to taxpayers.
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But here’s the good news. This mismatch creates an opportunity to benefit everyone, dramatically increasing the value of America’s largest welfare program while reducing its cost to taxpayers. Our proposal is simple: Whenever possible, give people the choice between the care or coverage they’re currently entitled to, and a cash payment of, say, half of what it would cost to provide it.
Consider Maria, a 45-year-old, single mother with back pain from her job as a nurse aide. The discomfort is not debilitating, but after tests and on advice from her doctor, she manages the malady through medications and physical therapy. And she is grateful not having to think through whether the costs are worth it: As long as Maria can find a provider who will take Medicaid patients, she will barely pay at all.
Like Maria, the American public is becoming increasingly grateful to Medicaid. Unfortunately our collective gratitude is misplaced. Had we asked Maria how much she would need to forgo tests, visits, and therapy that quickly costs taxpayers $1,000, she and millions like her would accept as little as $250. In theory, they might be delighted to manage back pain using lifestyle changes and other low cost options, if it meant they could get $500.
One way to move in this direction would be for the federal government to allow states to experiment with 1115 waivers that give beneficiaries the options of coverage with more cost-sharing in exchange for a monthly cash payment. The plans, could be public or private, would basically be more like those you and I have, where, instead of being free to the consumer, a doctor’s visit or a test would require copayments until a deductible is met.
Yes, we know deductibles and copays are the annoying parts of healthcare, the parts only some slightly out-of-touch health-economists could possibly like. But they serve the immensely valuable purpose of forcing consumers to think through whether a particular service is worth it to them, and thereby reducing utilization to services that meet that standard.
Now, you might reasonably ask, because people aren’t rational, won’t they make mistakes and choose too much or not enough healthcare? And of course, to that the answer is yes, but see, so can the government. And the data is practically screaming to us that, for the least fortunate in our society, through the government we’re choosing too much healthcare, and not enough of everything else that would improve their lives.
And if you’re with us thus far, there’s actually no reason we couldn’t experiment with similar flexibility in certain aspects of end-of-life care, where most healthcare dollars are spent. A privately-insured patient may choose to refuse a last-ditch intervention, or that 3rd concurrent cancer drug with the 5 or 6 digit price tag that only adds a few months of survival, preferring to use those resources elsewhere, to spend quality time with their family, go on a final trip perhaps, or leave their children with more financial security.
Medicaid patients are effectively denied this choice; if they opt-out or choose a less expensive treatment, the government gives them nothing in return. As a result, Medicaid recipients use more care than they would if given the opportunity to decline care and receive a portion of Medicaid’s savings. Doing so would give terminally-ill patients more control over their lives and legacies.
While many would be happy to accept cash for more expensive medical services, others would spurn such an offer. But that’s exactly the point, no government bureaucrat will ever be able to decide the optimal bundle of healthcare and other stuff, so, by giving the recipients of our safety net more choice in how we best help them, we can actually provide more to those for whom that’s right.
If we truly care about the least fortunate among us, we’ll want our government programs to reflect this reality.
To go further, please check out the following pieces: