Unequal access to Healthcare and rationing

Economic View



Following the Money, Doctors Ration CareBy TYLER COWEN
Published: December 11, 2010

UNEQUAL access to health care is hardly a new phenomenon in the United States, but the country is moving toward rationing on a scale that is unprecedented here. Wealthy people will always be able to buy most of what they want. But for everyone else, if we stay on the current course, the lines are likely to get longer and longer.

The underlying problem is that doctors are reimbursed at different rates, depending on whether they see a patient with private insurance, Medicare or Medicaid. As demand increases relative to supply, many doctors are likely to turn away patients whose coverage would pay the lower rates.

Let’s see how this works. Medicare is the major federal health program for the elderly, who vote at high rates and are politically influential, and so it is relatively well financed. Medicaid, which serves poorer people, is paid for partly by state governments, and the poor have less political clout than the elderly, so it is less well financed. Depending on the state and on the malady, it is common for Medicaid to reimburse at only 40 percent to 80 percent the rate of Medicare. Private insurance pays more than either.

A result is that physicians often make Medicaid patients wait or refuse to see them altogether. Medicare patients are also beginning to face lines, as doctors increasingly prefer patients with private insurance.

Access to health care will become problematic, and not only because the population is aging and demand is rising. Unfortunately, the new health care legislation is likely to speed this process. Under the new law, tens of millions of additional Americans will receive coverage, through Medicaid or private insurance. The new recipients of private insurance will gain the most, but people previously covered through Medicaid will lose.

Ideally, higher demand for medical care would prompt increases in supply, which in turn would lower prices and expand access. But the health care sector does not always work this way.

Doctors are highly regulated and in that manner restricted in supply. The Association of American Medical Colleges estimates that the United States could face a shortage of 150,000 doctors in the next 15 years. To its credit, the new health care bill does improve incentives for general practitioners, but still, supply probably will not keep up with the crush of demand.

We could go further by giving greater scope to nurse practitioners, admitting more immigrant doctors, reforming malpractice law and allowing cheap, retail “Wal-Mart style” medical care, all to increase access and affordability. Yet these changes do not seem to be in the offing, so access is likely to decline.

The health care bill will further privilege private insurance coverage by offering many individuals new subsidies for its purchase. That will create incentives for employers to game the system, dropping or discouraging coverage and sending their workers to buy health insurance on the more expensive federally subsidized exchanges. That will strain the federal health care budget. This problem is outlined by Amy Monahan and Daniel Schwarcz, law professors at the University of Minnesota, in their new paper “Will Employers Undermine Health Care Reform by Dumping Sick Employees?”


There is also the danger that a few governors with tight budgets will shirk their Medicaid responsibilities, with an eye toward sending potential recipients to the federally subsidized insurance exchanges. In both cases, the quest for a better deal will strain the federal budget.

The American system of federalism, with its checks and balances and slow policy evolution, has many strengths, but it has also helped create this crazy quilt of health care reimbursement rates. The more demand-side pressure is placed on medical supply, the more Medicaid and Medicare reimbursements rates will determine who and what is rationed.

One option is to simply allow budget pressures to dominate, forcing down even private insurance reimbursements. Most people would end up with low, Medicaid-like reimbursement rates, and would endure long waits and low-quality service. But wealthier people could jump the line by paying more. Think of “Medicaid for everyone” but the rich.

An alternative is giving most people means-tested vouchers for a fixed amount of insurance coverage — which can run out or face up-front caps — making Medicaid and Medicare less of a blank check. The cost explosion would be checked by shifting more of the burden onto
consumers. We would have better incentives for consumer-oriented care, and cost control, but we would be making an explicit public decision, at some point or another, to let some people do without medical care.

Recently the Arizona state government restricted transplant coverage for Medicaid patients, but it remains to be seen whether such measures can be applied to Medicare recipients. President Obama already has reversed some of the planned, budget-saving cuts to Medicare.

AN entirely different approach is suggested by the system in Singapore, where the government requires savings (say 10 percent to 12 percent of income), patients pay for medical care from those savings, and the government takes care of additional catastrophic expenses. That system has a good record for cost control and access, but would Americans accept so much required saving?

The default course is to maintain or extend Medicare reimbursement rates, raise taxes considerably and accept that Medicaid recipients will face worsening health care access. If you hear of a new solution to the health care puzzle, put aside the politics and instead think through the endgame. Ask not about the rhetoric, but rather about the reimbursement rates.


Tyler Cowen is a professor of economics at George Mason University