As part of the recent budget agreement, President Clinton and Congressional leaders agreed to spend $16 billion over the next five years on health insurance for children. What's the best way to spend the money?
The House of Representatives has opted for block grants to the states, which could use the money to expand Medicaid, state-created programs or demonstration projects. According to the Congressional Budget Office (CBO), this approach would provide health insurance for 865,000 children, 520,000 of which had been previously uninsured.
A Senate Finance Committee proposal would give states the option of accepting expanded Medicaid coverage or receiving a block grant with many strings attached. The CBO predicts this plan would cover about 1.34 million children, with 800,000 of them previously uninsured.
And the proposal sponsored by Senators Jay Rockefeller (D-WV) and John Chafee (R-RI) to expand Medicaid, which is not currently in either bill, would insure 1.97 children, including 1.18 million previously uninsured, according to the CBO.
Unfortunately, all of these approaches are out of step with the Information Age. They would either give money and power to failed bureaucracies or create new ones. What is really needed is to allow individual families to meet their own needs by making choices in the health insurance marketplace.
By almost anyone's reckoning, Medicaid is one of the most wasteful health care programs in the country. An exposé by the Chicago Tribune used undercover reporters to discover that in a 12-month period a "con man" managed to get Medicaid to pay for 65,505 pills, 20,400 syringes and 343 bronchial inhalers. These items, in turn, could be sold on the street. For example, drug addicts will pay as much as $1 apiece for a syringe; alcoholics will pay 37 cents apiece for the anti-ulcer pill Zantac, and people who smoke cocaine will pay $2 to $3 for a bronchial inhaler.
Unfortunately, this example was not unique. The Tribune found that:
- Four Medicaid patients made more than 300 separate doctors' office visits over a 12-month period – an average of more than five visits per week.
- One patient – who made 243 doctor visits a year – saw five doctors on the same day on seven different occasions, and twice saw six doctors on the same day.
- Another patient collected 3,540 condoms, 234 asthma inhalers and enough pills to swallow at a rate of 46 per day.
When Medicaid isn't wasting money, all too often it's rationing care. The abuses described above mainly occurred at "Medicaid mills." Yet in most cities around the country it is becoming increasingly difficult to find regular fee-for-service doctors who will even see Medicaid patients. Almost all the examples people can point to of Medicaid programs that work are cases where Medicaid has contracted with a private managed care company. And managed care itself is under increasing attack for skimping on care under the guise of controlling costs.
Fortunately, there's a better way. Instead of giving KidCare money to government to give to Medicaid to give to an HMO, why not let families use the money to enroll in a health plan of their choice. This approach, developed by health economists at the Progressive Policy Institute (PPI) and the National Center for Policy Analysis (NCPA), would cover 4.3 million low-income children (below 150 percent of poverty), 2.3 million of which were previously uninsured, by giving families the chance to buy private insurance before giving the money to state governments.
Low-income families would be offered a dollar-for-dollar, refundable tax credit towards the purchase of their children's health coverage. (If they spend a dollar, they get a dollar.) The amount of the credit would cover most of the cost of health insurance. If parents did not buy health insurance, unclaimed credit money would be sent to the states in the form of a blank grant.
Skeptics may ask: haven't we tried this approach before? From 1991 to 1993 there was a refundable tax credit for health insurance in the tax code. It was little used, however, because families had to pay premiums during a tax year and get their "refund" the following April 15. This was an impossible cash flow obstacle for families who lived paycheck to paycheck.
Our approach relies on a mechanism created by the private sector under the current Earned Income Tax Credit (EITC) program. In February and March of every year, millions of people with no tax liability file tax returns and get a "refund" from government. To get around the complexity of the tax law, many turn to tax preparers such as H&R Block, which not only fill out the paper work, but also negotiate a loan from a bank so that the "taxpayer" gets cash on the spot. H&R Block then files the return, gets the refund, repays the bank and takes its commission.
If banks can get involved, why not insurance companies? Low-income families could purchase the next 12 months of insurance for their children with their KidCare tax refund right in H&R Block offices, with little more effort than they expend today. Moreover, there is no reason why several competing health plans could not be available – giving families the benefits of competition and choice.
This procedure also would answer another objection of the skeptics: Doesn't individually purchased insurance cost a lot more than enrolling a large number of people in a group plan? That depends. Currently, fee-for-service insurance for a child ($500 deductible, 20% copay up to $1000) costs between $700 and $800 in most cities aroundthe country if purchased from insurance agents. But the administrative expense could be squeezed down to a bare minimum – probably a little over $500 – using the H&R Block approach.
The tax credit approval would empower people rather than bureaucracies. It would give low-income families the opportunity to choose among private sector alternatives routinely available to the middle class.