Feature Article

Medicaid and Health Care Reform (Part II)

Kyle McCammon, DO

Part I of this article discussed Medicaid eligibility requirements and regulations and chronicled the extensive growth in Medicaid caseloads and spending. Part I also reviewed how Medicaid is funded and how states have utilized funding schemes to increase the amount that is funded by the federal government. Part I chronicled the federal legislation that has been enacted in response to state Medicaid funding schemes and the subsequent states' responses to this legislation, including the use of provider taxes.

Part II will discuss the detrimental effects that Welfare and Medicaid have on society and the health care system. Part II will also discuss specific proposals for Welfare reform and health care reform.


Medicaid and the Incremental Assault on Health Care


It appears that the incremental Medicaid expansions are sanctioned by those who advocate a government-financed nationalized health care system. In fact, Clinton Health Care Task Force documents reveal that "if they [the Clinton Administration] are unsuccessful in getting the Clinton-style, universal health care, that they should take a kids first approach which would be used as the first step to phase in the full Clinton-style health care plan."(1) As a result, it appears that once again there will be a clash of ideologies between those who advocate government-sponsored universal health care and those who advocate personal liberty and freedom of choice through market-oriented health care reforms.

An example of the expanding role of government in health care is the State Children's Health Insurance Program. This program is designed to bring lower middle to middle income children into a government-sponsored health care program by expanding health insurance to children whose families "earn too much for traditional Medicaid, yet not enough to afford private health insurance."(1,2) This expanded role of government may produce serious unintended consequences. SCHIP expansions may be the precursor of nationalized government-sponsored health care for children, i.e., it may become the "Medicare system for children."(3) Many parents who currently purchase private insurance coverage for their children will be encouraged to switch over to the government-sponsored program. Eventually, private insurers for children may be forced out of the market and parents would have no other insurance alternatives for their children. The personal freedom to make health care choices will be reduced. The system may be more costly, less efficient and may compromise the quality of health care that children receive.(1)

Additionally, Medicaid has expanded into the school system as the Early and Periodic Screening, Diagnosis and Treatment Program (EPSTD). This program may infringe on parental rights and medical privacy because public schools are authorized to provide medical treatment and psychological and reproductive counseling of children.(1)

In the meantime, the estimated number of Americans who remain uninsured, now at 44 million, continues to grow.(4) However, it is important to note that only one-third of the uninsured are chronically uninsured. Half of the uninsured lapses will last less than six months. Additionally, lack of health insurance is not necessarily associated with being poor. One-third of the uninsured households earn more than $30,000 a year and 10 percent earn more than $50,000.(5) Of the eight to 11 million uninsured children, about 4.7 million are eligible for, but do not participate in the Medicaid program. Over three million uninsured children live in families with incomes of more than two times the federal poverty level. From one to four million children are only temporarily uninsured when a parent is temporarily unemployed.(1)


The Problems with Employer-Based Insurance


The problems with the current health care system are not limited to government-sponsored programs. There is also a major problem with the way the private health insurance market operates. The main reason for the problem is that the federal tax laws discriminate against individuals who purchase their own insurance. Employer-sponsored health insurance is fully excluded from taxation, but individually purchased health insurance is not.(4-10)

As a result, most people rely on third parties such as employers (or the government) to pay their health care. These third parties, not employees, decide which health benefits are covered. Health insurance coverage and choices of health care providers may be limited in the employer-based plan. Still, most people accept the insurance because they think someone else is paying for it.(5,6) However, employer-based health insurance is not a "free" benefit. Health insurance is a fringe benefit which substitutes for wages in the total employee compensation package. Employees ultimately bear the burden of high health care costs in the form of lower wages.(6)

When people rely on a third party to pay for health care, they will often expect to be "fully covered" and will consume more health care services than they would if they were paying for it directly. If the health insurance plan has certain restrictions, consumers often will lobby for their choice of mandated benefits. These additional mandated benefits also drive up the cost of health care. However, it is the employees, having not realized that the "other peoples' money" was actually their money all along, who bear the burden of these third party costs.(5,6) The fact that people are now so willing to use their health insurance, as opposed to other types of insurance, is the consequence of the bad idea of third party intervention in the health care system.(10)

Increased health care costs also affect employers. As a result of increased costs, many businesses are now reconsidering their role in providing health insurance. The combination of increased job mobility, increased numbers of part-time workers and the expansion of small businesses that do not offer health benefits has created a market in which employer-based insurance either is not available or is too expensive.(4,9) This will result not only in increased numbers of uninsured people, but it could provide a disincentive to work and thereby increase unemployment and cause an increased in the number of Medicaid recipients.(6)


The Health Care System and Its Effects on Providers and Patients


In the meantime, health care providers and patients are becoming more frustrated and dissatisfied with bureaucratic controls and third party intrusion into the patient-physician relationship.(11-13)

Patients have become more frustrated and angered with managed care and government-sponsored health care systems that deny them choice and control over their own health care decisions. They have discovered that a system that has such heavy-handed regulations and control over people cannot be a fair or high-quality system.(12)

Physicians' frustrations with the health care system may have been most accurately expressed in the words of Dr. Hendricks, who said in the novel, Atlas Shrugged, "I observed that in all the discussions that preceded the enslavement of medicine, men discussed everything --- except the desires of the doctors. Men considered only the 'welfare' of the patients, with no thought for those who were to provide it. That a doctor should have any right, desire or choice in the matter, was regarded as irrelevant selfishness; his is not to choose, they said, only 'to serve.' I have often wondered at the smugness with which people assert their right to control my work, [and] to force my will. [They] believe that it is safe to rely on the virtue of their victims. Let them discover the kind of doctor that their system will now produce. Let them discover that it is not safe to place their lives in the hand of a man whose life they have throttled. It is not safe, if he is the sort of man who resents it --- and still less safe, if he is the sort of man who doesn't."(14)


How to Reform the Health Care System


Many individuals, associations and organizations believe that the solution to the Medicaid problem (and health care in general) is through the elimination of governmental regulations and third party interference between patients and physicians. They believe that bad health care policy adopted incrementally is still bad health care policy.(15) These groups have offered proposals for health care reform that differ from those who advocate universal government-sponsored health care. A fundamental difference in the approach stems from the understanding that health care is not a right; it is a service that is provided by doctors and others to people who wish to purchase it.(16,17) Instead of continuing to expand entitlements, these groups ask the more fundamental question, "Who lacks health insurance and why?"(1) They then seek more efficient and cost-effective ways to solve the problem without infringing on citizens' personal rights and freedoms.

The efforts to restore freedom to choose health insurance should come through reform of the tax system in combination with new policies that create a free marketplace for consumers.(4-10) This would allow health insurance to be more affordable and more available for consumers, and thus, allow individuals to take charge of their own health care decisions using their own money.(4)

The two characteristics of a successful free market are: 1) on the provider side, a wide variety of providers in competition with one another on the basis of price and quality; and, 2) on the consumer side, consumers attempting to receive the maximum quality and the lowest price.(15) In order to establish free market-oriented health care reform, the tax code needs to be an even-handed and neutral policy that would not influence or limit consumer choices, but should serve to level the playing field for different types of health insurance and health care options. Such a policy would not discriminate between those with or without employee-based health insurance because the cost of health insurance would be tax deductible for all individuals.

This would allow individuals to purchase health insurance in the way that best meets their needs. To restore equity to the tax system, a universal tax credit policy should be created.(4,6,8,15)

Families should be given options to choose from a variety of competing health plans with different benefits at different prices.(7) Rollover flexible spending accounts (FSAs) and medical savings accounts (MSAs) are the cornerstones of market-oriented health care reform.(8-10,18) For individuals who opt for employee-based health insurance, the creation of rollover FSAs offers several advantages over the traditional employee-based coverage. These tax-free accounts allow individuals to save for the cost of services and benefits not covered by their employer-based insurance. Any funds remaining in the account could be rolled-over year after year. Like FSAs, MSAs are tax-deferred accounts that allow individuals to save for medical expenses. FSAs are employer-based and can apply to any type of health insurance plan. MSAs can be employer-based or purchased by individuals. The employer (or individual) would take a portion of the money currently spent on health insurance and deposit it into a newly established MSA. The other portion would be used to purchase a catastrophic policy that covers medical expenses after a deductible is met.

FSAs and MSAs encourage more efficient utilization of health care services and help to control health care costs. They enhance consumer choice over a wide range of medical benefits and services. They enhance the patient-physician relationship by removing third parties from the health care decision-making process. Since individuals are in charge of their own contributions to their FSAs and MSAs, these accounts enhance the portability of insurance. The money, along with the earned interest that is left over can be saved for future medical expenses or it can be withdrawn under specific guidelines and subject to established tax codes. The account funds earn tax-free interest that can be withdrawn at retirement.(8,10)

The Relationship Between Welfare, Medicaid and Health Care Reform


The War on Poverty has failed. Welfare as we know it has not ended; it is still thriving. Federal and state governments currently run over 75 major interrelated and overlapping welfare programs, at a cost of $430 billion in 1999. Medical programs accounted for 53.6 percent of the total cost. The total spending amounts to approximately $5,600 for each taxpaying household in 1999.(19)

Huge costs are only part of the Welfare problem. The dilemma for the Welfare system is that while its function is designed to alleviate "material poverty," its destructive effect on families and individuals through subsidizing illegitimacy and non-work has contributed to our nations' social collapse by causing an increase in "behavioral poverty." Material poverty most literally means having a family income below the official poverty level, which was $16,660 for a family of four in 1998. Behavioral poverty refers to a number of social pathologies that contribute to the breakdown of the values and conduct that leads to the formation of healthy families, stable personalities and self-sufficiency. In the United States, behavioral poverty is much more widespread than is material poverty.(19-24)

The Welfare system has promoted the disintegration of the family. It has made marriage economically irrational for many low-income parents because partners are transformed into net financial handicaps. When the War on Poverty began, 7.7 percent of American children were born out of wedlock. Today, that figure is 33 percent. Illegitimacy is not synonymous with the problem of teen pregnancy. Only 14 percent of out-of-wedlock births occur to girls under age 18. Illegitimacy stems primarily from a breakdown in relationships between young adult women and men. The problem lies in the decline in marriage that is fostered by the means-tested Welfare eligibility rules that insidiously reward illegitimacy. Primarily because of Welfare, illegitimacy and single parenthood have become the norm for raising children in many low-income communities. The decline in marriage also is related to high abortion rates. Nearly half of all pregnancies in unmarried women end in abortion, whereas only 11 percent of pregnancies among married women are aborted.(19,23)

Ultimately, the mind-set of our nations' government needs to be changed from its usual method of responding to problems through new spending and expanding mandated programs to finding ways to address and solve the issues as to why people need assistance in the first place. Because the easiest way of breaking the grip of dependency is to prevent it, new programs must be directed towards correcting the root problems. New programs should also foster incentives for individuals to take charge of their own destinies and become self-sufficient.(19-23)

Outcomes studies have debunked the many myths of the negative consequences of Welfare reform. Rather than increasing child poverty, the decline in Welfare caseloads has been accompanied by a decline in child poverty. Decreases in dependence have been shown to produce beneficial effects on children's long-term development, even when accompanied by lower family income.(19,21)

Consequently, Welfare reform efforts should be focused on work requirements that help secure jobs for the most employable Welfare recipients first. In fact, the determinants of Welfare caseloads are more closely linked to work-related reforms that include immediate work requirements and strong sanctions for noncompliant behavior than to the condition of the economy. Work requirements decrease the number of unnecessary caseloads and help to move Welfare to its originally intended purpose. This allows the system to focus its limited resources and efforts on those who have the most difficulty becoming self-sufficient and frees up resources to deal with the underlying problems that promote dependence.(19-22)

Opponents of Welfare reform argue that efforts should focus on government-sponsored training and education programs. However, these programs have been shown to have little or no effect on the wages of the participants. Opponents also argue that a minimum wage job is just a "dead end job." However, the government does not intend that parents should support a family on minimum wage alone. Low-wage earners are still eligible for food stamps and the Earned Income Tax Credit. Their children may still be eligible for Medicaid and the family could receive subsidized day care. A minimum wage job is a step upward and has many benefits over continued dependency on the government.(19-21)

In 1996, Congress enacted Welfare reform through the Personal Responsibility and Work Opportunity Reconciliation Act.19,20 One of the key issues of the Welfare reform act dealt with finally eliminating the funding schemes of state governments. The new law created fixed dollar grants for states to fund their Temporary Assistance to Needy Families (TANF) programs. If a state reduced its Welfare caseload, it would no longer be penalized by a reduction in federal matching funds. The state could keep any surplus federal funds and apply them to other efforts to aid the poor. The law contained provisions to decrease long term dependency. It also established mandates for states to reduce their Welfare rolls and to institute work requirements. Finally, it made provisions for reducing illegitimacy a national goal.(19,25)

The Welfare reform legislation contains numerous loopholes and falls short of ending the problems inherent to the Welfare system.(20) Additionally, since its passage, the Clinton Administration passed new legislation that undermined its effects.(26) Future reforms must fix existing legislative loopholes and expand on the success of the current legislation. More attention should be focused on the behavioral poverty ills that are linked to the Welfare system. Multiple steps should be taken to foster and strengthen marriage. Work requirements that utilized mandatory community service on a pay-for-performance basis for "unsuccessful job seekers" need to be strengthened in most states. Empowering churches and other faith-based organizations through the idea of compassionate conservatism and empowering parents through school choice has been proposed as a means to bring about a renewal of the moral culture. Finally, continued efforts should be made towards limiting the growth of Welfare spending.(19,27)

As the problems of behavioral poverty are addressed directly and more people are empowered to become self-sufficient, the Welfare rolls will continue to diminish. Part of their ability to sustain self-sufficiency will then depend on responsible governmental legislation regarding health care reforms that are based on free market ideals, such as expanding the use of MSAs and rollover FSAs, rather than expanding government programs that increase costs, limit choices, impair quality, and foster dependency.




Perhaps the greatest challenge that advocates for health care reform have to address is the concept of an entitlement which dictates that someone else needs to take care of our every need.(15) In order to rescue the nation from itself, these advocates will have to change the political consciousness of the nation. What currently guides the debate is sentiment rather than logic.(1) Advocates for health care reform are not "for rich people." They are not "against poor people." They do not discriminate. Rather than create class envy or animosity among different groups of people, they strive to create policy neutral mechanisms for all to achieve success and become self-sufficient rather than be mired in a cycle of dependency.(6,15,20)

Advocates for health care reform need to go beyond political strategy and better explain the negative outcomes and negative economic effects of the current system.(3) They must help others recognize that government-sponsored universal health care is not synonymous with affordable health care. Costs have skyrocketed because government got into medicine. Costs will not decrease until government gets out of medicine.(28) Advocates must also help others recognize that in America, where citizens have died fighting communism and socialism and to preserve our freedom, government-sponsored universal health care will never be an acceptable solution to our nation's health care system problems.(5)




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Dr. McCammon is an emergency medicine physician at United Hospital Center in Clarksburg, WV, a diplomate of the American Board of Emergency Medicine, and a fellow of the American Academy of Emergency Medicine and the American Academy of Family Physicians. His e-mail is kmccammon@prontomail.com.

Originally published in the Medical Sentinel 2001;6(3):90-94. Copyright ©2001 Association of American Physicians and Surgeons.