Another Medicaid Horror Story

Our legislature should recognize this(subscription required) from Mississippi. Some excerpts:
“Over the past five years state and federal spending in Mississippi on Medicaid — the health program for the poor and disabled — has doubled to $3.5 billion. Fully one-quarter of state residents are in the program. “Medicaid is a cancer on our state finances,” says Mississippi Gov. Haley Barbour…”
“Now a state-versus-federal battle over Medicaid may be looming. President Bush, faced with a swelling federal deficit, will propose Medicaid changes in the budget he sends Congress today. The administration wants to cut about $60 billion from what it projects it will spend on the program over the next decade, mostly by cracking down on techniques used by states to collect extra federal payments.
Federal officials also are pushing a broader overhaul of Medicaid financing. Currently the federal government and state governments split Medicaid costs, so if states boost benefits or costs go up, Uncle Sam has to keep pitching in. One option under discussion with governors would cap federal contributions for certain Medicaid recipients at a set amount each year. They would have to pay 100% of Medicaid costs above the cap, but they would have wider flexibility than they do now to reconfigure benefits and increase costs for the targeted populations.
As states try to slash costs under current rules, they run into many roadblocks. Federal law mandates that states must cover many types of care, such as pregnancy care for certain low-income women. Reducing the number of beneficiaries is hard because they often have nowhere else to turn. What’s more, because Medicaid is a “fee for service” program that pays doctors and hospitals every time they treat a fever or patch up a cut, it’s difficult to encourage efficiency.
Patients, too, have little incentive to ration their own care because they pay at most a small sum to see the doctor. “When something is free, people don’t care what it costs,” says Mr. Barbour in Mississippi. Advocacy groups for the poor say that even a $5 fee for a doctor visit can prevent some people from getting needed care.”
Florida is actually doing something about the problem:
“By far the most promising answer to date comes from Florida, where Governor Jeb Bush is proposing a radical restructuring of the program that serves 2.2 million low-income people at an expected cost this year of $14.7 billion. The aim is twofold — to provide incentives for better service by putting more choice in the hands of the consumer and to rein in the rate of growth in spending.”
Somewhere along the line somebody has to do something about the perverse incentives faced by state governments because of the federal Medicaid match for state spending. Because of the match there is an overwhelming incentive on the part of state politicians, bureaucrats and advocates to deny scarcity. For example, in the 2004 legislative session an absurd and harmful nursing home bed tax was passed into law. Its only purpose was to generate more revenue from the federal government for Medicaid.