The article, “Medicaid straining MDs,” in this morning’s Detroit News lays an important foundation for thinking about how government intervention in medicine affects incentives within the industry.
The article’s inspiration comes from a recently announced four percent cut in state Medicaid reimbursements to doctors. About one-fourth of the state’s general fund goes toward providing 1.6 million residents with Medicaid benefits. In light of the current recession, there are as many as 15,000 new Michiganians covered under this government program each month.
As a result of these cuts, many doctors are now refusing to accept Medicaid patients. Payouts from the program are as much as 1/3 less than the actual cost for the practice. For example, The News cites that Blue Cross Blue Shield pays about $46 for a new patient visit, while Medicaid only pays out $21. Now, regardless of your views on government safety nets for the poor, this article provides us with a real-world look at how government programs impact naturally occurring incentive structures.
One of the primary problems with these government programs (whether it be Medicaidor the highly anticipated Obama health plan), is that it creates an artificial price system, and buries the true market value of a doctor’s services. Each doctor is paid the same amount regardless of the quality of service or satisfaction of the customer. Generally, this removes any incentive for doctors to provide anything but mediocre service.
Sadly, insurance companies in their current form act in a similar way. Individual consumers have no understanding of the cost of the services they are receiving, and are therefore, relieved of their critical role in encouraging competition through the means of supply and demand. And again, all information gained from prices is kept from consumers.
As it stands, the medical professions only desire is to appease the institutions that compensate them: insurance companies and government. Because of government’s inherent inefficiency, its chosen ones (the most poor and needy) are increasingly left without options for health care.
Now, i’m not an expert on health policy, but I think we need to look for models of health care that currently exclude government and insurance, and rely strictly on the interaction between a patient and provider. Many cosmetic procedures (including Lasik eye surgery) are not covered under most health plans. Most of the procedures have decreased significantly in cost as doctors seek to attract new patients. I believe that the most just, inclusive and efficient health care will result from a policy that allows this exchange between patients and doctors to occur, without a distant middleman inducing artificiality.
-Sarah E. Grether