Mediscare, Mediscaid, and Block Grants

AEI’s  J.D. Kleinke has a long, eye-opening Forbes piece on the latest fads and foibles in the health care market. Aetna and Wellpoint have been buying up health (managed) care providers that principally service Medicaid populations. The valuations are rich: Wellpoint paid a 50 percent market price premium and about 18.4 forward PE for Amerigroup.

Behind this “Fools’ Gold Rush” is, of course, the Affordable Care Act, which (if implemented) will unleash mass migrations on a scale last seen when the frontier was still open—for example, from private and state plans into “exchanges” or Medicaid. Among the migrants are an estimated 9 million “dual covered” folks who are currently covered under Medi-care and –caid and will eventually be moved entirely into  Medicaid. With something like $300 billion in revenues on the table, the betting is that there’s money to be made in that market. But how?

Maybe the providers can work some managed care miracles. However, Kleinke (a former health care executive) points out, the real bet is on simple premium arbitrage: move the geezers from fee-for-service Medicare into Medicaid, where reimbursement rates are below rock-bottom. Pocket the difference. Repeat.

For this play to succeed, at least two groups have to cooperate:  patients, and politicians. Oops: patients probably won’t like being shuffled off into the Soviet-level Medicaid system, and politicians will mow down profit margins at the first sign of their existence. Between the patients and politicians will sit the health care profiteers, and what a wonderful world it will be for them.

I’ll add this to Kleinke’s trenchant observations: the market moves are yet another roadblock (as if any were needed) to the Romney-Ryan idea of block granting Medicaid. Replacing the feds’ open-ended Medicaid programs with a more moderately increasing block grant, we are asked to believe, will save well north of $1 trillion. States will still be better off because they’ll be free from federal “mandates.”

No way. Whatever savings and efficiencies are to be had in this miserable sector will have to include the providers’ profits. They know it. They will work to block it. And their lobbying muscle is rivaled, if at all, only by their stupidity in matters of corporate strategy. If team Romney makes it over the hurdle, it will need a Medicaid Plan B.


The Debt Trap, Part (2): The Unaffordable We-Don’t-Care Act

Yesterday’s post, on the seemingly unstoppable growth of federal transfer payments to state and local governments, ended on a question: what happens when both parties to the transaction, the states and the feds confront unsustainable commitments? The brilliant answer our federalism has produced: make yet more unsustainable commitments. Why? Read on to find out.

Obamacaid Revisited

In the pending Obamacare litigation, the plaintiff-states argue that Title II of the Affordable Care Act (“Obamacaid”) unconstitutionally “coerces” them to participate in a grand expansion of Medicaid. I’ve argued here and there that the plaintiffs will and should lose that argument. A terrific amicus brief by Vanderbilt Law School professor James Blumstein makes a powerful case on the other side. Ultimately, Jim’s brief doesn’t fully persuade me. But it comes very, very close on account of its recognition that Obamacaid’s crucial problem has to do with the bilateral risk of opportunistic defection from a pre-existing, quasi-contractual relation (Medicaid), not with some “economic coercion” story about federalism’s “balance” and the poor, pitiful states and their faithful public servants. (For ConLaw dorks: the key cases are Pennhurst and Printz, not South Dakota v. Dole or Steward Machine.) I hope to explain sometime next week; today, a few additional remarks on economic coercion. Read more