Policy Documents

Reforming Medicaid In Ohio: A Framework for Using Consumer Choice and Competition to Spur Improved Outcomes

Michael T. Bond, John C. Goodman, and Ronald L. Lindsey –
March 1, 2003

Ohio’s spending on health care for low-income families, the disabled, and the elderly is enormously expensive. With 2003 direct spending of over $7.5 billion on the state’s Medicaid program, and a combined budget of more than $10 billion, the program costs taxpayers almost $661 per year for every man, woman and child in the state. Direct Medicaid costs are expected to increase by 66 percent over the next three years. Ohio’s Medicaid costs have risen faster than health costs in the private sector generally. Part of the reason is Ohio Medicaid pays for health care in ways that needlessly contribute to rising health care costs. The state currently pays for 13,000 empty nursing home beds. Another problem is Ohio has not taken advantage of cost-control techniques widely used in the private sector. As much as 75 percent of the expansion of Medicaid nationwide has been offset by a reduction in private insurance. Traditional reform efforts are unlikely to achieve significant long-term savings—they simply won’t change the rules of the game sufficiently to create better outcomes. Cutting pharmaceutical drug coverage, for example, could lead to higher costs by encouraging the use of more expensive or less effective traditional services. More promising approaches focus on changing the way Ohio pays for medical care. More specifically, the state should:

  • Follow the lead of private insurers and choose hospitals based on the lowest price for a given level of quality;
  • Pay for services rendered and outputs, not costs incurred or inputs;
  • Enroll substantial numbers of beneficiaries with disabilities into managed care programs designed to meet their special needs; and
  • Consider block granting Medicaid funds to innovative localities.