Look At Medicaid To See Why Obama's Healthcare Reform Will Fail to Meet Its Objectives

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The nation’s flawed-but-free Medicaid program discourages most Americans from buying long-term health insurance that could provide better care and spare their life savings, a new study co-written by a University of Illinois professor says.

professor Jeffrey R. Brown says the study is the first to demonstrate how Medicaid stifles demand for private policies by creating financial disincentives that steer people toward the no-cost safety net, which covers nursing-home and other long-term care costs once their finances are exhausted.

“By modeling the lifetime financial implications of the insurance decision, we discovered that it is rational for most people to not buy private policies, even though Medicaid is actually pretty lousy insurance because it forces you to impoverish yourself first,” he said.

A core problem is that private policies require paying for much of the same coverage that comes free under Medicaid once nest eggs dip, said Brown, recently nominated by President Bush to serve on the board of trustees for the nation’s Medicare and Social Security programs.

So while private insurance offers broader coverage and protects personal assets, the net benefits amount to just 20 to 40 cents on every dollar of premiums after taking into account what Medicaid would have covered at no charge, according to the study, which will appear in The American Economic Review.

“You have this low quality public insurance program crowding out potentially better private insurance policies. And yet because the bad one is free to the consumer, it is still in the consumer’s best interest to take the free bad one rather than buy the expensive good one,” Brown said.

As a result, Medicaid – intended as a payer of last resort for the poor – now covers a third of long-term care expenses in the U.S., a problem Brown says will only worsen with medical expenses rising and nearly 80 million baby boomers nearing their retirement years.

Obama may have good intentions like his liberal predecessors, but the private markets are better at allocating scarce resources than arrogant bureaucrats, like Obama.