How Do We Fund Obama’s Health Care Plan?

The flavor of last month seemed to be health care policy in America. It has taken a back seat to the overall economic crisis, but is still lingering in the minds of voters and the politicians who sought their vote. Barack Obama is promising a health care policy that gives health insurance, or a government equivalent, to those who cannot afford it themselves.

The question that has not been answered is: How will he fund this? Hopefully not in the way that the government runs Medicaid and CHIP. These programs are funded through federal funds and mandated state funds. Designated funds are decided by the federal government, with little regard to the ability of the state to maintain this cost in their budget.

The current Medicaid burden is already hurting states, with Governor David Paterson of New York asking the federal government for “direct and immediate fiscal relief” because of this program and the current economy.

Louisiana is no longer able to run on its current budget with state health expenditures expected to rise by $450 million, according to Department of Health and Hospitals Secretary Alan Levine. With expected state budget cuts of more than $1 billion, Levine will probably have to make serious cost-cutting decisions that might even cost people their lives.

Even Governor Rick Perry recently sent a letter to the heads of all state agencies in Texas, telling them to tighten their budgets while at the same time touting the state’s multi-billion dollar surplus. If state budgets are tightening and medical costs are rising, something will have to give. Obama claims that his health care plan will cost between $50 and $65 billion per fiscal year once implemented. The question is, how much of this burden will be put on the state?

So what is the solution?

Lowering costs of Medicaid and Medicaid fees will not work. First, it is already cheap. As Senator Chuck Graham of Missouri said, “The Medicaid program is a good value. We basically buy that insurance for 17 cents on the dollar.”

And the government already pays medical providers far below the customary amount. Lowering either would either require a cut in benefits or in the amount paid to providers, causing access to care issues. Providers already shy away from Medicaid because of the rates they are paid for services. Medicaid may be a government program, but providers are not. They are there to make money.

If a large portion of the burden is put on the state, the program simply will not work. States do not have the resources to add to their health care pool and to their budget without increasing taxes significantly. If spread across every person in the nation evenly, this would end up raising income taxes about $18 per family. With all of the other priorities, becoming energy independent, and a growing war debt, the next president will not have much room to raise the income tax to pay for these issues, much less a new health care program. Congress simply will not pass it… at least not the Senate.

Ignoring the problem will also not work. If universal health care is not offered, costs of emergency Medicaid will continue to sky rocket, when preventative care could have allowed for considerably reduced costs.

Obama has a few choices if he wants this program to work.

The first is to follow the Medicare D model of public-private partnerships. Contracting with a select group of insurers will allow the government to purchase insurance at a discount rate. Clients will receive services just like they had insurance from an employer. This, of course, will need increased spending to maintain this relationship and oversight to prevent corruption and unfair practices from insurance providers.

Alternatively, Obama could truly follow through on his word and go through the budget, line by line, to cut out unnecessary expenditures. It is unclear what programs Obama intends to cut or if he has begun this process. Either way, the possibility remains that he will go through this process and still not have enough money to pay for a national health care program.

Whether Obama chooses: to split the burden with the states and possibly bankrupt them; to follow the model of Medicare D and have a public-private partnership that will increase profits to insurance companies and carry with it all of the problems of its model program; or to cut other programs to allow for costs… any solution to funding national health care will be ugly. We should all be prepared for a domino effect that will end up with some group or entity as a loser and possibly in crisis from any solution.

If it were not so necessary, nationalized health care would be a terrible idea.

David Repp is a first-year student at the LBJ School of Public Affairs. He graduated from the University of Texas at Arlington with a bachelor’s degree in history. Repp has served in the U.S. Army and is a veteran of the war in Iraq. He currently works for the Department of State Health Services.