DEFENDERS OF MEDICAID, the health program for low-income people, are used to trench warfare. When government budgets get squeezed, Medicaid is invariably blamed. The pejoratives are familiar: "uncontrollable," "inefficient," "exorbitant."
President Bush and several governors are calling for major Medicaid cuts this year to restrain soaring costs. But there's a difference this time. Traditional Medicaid-bashers targeted routine care for poor people. Current bashers are taking aim at long-term care for the middle class. As one critic put it, Medicaid has become "welfare-financed nursing homes" for rich seniors who use it as an "inheritance protection plan."
The criticism is perversely refreshing. For years, poor single moms and their kids bore most of the ire, even as more and more Medicaid dollars went to nursing-home residents and the disabled. Medicaid has evolved from a relatively small welfare program tacked onto Medicare in 1965 into a $300-billion behemoth serving a diverse and growing share of the population. Over the last two decades, it has become a lifeline for millions of people who require nursing home care.
Yet, once you grasp why Medicaid plays this pivotal role, it is obvious that simply cutting the program won't work. The real problem isn't well-off senior citizens gaming the system. Rather, it is that few Americans have reliable and effective private alternatives that can protect them if they require long-term care. Cutting Medicaid won't change this reality. It would also forfeit an opportunity to reconsider the division of labor between states and the federal government in managing a huge social problem.
Hard as it is for free-market enthusiasts to admit, long-term care insurance will never work for millions of Americans. Insurers may offer more policies, but without major changes in the market, these will continue to be complex, costly and often inadequate. Consumers will likely shun such policies even if government subsidizes them. Consumer Reports reviewed 47 policies offered by seven firms. After finding only three acceptable, it concluded that "for most people, long-term care insurance is too risky and too expensive."
Forcing people to buy coverage might fix some problems. But the private insurance industry will still require regulation to ensure that insurers don't spurn individuals whose care is likely to be costly and that insurers finance a reasonable standard of care.
