Reforming Medicaid

Medicaid is the joint federal-state program to help pay the medical expenses of limited-income households. It takes about 17 percent of North Carolina’s general fund budget and has been one of the fastest-growing programs in recent decades. Many groups have talked about restructuring Medicaid. NC State University economist Mike Walden explains the options.

“Well, the original structure of Medicaid is something called fee-for-service, where if you are an eligible household and you apply for Medicaid and you have a medical expense, people will look at it and say, ‘This is approved, and we are going to pay it.’ The concern is that has encouraged additional spending on tests and procedures and so forth. So policy makers have been looking for alternatives, and there are about three:

“One is called managed care. It’s where medical providers coordinate their activities in order to try to control costs.

“Number two is for the state to pay a set fee to a provider of medical services, and the provider is going to say, ‘If there are any cost overruns, we’ll take care of them.’

“And number three is something called a health-insurance voucher, where again the state would give a set fee to a client, in this case, in the form of a medical health-insurance voucher, and that client would then go out and get private health insurance.

“Each of these alternatives has their own pros and cons.

“Now very importantly North Carolina recently made a change in its structure. It was primarily running a fee-for-service structure. It is now going to the alternative where the state is going to pay a set fee per client to a provider, and the provider is going to provide those medical services and absorb any cost overruns.

“So this is going to be implemented over several years, and it will be very, very interesting to watch.”