As Congress contemplates major revisions to America's health care system, two leading health economists warn that significant differences among state Medicaid programs will hinder national health care reform. Thomas W. Grannemann and Mark V. Pauly argue that Medicaid will need to be reformed as an early step in any serious health care reform effort.

INTRODUCTION
Why Medicaid First?
Beneath the swirling surface of the current debate over national health-care reform lie some fundamental problems with the existing system—problems that must be recognized and addressed as part of any credible reform effort. Some of the more troublesome of these are legacies of the current Medicaid program and its distinct manifestations in the fifty states and other jurisdictions.

While some aspects of Medicaid present barriers to implementing a new health insurance program, the Medicaid program also presents opportunities to make fundamental changes necessary to any genuine reform of our health-care system. Policymakers should incorporate Medicaid reform into the first stage of any national health-care reform effort. Here’s why.

First, Medicaid reform is a politically feasible first step that could appeal to voter-taxpayers by providing high-value services to those who need them most. Public support is critical to any expansion of publicly funded or subsidized medical care. Reflecting on the history and politics of Medicaid, we see clear evidence of an altruistic component in voter support for the program—a willingness to pay for services to others in greater need than oneself. This willingness, however, has definite limits. ...

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Thomas W. Grannemann
and Mark V. Pauly
The AEI Press
Publisher for the American Enterprise Institute

CONTENTS
LIST OF ILLUSTRATIONS ix
INTRODUCTION: WHY MEDICAID FIRST? 1
1. MEDICAID REFLECTS PUBLIC CHOICES 7
Public Support for Spending Has Limits 10
High-Value Care as a Key to Reform 15
Using Medicaid to Remove Barriers to Reform 21
2. MAKING MEDICAID PART OF NATIONAL HEALTH-CARE REFORM 23
Issues to Address 23
How to Integrate Medicaid with a Massachusetts-Like Plan 31
Principles for Reform 37
3. THINKING STRATEGICALLY ABOUT REFORM 44
NOTES 49
REFERENCES 51
ABOUT THE AUTHORS 53

ABOUT THE AUTHORS
Thomas W. Grannemann is associate regional administrator for Medicare Financial Management and Fee for Service Operations in the Boston Regional Office of the Centers for Medicare and Medicaid Services.

His research interests include Medicaid financing, hospital costs, long-term care, physician productivity, provider payment methods, and worker’s compensation. Previously, Dr. Grannemann was a senior economist at Mathematica Policy Research, Inc., where his work involved design and analysis of major national Medicare and Medicaid demonstration projects. He has also served as chief of the Bureau of Economic Analysis and Rate Setting Policy with the State of New Hampshire Office of Medicaid Business and Policy.

For several years, Dr. Grannemann taught health economics, health policy, and public finance at the University of Colorado’s Graduate School of Public Affairs and managed his own research and consulting business, Andover Economic Evaluation. He is the author of numerous publications on Medicaid, Medicare, and health-care reform topics. Dr. Grannemann holds a Ph.D. in economics from Northwestern University.

Mark V. Pauly is Bendheim Professor in the Department of Health Care Management, Professor of Health Care Management, Insurance and Risk Management, and Business and Public Policy at the Wharton School and Professor of Economics in the School of Arts and Sciences at the University of Pennsylvania.

He is also an adjunct scholar of the American Enterprise Institute. Dr. Pauly is an active member of the Institute of Medicine and serves on the national advisory committees for the National Institutes of Health’s National Center for Research Resources, the National Academy of Sciences’ Committee to Study the Veterinary Workforce, and the National Vaccine Advisory Commission.

He is a co-editor-in-chief of the International Journal of Health Care Finance and Economics and an associate editor of the Journal of Risk and Uncertainty. A former commissioner on the Physician Payment Review Commission, Dr. Pauly has also served on the advisory committee of the Agency for Health Care Research and Quality and the Medicare Technical Advisory Panel.

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