Imagine you owned a widget factory. Making widgets has gotten more expensive, but you are unable to raise prices for the vast majority of your customers and lose money selling to them. Yet, the law requires you to sell a widget to anyone who wants one.

Some lawmakers come to you with a plan. They will still make you sell widgets to anyone who wants one, but you may charge more for the customers who pay you the least. Just one catch: You can’t raise your prices high enough to cover your costs. So, instead of losing 77 cents on the dollar to these customers, you’ll lose “only” 12 cents on the dollar.

Actually, there’s another catch: These customers will probably want to buy a lot more widgets than they did before. You will lose less money per widget, but you will — ahem — make it up on volume.

If you cannot divine from that scenario how this loss-making widget factory could possibly start breaking even, congratulations: You understand why Georgia won’t save struggling hospitals by expanding Medicaid.

More to the point, you understand why Georgia needs to find a different solution to the very real problems these hospitals face.

Proponents of Medicaid expansion talk about putting an insurance card in people’s pockets, but not all insurance cards are created equal. Medicaid coverage signals to health providers they won’t get paid what it costs them to serve the patient. They will, instead, be paid about 88 cents on the dollar on average, according to the Georgia Hospital Association.

That subpar reimbursement rate explains why many providers don’t accept Medicaid, making it second-class insurance. That, in turn, is why many Medicaid patients wind up seeking care in a hospital emergency room, which is bad for them and for the hospital. By the way, this is true no matter how much of the cost of Medicaid is borne by federal taxpayers vs. state taxpayers.

Unless expansion proponents are also prepared to close that reimbursement gap – which could cost state taxpayers hundreds of millions of dollars, beyond the hundreds of millions Medicaid expansion would cost – it won’t heal Georgia’s hospitals.

That’s especially true in rural areas, where Medicaid enrollment and lack of insurance are highest.

Gov. Brian Kemp has a better option. By pursuing “waivers” – flexibility in how Georgia administers Medicaid as well as the subsidies for care under the Affordable Care Act – he can make both programs work better and lower prices for Georgians.

This is a huge opportunity. Most media coverage of the waivers issue has focused on Medicaid, yet most uninsured Georgians wouldn’t qualify for the full Medicaid expansion. They make too much money to get Medicaid, but not enough to afford insurance premiums that have soared under the ACA.

A waiver to help these Georgians could include a new state reinsurance program that subsidizes our sickest neighbors directly. Their healthcare costs would no longer spill over into others’ insurance premiums, and plan prices would fall substantially.

Beyond that, allowing a wider variety of plans than under the ACA would foster choice and competition. Allowing people to retain unspent subsidies in a personal health account to use for out-of-pocket costs would also spur them to be keener consumers. All of this would put downward pressure on prices.

While we’re at it, poor Georgians should be offered these same options, not be forced into a broken system. They’d have more choices of providers, and they wouldn’t face the disruption of losing their plan, and possibly their doctor, if they got a pay raise and no longer qualified for Medicaid.

These kinds of changes would help Georgians the most, and Kemp is right to pursue them.

Kyle Wingfield is president and CEO of the Georgia Public Policy Foundation: www.georgiapolicy.org.

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