Last Thursday, in “The S‑Word in California,” the subject was the danger posed to the stability of the Golden State’s medical system by the promise to guarantee service to nearly a million new illegal immigrants.
But one mechanism of this instability was not brought up, for reasons of space: the politicians’ past, as well as present, promises do not recompense hospitals at anything like a market rate. Which leads to insolvency. Which does not help the poor:
Across a state with the highest proportion of millionaires in the nation, 1 in 5 hospitals are now at risk of closing, according to a study released earlier this year by the California Hospital Association. Many serve the state’s rural redoubts, whose populations are often disproportionately poor and underinsured, and inner-city neighborhoods such as south-central Los Angeles.
Scott Wilson, “A hospital’s abrupt closure means, for many, help is distant,” Washington Post (November 16, 2023).
Now, the recent legislation discussed ostensibly solves the problem, as the Washington Post puts it:
As part of the final state budget, state lawmakers also approved one of the largest increases in years in the rates that Medi-Cal will reimburse hospitals for services. The move is particularly important for rural counties: While about 40 percent of California’s population is covered by Medi-Cal, the rate in Madera is nearly twice that.
And, beginning next year, all of California’s more than 2 million undocumented residents will be eligible for coverage under Medi-Cal, adding another 700,000 undocumented residents to the state insurance plan, meaning hospitals will no longer have to absorb their costs.
If it be true that the rates of reimbursement from Medi-Cal will now cover actual costs, then, as stated on Thursday, that will be an extra burden on the California taxpayer. But upping the rates is not a market phenomenon — a monopsonistic practice by definition — and the Post does not analyze whether the rate hikes will be enough to prevent more hospital failures. Like Medicare’s rates of reimbursement, these are historically pennies on the dollar, and vary widely by procedure and service, adding to administrative burden.
So of course politicians talk about adding more subsidies upon existing subsidies.
The spiral of burdens and benefits just goes out of control, as we would expect when governments seek to replace actual, effective markets for government “solutions.”