SADOW: You Probably Won’t Hear This Anywhere Else, But Those Privatizations Save Big Money

Last week was not kind to big government advocates, as the Gov.Bobby Jindal Administration officials reported that its privatization efforts had yielded hundreds of millions of dollars in savings from health care initiatives.

If it wasn’t enough that private operation of eight state hospitals seemed on course to save $52 million this past fiscal year, or that privatization of the operations of the Office of Group Benefits with other efficiency measures were expected to save $114 million, the jackpot was the amount from the first of the initiatives, changing Medicaid from a fee-for-service to a managed capitation system. Louisiana’s Joint Legislative Committee on the Budget was told by the Department of Health and Hospitals that the predicted first year of savings reached its $135.9 million goal.

Better, the figure could go much higher. Presently, five different plans are available, with three using a model of premium payment to an administrator coordinating providers and two where the role essentially get combined. Data from the first 10 months of 2013 revealed that on average the difference in payment per different kind of plan was about $13 per client month, Thus, DHH has decided that as of February of next year the only kind of plan offered will the premium payment kind, meaning about half of the nearly 800,000 covered individuals will have to switch.

Upon doing so, the savings could be substantial. The managed capitation plans cost $232.80 per member month, while traditional FFS Medicaid cost $262.34. If the same gap continues for next year that means that if the most recent total of about 918,000 regular enrollees (that is, not including elderly and disabled) stays the same with all enrolled (new rules will ensure this), the state will save over $325 million next year.

And that could grow because elderly and disabled individuals receiving services under Medicaid waivers, currently still operating under the FFS model, will begin migrating to the managed capitation model. The ability to do this and any savings are harder to predict, because the intense nature of some service provision lends itself poorly to the managed capitation model and therefore would not work well, and of others that can be managed, because these clients need so many and intense services that the margins probably won’t be as great in the aggregate. Still, any savings brings more taxpayer relief and the ability to serve more people.

Best of all, DHH notes no reduction in the quality of care and hopes with new rules to improve it still, mirroring the increase in services being offered under private state hospital management and in the continued provision of benefits to state employees and retirees with the only reductions occurring at the margins for efficiency sake. In the aggregate, the three combined promise to produce, given these assumptions, $491 million in savings because of privatization next year, or about 2 percent of the total budget but about 4 percent of all state-generated tax revenues, will overall service provision not reduced in quality or quantity.

Those wedded to Louisiana’s populist past, from gubernatorial candidates to political party politician hacks to special interests and the big government ideologues that give them aid and comfort, will not address, much less admit, these empirical verifications of the basic understanding that when private sector providers of something exist in a competitive marketplace, they always will perform that service more cheaply than government at a level of quality no worse than government. That fact offends the command-and-control mentality of these sycophants, and its inconvenience to their worldviews should not be allowed to slow, much less reverse, the demonstrated benefits privatization has had for Louisianans.

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