The recent study of denial of care to Medicaid recipients has generated a great deal of commentary, including by the esteemed Professor Pollack. In reaction to the study, the idea of federalizing Medicaid, for example by rolling it into Medicare, is again gaining currency. This idea has long appealed to some on the right, such as Reihan Salam and to some on the left as well, for example Kevin Drum, who recently asked “What’s not to like?”.

The chief thing to like is that such a merger would allow the politically weakest groups at the federal level — poor children and mentally disabled adults — to ride on the coat tails of the politically mightiest group, namely the elderly. But an underappreciated risk of such a policy was alluded to by Mark Kleiman’s health care industry friend in a guest post at RBC: It would turn the federal government into one stop shopping for rent-seeking by health care suppliers.

Many advocates of federalizing Medicaid and of single payer systems more generally assume that the consolidation of purchasing would give the federal government enormous power to force health care suppliers to accept lower prices. This would happen in a fair fight, but what if some suppliers want to queer the pitch to their own advantage? The experience of corruption in law enforcement is instructive.

During Prohibition, a city police chief could sell a bootlegging gang citywide protection because his officers were a law enforcement monopoly (the feds had a grand total of 400 people to police Prohibition nationwide). Today, corruption among law enforcement is much less pronounced in part because there are so many competing enforcement agencies within and across the city, county, state and federal levels. No one officer or unit of law enforcement can sell complete protection to someone who wants to buy special treatment.

The incredibly convuluted mess that is our state and federal Medicaid system is currently like modern law enforcement and therefore hard to corrupt. If you want Medicare to buy your $200 piece of durable medical equipment for $800 you may need only one good lobbyist well-connected to one committee in Congress. But if you want Medicaid to do it, you’ve got 50 state Medicaid agencies, 50 state legislatures and their associated federal minders with which to deal, making efforts to corrupt the process a lot less inviting. Maybe you can swing a state or three, but the whole Medicaid program? Forget it.

A federalized Medicaid program would eliminate that barrier. Sway one agency or Congressional committee to bend the rules and massive nationwide profits would be yours, just is now the case with Medicare. Some people will deny this sort of thing could ever happen in the federal government…if so, DoD has an $800 screwdriver to sell them.

[Cross-posted at The Reality=Based Community]

Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor at Stanford University. @KeithNHumphreys