Another Free Market Lesson

Even as Florida continues its race to become the first state to completely do away with public education and replace it with a free market free for all, lessons abound in why that's a lousy idea.

This frickin ' guy.

At Tarbell, Simon Davis-Cohen takes us on a trip to Iowa where an ALEC governor privatized Medicaid. Former governor Terry Branstad was a founding member of the American Legislative Exchange Council, a special group that brings corporate movers and shakers together with legislators to share the really cool legislative ideas the corporations have come up with. Branstad's bright idea to privatize Medicaid was sold as a cost-cutter and became reality in 2016.

It has gone badly, and how it has gone badly is instructive for folks contemplating privatization of other necessary public institutions.

“In private insurance, denial is the rule, not the exception,” says Glenn Hurst, a doctor who runs a rural health clinic in Western Iowa. Hurst is referring to the tendency of private health insurers to challenge most bills they receive. Tarbell found reports from across Iowa indicate legitimate Medicaid claims are being regularly denied by private insurance companies — wreaking havoc since Medicaid was handed to private managed care organizations (MCOs) in 2016. A few years into privatization, delayed and denied reimbursements to Medicaid providers are hurting Iowans, doctors say.

The privatization has costs millions of dollars just in person-hours spent pursuing payment. The move has also been followed by waves of reduced benefit and coverage. The delay and denial of payment puts extra financial pressure on patients, hospitals and doctors.

There are no surprises here. If your business is paid on a scale set by the government, there's only one way to increase your profit margin-- cut services and push out the "customers" who are too expensive to serve.

Davis-Cohen notes other ripple effects. A public county-owned hospital cannot sustain itself with half a million dollars worth of revenue refused and/or held up, and so Black Hawk county sells out and the hospital is snapped up by a Pritok, private company. Davis-Cohen notes, in a paragraph that will sound familiar to students of ed reform:

The impacts of such privatizations are multifold. There is a loss of democratic control, a profit motive is created, and the previous public employees lose their government jobs. The contract between Pritok and Black Hawk reportedly does not require the private company to keep the existing county staff or “meet minimum wage or benefit levels for workers.”

It's not complicated. When you convert a public institution to a private business, that operation, whether hospital or school, retains all the original costs plus the additional cost of putting money in the owners and operators pockets. Something has to be cut, and it's not gong to be the boss's payday, so the money has to come out of staff costs, services, and customers served.

I'll say this a million times if I must-- the free market does not serve all possible customers. The most basic act of any free market business is triage-- figuring which customers it makes business sense to serve and which services it makes business sense to provide. To shift education or health care to a free market model means a fundamental change in the entire purpose of the institutions. The mission of public education is to provide an education to all students. That will never, ever be the mission of a privatized charter and voucher education system. Students will be turned away, and programs will be cut. That's not a bug; it's a feature. It's not evil, and it makes perfect sense in some parts of the free market world. But for education and health care a shift to a free market approach requires a fundamental rewrite of the basic mission, and that's a conversation that free market fans like the vultures in the Florida legislature want to avoid having.

Oh, and the promise that privatized Medicaid would save the state money? It didn't work, and it pushed many costs down to local communities. As for Branstad, he left the state after one year to take a new job as U.S. Ambassador to China.