Follow the State’s Lead to Better Medicaid

By any objective measure, Medicaid is a failure. It provides substandard care at an ever increasing cost to taxpayers.

When a Republican Congress and a Democrat president worked together to end another failing program – welfare as we knew it — we achieved something rare in public policy: success. We broke the cycle of dependency, reestablished welfare as the safety net it was meant to be and cut costs significantly.

We can find that same success with Medicaid. Welfare reform provides us with a road map for how to get there, and the states are ready to lead the way.

Under old welfare, federal funding was provided according to a matching funds formula. The more a state spent the more federal dollars it got. There was no incentive for individuals to get off the dole or for states to seek efficiencies.

Under new welfare — “Temporary Aid To Needy Families,” or TANF — states get a capped amount of money in the form of a block grant, with very few strings attached by Washington. States have an incentive to reduce fraud, cut waste, and implement reform. And they have. In its first ten years, the national population on welfare dropped by two-thirds, and the incomes of those former welfare families increased by 25%.

Taxpayers got relief, too. In real dollars, total federal and state welfare spending dropped 31% between 1995 and 2006 – to half of what it was projected to be without reform.

Medicaid suffers from the same perverse incentives as old welfare. As a result, total federal and state Medicaid spending has quintupled over the past 20 years. Medicaid spending now accounts for about a fifth of individual state budgets.

Governors are clamoring for flexibility to find real cost savings besides cutting benefits and already-low reimbursements to providers.

Twenty-nine governors, all Republicans, wrote Congress last month asking for flexibility in the form of block grant funding. Simultaneously, Gov. Christine Gregoire (D-Wash.) was in D.C. to ask the Obama administration for a waiver that would allow her state to streamline eligibility, change provider pay, and establish cost-sharing.

Like other states, Washington believes it can achieve better health outcomes at a lower cost if it does Medicaid “by Washingtonians for Washingtonians.”

There’s evidence that they’re right. Rhode Island received a Medicaid waiver in January 2009 and has saved $1.3 billion over the first 18 months. It’s not quite a block grant, but it operates similarly, with a cap on aggregate spending.

The U.S. House of Representatives agrees with the governors and included a plan to block grant Medicaid funds in its Fiscal Year 2012 budget. A similar proposal by Budget Chairman Paul Ryan and former Clinton economic adviser Alice Rivlin was scored by the nonpartisan Congressional Budget Office (CBO) as saving about $680 billion between 2012 and 2020.

We have an opportunity to end the Medicaid failure as we know it and give struggling Americans access to quality care without breaking the bank. The states are ready to do their part.

The question is: Will Washington let them?

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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