Rhode Island may be small, but when it comes to keeping costs down and resisting federal control of health care, the Ocean State punches way out of its weight class.
Medicaid, the health program for low-income residents, is a strain on every states budget. A fundamental problem with Medicaid is that if a state increases spending, it automatically causes the federal government to spend more, too. For Rhode Island, every dollar of state spending has been matched by about $1.13 of federal funds. Fortunately, Rhode Island succeeded in crafting a mechanism to improve the incentives. In August 2008, Governor Carcieri tasked his secretary of Health and Human Services, Gary Alexander, to apply for a Global Consumer Choice Compact Waiver from the federal government.
Rhode Islands waiver preserves the federal matching mechanism but caps aggregate federal and state spending through 2013 at $12.075 billion. By removing the states incentive to overspend, costs have plummeted from what was anticipated. Remarkably, through the first six quarters of the waiver (January 1, 2009, through June 30, 2010) actual spending was only $2.7 billion versus $3.8 billion budgeted, according to a paper produced by Alexander last December.
The state was exempted from Any-Willing-Provider (AWP) rules, which meant more power to incentivize quality from medical providers. It also came to grips with Medicaid Long-Term Care (LTC), which is often abused by eldercare planners who advise affluent seniors to artificially impoverish themselves to get benefits. Critically, it empowered Medicaid beneficiaries to make better choices by giving them more direct control of the dollars spent on their health care.
Rhode Islands reform benefits not only the state but federal taxpayers nationwide. Predictably, the waiver has come under attack from those who prefer to spend more money and have less local control over Medicaid. Immediately after taking office in January, Steven Costantino, who succeeded Alexander, told a reporter that savings were only about $31 million through June 2010.
However, Costantinos official correspondence confirms the savings predicted in Alexanders report. The states latest mandated quarterly report announced that cumulative total Medicaid savings from the waiver were $1.3 billion through December 2010. A report published last month by the Center on Budget and Policy Priorities (CBPP), also attempts to debunk the success of Rhode Islands waiver.
The report points out that the capped $12.075 billion budget was significantly higher than what Rhode Island actually thought Medicaid costs would be over the five years ($10.761 billion), leading the authors to claim that the savings are fictional. This is irrelevant, however, because the record so far points to total spending of about $9.3 billion through the 2013 fiscal year an estimate produced by Alexander that recent data indicates is still credible. If achieved, these savings will amount to 14 percent of the states original estimate.
The report also concludes that $200 million of Rhode Islands savings in the first year were the result of the Medicaid bailout in the February 2009 federal stimulus bill. This reflects a fundamental misunderstanding of the perverse political incentives in both the 1965 Medicaid legislation and the 2009 stimulus.
The stimulus bill increased the federal match from about $1.13 to about $1.78 for each state dollar spent. Persisting through June, this motivates higher, not lower, state spending and is one reason why most states are fiscally worse off now than before the 2009 bailout. Indeed, Alexander asserts that the federal stimulus caused Rhode Island to spend $74 million more of its own funds on Medicaid than otherwise.
Despite attempts to debunk its success, Rhode Islands Medicaid waiver survives scrutiny and, in keeping with the state motto, gives Hope to other states.