While Medicaid sounds like a generous deal, its funding formula incentivizes policymakers to expand the program at the expense of core state functions.
While President Donald Trump’s efforts to repeal and replace Obamacare have dominated the news, he also plans to reform a larger and arguably more broken program: Medicaid. In an interview with NBC’s “Today” show, Trump advisor Kellyanne Conway said Trump wants to “block-grant Medicaid to the states” to ensure “those who are closest to the people in need will be administering.”
Conway’s comments echo Trump’s campaign promise to “maximize flexibility for states via block grants so that local leaders can design innovative Medicaid programs that will better serve their low-income citizens.” Block grants would cap federal Medicaid funding and let states decide how to use those dollars. It would introduce flexibility and budget discipline to a program that sorely needs both.
Medicaid Soaks Money Away from Other Priorities
Since its inception in 1965, Medicaid has operated as an open-ended entitlement. The more state Medicaid programs spend on health-care programs for designated recipients, the more the federal government reimburses them. On average, states receive $1.33 for every $1 they spend on Medicaid.
While Medicaid’s current framework sounds like a generous deal for states, Medicaid’s funding formula incentivizes policymakers to expand the program at the expense of core state government functions. A report by the Mercatus Center shows that as Medicaid’s share of state budgets grow, state spending on roads, schools, and public colleges shrink.
Medicaid’s structure also hurts its beneficiaries. Because Medicaid operates as a joint state-federal “partnership,” Washington bars reformers from making meaningful changes without going through a lengthy and restrictive approval process. This forces states to control costs the only way they can: paying doctors less.
States have cut Medicaid’s reimbursement so low that many providers simply refuse to treat its beneficiaries. According to a report in the Journal of Health Affairs, one-third of America’s physicians no longer accept patients on Medicaid.
Block Grants Have a Good Track Record
Block grants promise to break Medicaid’s vicious cycle of rising costs and declining care. Spendthrift politicians would no longer be able to expand Medicaid and expect the federal government to foot the bill. But state-level reformers will enjoy greater authority to streamline and improve the program.
Block grants have a long track record of helping states more effectively manage government programs. The welfare program, formerly known as Aid to Families to Dependent Children, or AFDC, used to be an open-ended program like Medicaid. As with Medicaid, its open-ended framework encouraged states to sign-up as many people as possible to draw down more money from national taxpayers.
This changed in 1996 when Congress and President Clinton turned the program into a block grant called Temporary Assistance for Needy Families, or TANF. Under TANF’s flexible framework, states introduced a variety of reforms that helped individuals and families escape poverty and enter employment. According to a study by the Manhattan Institute, block-granting welfare reduced the child poverty rate by two-thirds.
In the final days of George W. Bush’s presidential administration, his Department of Health and Human Services granted Rhode Island a “global waiver” to revamp their Medicaid program. The Ocean State used its new flexibility to direct elderly patients away from expensive and impersonal nursing facilities and into more affordable home and community-based settings for their long-term care. They also enrolled beneficiaries in private, managed-care plans that connected them with cost-effective providers. These and other changes helped Rhode Island taxpayers save an estimated $100 million last year.
President Obama’s administration repeatedly blocked other states from trying these patient-centered measures. Now states finally have the chance to adopt innovative reforms and deliver quality health care to poor and vulnerable patients.