Medicaid reform offers more compassionate options for the poor

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Financing for Medicaid, the national entitlement program providing health care for the poor, is shared with the states under a federal formula, with the federal government paying about 60 percent of the total costs. Under President Barack Obama, provided with a rocket boost from Obamacare, spending on Medicaid is exploding.

Total future costs to state governments are estimated to exceed the costs incurred by the federal government by an additional 66 percent. The National Association of State Budget Officers reports that more taxpayer money is spent on Medicaid than anything else, including public education.

As Medicaid consumes larger portions of state budgets while delivering declining quality of care, the need for solid reforms is becoming apparent to policymakers across the nation.

Not Compassionate

Despite astronomical spending, the Medicaid program only pays the doctors and hospitals actually providing the care 60 cents for each dollar of incurred healthcare costs. As a result, the poor on Medicaid face grave difficulties in obtaining timely and essential health care, suffering worse health outcomes as a result.

Contrary to rhetoric from supporters, Medicaid is far from compassionate. Writing in the Wall Street Journal,New York University School of Medicine Clinical Assistant Professor Scott Gottlieb, M.D. notes that ???in some states, they???ve cut reimbursements to providers so low that beneficiaries can???t find doctors willing to accept Medicaid.???

???Dozens of recent medical studies show that Medicaid patients suffer for it,??? Gottlieb writes. ???In some cases, they???d do just as well without health insurance.???

However, this tragic problem can be solved completely, by applying lessons from the enormously successful 1996 reforms to the Aid to Families with Dependent Children (AFDC) program to Medicaid. As with the reforms to AFDC, each state would be granted broad discretion to redesign its Medicaid program to best serve the poor of its state.

Help Out, Not Handout

By reforming the old AFDC system, two-thirds of those formerly dependent on AFDC were successfully helped off of government dependence, resulting in a 25 percent increase in former dependents??? financial well-being. Since the program was quantifiably helping people back onto their feet, the program???s costs declined by 50 percent.

Moreover, the federal financing for Medicaid would again be provided in the form of a fixed, finite block grant. That financing would consequently no longer vary in proportion to the state???s spending on the program, effectively paying each state to spend more on Medicaid.

If a state???s redesigned Medicaid program began to cost more than the value of the federal block grant, the state would bear all of those overages. Conversely, if a state???s new Medicaid program spent less than the allotted block-grant money, the state would be allowed to pocket the difference, encouraging efficiency.

Similar block grant Medicaid reforms, proposed by United States House of Representatives Budget Committee Chairman Paul Ryan (R-WI), were ???scored??? by the non-partisan Congressional Budget Office, as potentially saving nearly $1 trillion over 10 years.

More aggressive proposals include the State Health Flexibility Act, cosponsored by Representatives Todd Rokita (R-IN), Tim Huelskamp (R-KS), Paul Broun (R-GA), and Jim Jordan (R-OH). Due to the stricter limits on federal Medicaid funding included in their proposal, CBO scores it as saving nearly $2 trillion over 10 years.

Consumers in Charge

Ideally, states would reform their Medicaid programs by providing vouchers to the impoverished, to help pay for the private health insurance of their choice in the marketplace. Among those choices would be Health Savings Accounts (HSAs), which maximize consumers??? choice over their own health care and maximize consumers??? control ??? rather than insurance company???s control, over the funds.

Such HSAs, backed up with catastrophic health insurance, provide powerful, proven-effective incentives for consumers themselves to decide how to reduce costs to preserve maximum funds for the future.

Such health insurance vouchers would free the poor from the ???Medicaid ghetto,??? enabling them to obtain the same quality of health care as the middle class, because they would be able to buy the same health insurance in the same market. Market competition forces private insurers to pay doctors and hospitals sufficiently to assure that those covered by their insurance can obtain timely and effective health care.

However, the road to enacting Medicaid block grant bills starts with repealing the expansion of Medicaid under Obamacare, enacting the ???repeal and replacement??? of Obamacare. Under the Medicaid block grants, states would then each be free to expand the program as much as they want, given state governments??? realization that they alone are responsible for funding such program growth.

Peter Ferrara ( is a Senior Fellow for entitlement and budget policy at The Heartland Institute.