Much of the public discussion about health care and health insurance reform abounds with misinformation. Medicaid, in particular, has become a political tool, with daily posts and articles about reforms to the program that distort the record for political gain. But there is little mention of the need to empower governors to take ownership of the program.
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Obamacare’s second biggest flaw is that even as it upended the half-century long consensus over who should be in Medicaid, the law inexplicably left intact a feature of Medicaid that we have known for decades fuels excess spending: its open-ended matching rate.
So long as states put up a dollar to fund Medicaid, Uncle Sam is obliged to match it with anywhere from $1 to $3 federal dollars depending on that state’s unique matching rate. It has been proven empirically that this formula fuels higher spending. An analysis by Thad Kousser at UC Berkeley showed that all other things being equal, shifting a state from the lowest to highest federal matching rate increases discretionary Medicaid expenditures by 22 percent.
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It’s been just over seven years since President Obama declared: “It is not sufficient for us simply to add more people to Medicare or Medicaid to increase the rolls, to increase coverage in the absence of cost controls and reform. Another way of putting it is we can’t simply put more people into a broken system that doesn’t work” [emphasis added].
Regrettably, the law he signed less than 10 months later fell far short of the president’s own benchmark as it relates to Medicaid. Not only did the ACA fail to impose any cost controls on Medicaid, it likewise contained no reforms to reverse or even corral the perverse incentives that for decades had simultaneously led to indefensible levels of Medicaid overspending even while creating enormous problems of access to the very people the program aimed to help. Instead, it amplified those incentives, making an already-bad situation even worse.
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Section 1332 of the ACA permits states to submit simultaneous and combined “superwaivers” for Medicaid and for provisions of the ACA itself. These superwaivers could make it easier for states proposing plausible ways to allow states that serve Medicaid beneficiaries more efficiently to reprogram federal and state savings into health programs for non-Medicaid eligible households. For households with working, nondisabled adults, it should also be made easier for states to pool their federal and state funds for Medicaid, the Children’s Health Insurance Program (CHIP), the ACA, and other programs to deliver coverage through private plans in the ACA exchanges. It is also time to allow states more flexibility in using Medicaid and other health care funds to invest in the social determinants of health—items such as adequate housing, school-based social services, improved lifestyles, and safer household environments, which can contribute to improved health and reduced medical costs.
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Reforming Medicaid does not have to be an all-or-nothing approach, where millions of people are thrown off of the program to reduce the budget. The states, which administer Medicaid, are closest to the problem and also are in the best position to develop solutions for Medicaid. With leeway to innovate and the pressure to achieve savings, the circumstances are ideal for change.
Since the program’s inception, the federal government has had regulations in place that mandate certain services be provided and that also set rules around eligibility. Those states seeking to innovate have had to secure a waiver from those rules.
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From the earliest days of Obamacare, a great many Democrats and others on the left have wanted a “public option.” At least one plan offered in the Obamacare exchanges should be a government plan, they proclaimed. The state of Nevada may make that wish a reality, if the governor signs a bill just passed by the legislature – allowing everyone who resides there to buy into the state’s Medicaid program.
Why does the left like this idea? Because they are ideologically committed to the propositions that when it comes to health care (1) non-profit is always better than for-profit and (2) public is always better than private.
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We can estimate the impact of the AHCA per-capita cap on the pre-Obamacare Medicaid population by using data from CMS, which expects that the federal government will spend approximately $6.7 trillion on the legacy Medicaid program from 2017 to 2026. If we apply CBO’s estimate of future medical inflation to the AHCA, we get to a spending reduction of $107 billion from 2017 to 2026. $107 billion represents 13% of the CBO’s estimate of the AHCA’s Medicaid spending cuts. More importantly, it represents a paltry 1.6% of total federal spending on the legacy Medicaid program over that time frame.
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Most people agree that Medicaid should help the poor, particularly those whose poverty is related to their age and disability. However, the Affordable Care Act requires the federal government to pay a much greater share of the medical bills for nondisabled, nonpregnant adults than it does for elderly individuals, people with disabilities, children, and pregnant women.
The share of state Medicaid spending paid for by the federal government—known as the Federal Medical Assistance Percentage, or FMAP—had remained relatively unchanged throughout the program’s history until Congress and the executive branch changed that share, providing a strong incentive for states to expand Medicaid coverage to this new population of nondisabled, nonpregnant adults.
The new FMAP formula and expansions created two significant problems:
- The federal government rewards states much more generously for providing services to individuals who fit the new criteria than to individuals who arguably are more in need of assistance
- The Medicaid expansion overlooks differences among states in their capacity to fund services for this new population, benefiting states with high per capita income at the expense of low-income states.
As it considers repeal and replace legislation, Congress should reexamine this arrangement. Congress should seek to devise a Medicaid financing structure that treats eligible populations equitably and recognizes the differences in fiscal capacity among states.
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Senate Republicans are struggling to agree on health reform, and the biggest divide concerns Medicaid. The problem is that too many seem to accept the liberal line that reform inevitably means kicking Americans off government coverage.
This narrative serves the liberal goal of scaring the public to preserve ObamaCare, but center-right and even liberal states have spent more than a decade improving a program originally meant for poor women and children and the disabled. Even as ObamaCare changed Medicaid and exploded enrollment, these reforms are working, and the House bill is designed to encourage other states to follow.
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President Trump’s recent 2018 budget proposal, which includes roughly $800 billion in cuts to Medicaid over the next decade, has led to howls of outrage from Democrats.
Medicaid’s defenders claim that it’s a bargain for patients and taxpayers alike. As Sen. Schumer put it, “Medicaid has always benefitted the poor. That’s a good thing.” A recent issue brief from the Kaiser Family Foundation, meanwhile, concludes, “Medicaid is cost-effective.”
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