Fundamental Reform of Medicaid Will Require a Return of Authority to States

President-elect Trump and his Health and Human Services Secretary nominee Tom Price will bring new leadership and opportunity to enact fundamental reforms to healthcare in the United States. Governors and state legislators are nearly unified in their request for the adoption of a block grant system for the Medicaid program, which will allow for maximum flexibility in the design and implementation of a program that provides care to our most vulnerable populations. These reforms are desperately needed, as the Medicaid program hasn’t experienced any meaningful reforms since its inception over 50 years ago.

First instituted in 1965, Medicaid is a jointly run federal and state program originally designed as a safety net for the disabled, blind, pregnant women, children and the elderly living in poverty. The program has since ballooned into the largest expenditure in state budgets across the country. According to the National Association of State Budget Officers, the average percentage of Medicaid spending has increased from 20.5 percent in 2008, to 29 percent[i] in fiscal year 2016. With Medicaid increasing its share, spending for other line items such as education, transportation and infrastructure are destined to be determined after costs from each states Medicaid program have been reconciled.

One reason for the significant increase in Medicaid spending is due to perverse incentives states have to retain beneficiaries. Whether states receive funding based on the number of enrollments and/or volume of care received, the program’s reimbursement model does not incentivize states to reduce Medicaid’s growth trajectory. Another obvious source of the growth can be attributed to Obamacare’s massive expansion of the Medicaid program, allowing able-bodied adults who fall under 138 percent of the federal poverty level to be eligible for coverage. In fiscal year 2016, total spending on Medicaid rose to $558.3 billion, an increase of 6.9 percent in just one year[ii].

Even more troubling are the recent findings of a randomized controlled study of Medicaid beneficiaries conducted in Oregon. The Oregon Medicaid Experiment found there was greater healthcare utilization by beneficiaries, however there was no statistically significant effect on measures of blood pressure, cholesterol, or blood sugar or on the diagnosis of, or medication for, blood pressure issues or high cholesterol[iii].

To reverse dismal health findings and put the Medicaid program on a financially sustainable path, leadership in Congress and by President-elect Trump should give states increased budget predictability by transitioning Medicaid into a federal block grant, while also allowing for expedited waiver authority that will allow for greater flexibility in the design of their programs. Expediting the Medicaid waiver process will allow states to pursue innovative service delivery systems they believe will improve care, increase efficiency and/or reduce costs. With performance measures and reporting requirements in place to ensure the most vulnerable populations receive healthcare, states can fulfill objectives required by federal law while continuously seeking increased efficiencies in the operation of their programs.

Representative Tom Price’s nomination as the next Secretary of the Department of Health and Human Services is uniquely positioned to grant states maximum flexibility in modernizing their programs through the use of a federal block grant. Formerly an orthopedic surgeon, Representative Price serves as the powerful House Budget Committee Chairman and is in favor of the block grant reform model. He has also introduced his own detailed plan to replace Obamacare, one that would give beneficiaries the choice to opt-out of Medicaid and receive a tax credit so they may purchase private insurance in the individual market. For low-income Americans, this proposal could create a bridge to portable, private insurance by providing them necessary funds to choose their health plan and doctor, and allowing greater competition and choice for everyone.

Returning power to the states will encourage program innovations for state governments, and allow for their original role as ‘laboratories of democracy’ to flourish within an entitlement program in desperate need of solvency.

Mia Heck is the Director of Health and Human Services policy at the American Legislative Exchange Council.

[i] National Association of State Budget Officers State Expenditure Report Summary 2014 – 2016

[ii] National Association of State Budget Officers State Expenditure Report Summary 2014 – 2016

[iii] Health Affairs Health Policy Brief: The Oregon Health Insurance Experiment, July 16, 2015