Medicaid Reform — A New Race to the Top

Last month, the National Governors Association released a set of policy recommendations to reform Medicaid. This latest package of reform proposals differed significantly from previous governors’ recommendations since the focus was not only on making the Medicaid program more efficient, but also on slowing the growth rate of Medicaid eligible populations.

With 53 million individuals currently on Medicaid, the costs to federal and state governments continue to rise as the Medicaid rolls continue to swell. Last year, Medicaid cost federal and state governments $330 billion alone. Medicaid is now larger than Medicare in both the number of eligibles and total public costs, and it is growing more rapidly.

The Medicaid caseload grew 40 percent over the last five years due to two major trends. First, America is aging as populations over the age of 65 and particularly 85 are growing rapidly. Second, employers continue to reduce employer-paid health care, particularly for individuals 200 percent and below the poverty line. To slow the runaway growth in caseload, governors recommended several policies, most notably several tax credits for long-term care insurance, small employers and low-income individuals without employer paid health benefits.

At the same time, governors recommended several smaller more incremental changes to streamline the Medicaid program. Two proposals would assist states attain lower prices for pharmaceuticals and limit the ability of the elderly to transfer their assets so they can become Medicaid eligible when they enter long-term care facilities.

Governors also put on the table two other potential changes. First, a state could establish cost sharing for certain populations. Essentially, this would allow the state to charge co-payments similar to what is currently done for children’s health programs like the SCHIP program, which is capped at 5 percent of total family income. Second, for the non-elderly, non-disabled populations states could adopt the children’s health benefit, which is benchmarked by state to the basic Blue Cross or state employee benefit.

The response from some health care groups to the governors’ common sense recommendations was surprising to say the least. While changes in drug prices paid by states received broad support, the limits on asset transfers reception was noticeably mixed. Opposition to cost sharing and benefit changes was not only vociferous; it was full of unnecessarily hyperbolic rhetoric. “You cannot trust the states,” some indicated. “It will be a race to the bottom,” others stated.

As Yogi Berra once said, “This is like déjà vu, all over again.” We’ve seen and heard these same comments and exaggerations during the welfare reform debate in 1995 and 1996 in Washington. At that time, with the support of the nation’s governors, Congress eliminated the entitlement and block granted the funds to the states with significant state discretion in determining benefits.

Despite dire warnings to the contrary, there was not a “race to the bottom.” In fact, states worked hard to convert the welfare program to a work program and very few states reduced benefits. Today, few can argue that the welfare system isn’t stronger than it was more than a decade ago. That is why it is very difficult to understand why some people have more faith in the federal government than they do in the states that administer the programs. Both represent the same constituents and both must balance the costs and benefits of various programs.

Governors put forth these Medicaid recommendations for several important reasons. First, Medicaid, as currently designed, is not sustainable and therefore it is necessary to start making incremental changes. Second, co-payments can be targeted on over utilization of health care services like the third time an individual goes to the emergency room for non-emergency services. It is important for states to have the ability to experiment with this option to reduce the utilization of inappropriate care. Similarly, it is imperative for states to have more flexibility in the benefit package in their efforts to tailor it more to the needs of the eligible population. While it is true these changes could represent small reductions in potential benefits, when it is compared to the fact that 45 million individuals in the United States have no health insurance, it is very small.

The time for rhetoric is over. The time for action is now. Congress should enact the changes sought by the nation’s governors. History shows governors were correct in 1994 when they asked for more discretion in the welfare program. There was not a race to the bottom to see who could cut benefits more drastically. Quite the contrary, actually. It was a race to the top in terms of which states could show the highest rate of job placement and the highest income in wages.

The end result for Medicaid may be a more tailored benefit package for some populations with cost sharing on services that are being over utilized. This could generate savings for both the federal and state governments that could be used to expand coverage to other low-income individuals.

Let’s trust the states, again. There will be no race to the bottom if we enact these Medicaid reforms just as there was no race to the bottom with welfare reform a decade ago. In fact, states may create a new race to the top in terms of health outcomes of their citizens.

Raymond C. Scheppach, Ph.D., is the executive director of the National Governors Association. The views expressed here are those of the author and do not necessarily represent those of the National Governors Association.