Don't Provide Medicaid Relief Without Demanding Reform

Talk about a helpful prognosis: Cash-strapped states may well get some help from the federal government in meeting their Medicaid budgets.

Washington shares the cost of the $350 billion program with states and local governments — funding, on average, about 57 percent of Medicaid. Congress is considering a temporary boost to its share. But is this the right prescription? A closer look suggests that lawmakers should seek a second opinion.

They’ve provided a temporary boost before, as recently as 2003, and few members will want to say “no” in an election year. But states are in a different situation now. They’re better equipped to handle their Medicaid problems, because the Deficit Reduction Act of 2005 (DRA) gave states broad new authority to change the old dynamics.

Prior to the DRA, states had only three options to slow Medicaid spending: cut provider rates, reduce benefits, or decrease eligibility. The DRA provided states with new authority to reorganize their Medicaid programs with flexibility in benefits, appropriate cost-sharing, and a shift in long-term care decision-making from institutions to people.

Before writing another check, Congress should consider how states have used (or ignored) the tools they’ve been given. Rather than sending money, send more reform. Currently, the highest cost populations cannot be put into managed care without a federal waiver. Give states the authority to utilize managed care all populations.. States that have done so have improved the quality of care and saved money for themselves and the federal government. It also should include safeguards to ensure that states can’t “game” the system to bring in even more federal dollars.

Lawmakers should highlight states that have made positive changes. Take Tennessee, where Gov. Phil Bredesen (D) and state legislators deserve credit for confronting the tough but necessary decisions to reform TennCare. They didn’t just ask for a federal bailout — they achieved real reform despite legal challenges. Meanwhile other states argued for taxpayer assistance to support the lowest-income people on Medicaid, even as they expanded public programs to wealthier citizens.

Elected officials in neighboring Missouri made similarly painful decisions to reform their Medicaid program. Kentucky, too, used the tools of Deficit Reduction Act to adopt innovative solutions to its Medicaid problems. “If we put our fiscal house in order,” these states could rightfully ask, “why should we expect less from others?” Relief without reform would be like putting carpeting over a rotting floor.

When the Bush administration worked with California and New York to stabilize financing of hospitals, the states agreed to some tough medicine, with measurable benchmarks tying money to performance. Telling Massachusetts that “business as usual” was no longer acceptable, the administration helped to trigger the events that led to a reform plan that attracted national attention. On a bipartisan basis, Bay State officials accepted the challenge of reform rather just demanding more money to keep doing the same thing.

If Congress is determined to increase funding across the board, then it should also re-examine the special considerations given to individual states over the years. Federal law provides unique financing arrangements, including special direct payments for certain states. Collectively, these special arrangements and disputes are worth billions of dollars — funds that could be used to pay for the cost of the temporary payment.

Another way to pay for relief should be to re-examine whether the federal share is appropriate. Why, for example, does Washington provide a match rate as high as 90 percent for certain medical services compared to the national average of 57 percent? And when a state lags behind in shifting funds from higher cost institution-based care to individual and community-based care, it is, in essence, wasting federal dollars. Should Congress treat such a state the same as one that is saving tax dollars through innovation?

Congress should also consider some standard of “need.” How does a member from a “poor” state explain to his or her constituents that more money should be sent to a “wealthier” state that continues to expand public assistance? If that state has the money to expand, why does it need more money for its existing Medicaid program?

And why should a state bother to reform its Medicaid programs if it knows the federal government will hide its problem by simply sending more money?

Medicaid is designed as a partnership. Relief without reform would make the federal government the weaker partner and invite further demands on the Treasury. It also would spark tensions and jealousies between the states. This is one misdiagnosis we can’t afford.

Dennis G. Smith, former director of the federal Center for Medicaid and State Operations, is a senior fellow in health care reform at The Heritage Foundation’s Center for Health Policy Studies (