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June 7 2017

Federalism at Work: States Reforming Medicaid

by Charlotte Hays

One of the reasons repealing and replacing ObamaCare is so difficult is the idea that it involves kicking poor people off government health policies. Democrats use this to prevent reform, and Republicans fall for it because they are afraid to be made to look heartless.

But there is a flaw in the narrative. The Wall Street Journal this morning has an editorial showing that several states have been reforming Medicaid for a decade, and these state-level reforms are actually working.  The House bill would encourage these states to move forward with reform.

The editorial notes:

The modern era of Medicaid reform began in 2007, when Governor Mitch Daniels signed the Healthy Indiana Plan that introduced consumer-directed insurance options, including Health Savings Accounts (HSAs). Two years later, Rhode Island Governor Donald Carcieri applied for a Medicaid block grant that gives states a fixed sum of money in return for Washington’s regulatory forbearance. Both programs were designed to improve the incentives to manage costs and increase upward mobility so fewer people need Medicaid.

Over the first three years, the Rhode Island waiver saved some $100 million in local funds and overall spending fell about $3 billion below the $12 billion cap. The fixed federal spending limit encouraged the state to innovate, such as reducing hospital admissions for chronic diseases or transitioning the frail elderly to community care from nursing homes.

The waiver has continued to pay dividends under Democratic Governor Gina Raimondo. Despite joining ObamaCare’s Medicaid expansion, Rhode Island has held “per member, per month” spending—the category of block grant adopted by the House—to a minus-0.5% trend over the last five years without cutting eligibility or services. Notably, that measure excludes patients added under Medicaid’s ObamaCare expansion, who tend to be healthier and thus require less spending than the typical enrollee. Overall per member, per month costs are falling 2.5% a year.

As governor of Indiana, Vice President Mike Pence also reformed Medicaid under the direction of was Seema Verma, now the national administrator of Medicaid. But were their reforms cruel and heartless?

Their insight was that able-bodied, working-age adults living near the poverty line need a different type of coverage than do Medicaid’s most vulnerable beneficiaries.

In other words, potential workers with earning capacity are better served by a temporary safety net than by a permanent open-ended entitlement. HIP 2.0 familiarizes members with basic commercial insurance practices like paying a monthly premium. To enroll in plans with a $2,500 deductible and better benefits and quality than basic Medicaid, like dental coverage, they are required to pay 2% of income to an HSA. The first $2,500 is picked up by the state, the money rolls over, and unused consumer contributions are refunded pro rata when they leave HIP 2.0.

These are promising developments. But it remains to be seen: Can supporters of such reform make themselves heard above the Democrats' cries that they are cruel and hate the poor?

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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