Since the spring, Congress has debated a White House proposal to trim $10 billion from Medicaid over five years. But Medicaid needs more than a light trimming; it needs a comprehensive re-thinking. The program is draining the treasuries of statesNew York spends more than $40 billion a year on the programand the federal government alike. Lawmakers in Washington should lead by allowing states to innovate. Welfare reform provides a model.
There are two problems with Medicaid now. First, it divorces recipients from the financial consequences of their actions, since there are no co-pays or deductibles of consequence. As a result, Medicaid expenditures are spiraling up. The program will exceed $300 billion this year, and is projected to cost more than double that annually in just seven years. Despite the use of price controls and restrictions on pharmaceuticals, Medicaid costs more for a family in states like New York and Maryland than private insurance.
Second, Medicaid is shared between the federal and state governments, and thus belongs to neither. Because no one really owns it, it's sloppily run. Long-term care rules are so loose that having an expensive caror two or threewouldn't disqualify a person from assistance. An audit in Tennessee discovered that tens of thousands of enrollees didn't even live in the state (several had addresses in Hawaii). Until this January, New York Medicaid covered Viagra for prisoners, including pedophiles.
Fortunately, some states are trying new approaches. Just as Wisconsin led the way on welfare reform, these three states may become synonymous one day with Medicaid reform.
Colorado has started Consumer-Directed Attendant Support, or CDAS, to give severely disabled Medicaid recipients more control over their care, literally putting them in charge of their own health dollars. Participants are able to hire and fire their own caregivers, and use money for life-enhancing equipment. Patient satisfaction is high, as is quality of carebut not costs. Whereas Medicaid state budgets skyrocket, CDAS spending is 20% under budget. "Choice works," declares Governor Bill Owens. In 2006, tens of thousands of Colorado's non-disabled Medicaid recipients will be eligible for an expanded version of CDAS. And more than half the states are experimenting with similar initiatives.
Faced with rising Medicaid spendingup 13% annually for the past six yearsthe governor of Florida, Jeb Bush, proposes to get his state out of the business of micromanaging Medicaid. Under his plan, those eligible for Medicaid would qualify for a set, need-based amount of money (an AIDS patient, say, receiving more funding than a healthy young woman). With this money, recipients select a plan from a menu of competing insurance company offerings. For those who select a less comprehensive insurance (at a lower premium), part of the money saved goes to a flexible spending account for out-of-pocket medical expenses.
The governor of South Carolina, Mark Sanford, envisions a reform under which most Medicaid recipients would receive a debit card for health servicesand the choice and empowerment that go with it. Under the governor's proposal, if a managed care plan costs $2,000 for a typical family, the money could be converted into a modified health savings account-style plan, with a high-deductible policy for the family (perhaps at about $1,200) and the remaining money placed in a personal health account.
But Washington stands in the way of these bold initiatives. Because of its peculiar statefederal design, Medicaid's rules mean that if a state innovates and saves money, most of those unspent dollars go back to Washington. Many states therefore look to contain costs through price controls and bureaucratic fiats.
Since President Reagan, Republican administrations have sought to address this by converting Medicaid to block grants (an idea that, in 1982, won bipartisan support). The Bush administration has briefly floated the idea, offering states the freedom to experiment and keep any saved money, but with a reduction in federal funding. Yet even fiscally conservative Republican governors hesitated, sensing a poisoned chalice.
Now Washington is on the verge of the worst of both worldslimited reform and higher costs to the treasury. The White House should act and act quickly. Medicaid should be converted to block grants with the bonus of new funding for a decade to come.Some will charge that such a plan will end Medicaid as we know it. But Linda Storey, who has battled multiple sclerosis for 35 years, would probably be in favor of just that.An early enrollee in Colorado's CDAS, she commented recently to the Wall Street Journal: "It gives you your life back. I'm in control of my health now."
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