Spending on the two big health entitlement programs—Medicare and Medicaid—poses the threat of a fiscal meltdown if Washington does not act to contain their costs. Medicaid, the federal-state partnership to provide health care for the poor and disabled, is also a main driver of growing state budget shortfalls. According to the National Governors Association, the states collectively face $175 billion in deficits through 2013. Meanwhile, the program presents severe access barriers to care for its beneficiaries, resulting in low-quality coverage.
If successful Medicaid reform is to occur, the first thing Washington must do is get out of the way so that states can manage their respective programs for the beneficiaries they serve and the taxpayers who fund them. In recent years, Congress has done the opposite, enacting policies that further tie the hands of state legislatures. To reverse this trend, members from both houses of Congress yesterday introduced the 2011 State Flexibility Act.
The State Flexibility Act would repeal the maintenance of effort requirements barring states from innovating within Medicaid. Under the 2009 stimulus bill, states are required to maintain eligibility standards, methodologies, and procedures through the end of June 2011. Obamacare extended this, requiring states to maintain Medicaid as is through 2013. Under Washington’s requirements, states would lose federal Medicaid funding completely if they restricted eligibility, regardless of the effects on state budgets.
Meanwhile, as Heritage experts Ed Haislmaier and Brian Blase write, “The bad news for states is that this federal mandate comes in the midst of their worst fiscal situation in decades. Because Medicaid is one of the largest items in any state budget, it is also one of the first places where governors and legislators look for savings when they need to trim spending to bring state budgets back into balance.” Instead of transforming Medicaid to both contain costs and improve the program, the only methods left for state legislators to rein in spending are: further ratcheting down provider payments and benefits, raising taxes, or cutting funding for other state priorities such as education. The negative consequences of these actions, which Blase highlights, are profound.
Though Health and Human Services Secretary Kathleen Sebelius has acknowledged the need for greater state flexibility to reform Medicaid, the agency’s proposals in response have not gone far enough. By removing the onerous federal maintenance of effort requirements, the State Flexibility Act would give states the ability to manage their Medicaid programs, especially during fiscally difficult times.
As Heritage expert Nina Owcharenko writes, “States should demand not only an elimination of the maintenance of effort requirements but also additional flexibility in eligibility, benefits, cost sharing, and overall administration and management.” Successfully reforming Medicaid will require that Congress go further to end the program’s unsustainable growth and give states additional flexibility.