President Bush's fiscal year 2008 budget for Medicaid and the
State Children's Health Insurance Program (SCHIP) builds on the
Medicaid reforms in the Deficit Reduction Act of 2005 and
recommends the reauthorization of SCHIP. The President's budget
presents Congress with a guide to reforming and improving both
SCHIP, which is the joint federal and state program for low income
children, and Medicaid, the large and growing health care
entitlement program for the poor and the indigent. It points toward
a sound direction in health policy for both programs.
The President's proposal for Medicaid builds on the success of
the Deficit Reduction Act of 2005. The President proposes to reform
Medicaid's reimbursement system, including pharmacy reimbursements;
redefine the home equity limits for Medicaid eligibility; and make
other programmatic changes. In addition, the President would change
several regulations through the normal administrative process.
These changes would save $25.7 billion over the next five years.
From a fiscal standpoint, the changes would slow the average annual
growth of Medicaid from 7.3 percent to 7.1 percent over the next
five years. This is a modest, but important, step that keeps with
the goal of regaining fiscal control over this program by slowing
its rate of growth.
The President's budget plan provides Congress with a roadmap to
improve the fiscal stability of Medicaid and the overall structure
of the program. It would make Medicaid more efficient and address
the needs of those with the lowest incomes. Like other massive
government entitlements, Medicaid's financial future is
unsustainable at both the federal and state level. Congress, as
well as state legislatures, must adopt changes that would set the
program on a manageable budgetary glide path.
While the President's plan focuses primarily on promoting
greater efficiency within the existing administration of the
program, federal and state policymakers should consider other
changes that are consistent with empowering beneficiaries. For
example, moving toward a defined-contribution model would allow
lower-income families to use existing Medicaid funds to purchase
private health insurance and help mainstream them into the market
that serves the vast majority of their fellow Americans. Only in the private market does
consumer demand spur innovation and improve the quality of
care-especially when consumers exercise direct control over the
flow of dollars in the system.
State Children's Health Insurance Plan
The President's SCHIP proposal recommends reauthorizing the
program for 5 years and $5 billion to maintain current enrollment
levels for low-income children. The President also proposes to
refocus the SCHIP program on low-income uninsured children
below 200 percent of the federal poverty level and targeting
federal dollars to those states with populations most in need.
Unlike some alternative proposals with much heftier price tags
for taxpayers, the President's plan would take a fiscally prudent
approach to funding. It would, as noted, prioritize appropriations
to those states with populations most in need. In addition to these
efforts, federal and state lawmakers should also make policy
changes to improve SCHIP. In particular, they should take decisive
steps to expand competition and increase private coverage
The President's budget for Medicaid and SCHIP provides
policymakers with a rational and positive roadmap for the future
for these programs. The challenge for policymakers is to take these
recommendations and improve upon them. They can do that by
integrating greater personal choice and control over the flow of
health care dollars in these programs and requiring providers and
plans to compete directly for these dollars. Increased choice and
serious market competition would rejuvenate the care and improve
the quality of service delivered in these government-run health
Owcharenko is Senior Policy Analyst for Health Care in the
Center for Health Policy Studies at The Heritage Foundation.
Department of Health and Human Services, "Budget in Brief,"
February 05, 2007, pp. 58-63, at .