Congress needs to get serious about Medicaid. To borrow a
medical analogy: If a state is the patient, and Congress is its
doctor, giving states a temporary increase in the Federal Medical
Assistance Percentage (FMAP) to treat the problems associated with
Medicaid is malpractice. Medicaid needs surgery, and increasing the
FMAP is like giving it two aspirins instead. The temporary relief
is not a cure and will actually make things worse for the program
and states when it wears off.
The states and the federal government share the cost of the $350
billion Medicaid program. The FMAP formula gives states no less
than 50 cents of each dollar spent, and in Fiscal Year 2009, as
much as 76 cents. Each state's FMAP is based on its per capita
income relative to the nation. In other words, the poorer a state
is, the higher the federal share of Medicaid expenses. The FMAP is
recalculated every year and typically results in a slight increase
or decrease in the federal share. If the per capita income in the
state relative to the rest of the nation rises, the FMAP declines
(but to no less than 50 percent).
Rising Costs
Congress has quietly added a provision to the economic stimulus
package that would have the federal government pay a greater share
of Medicaid for every state for a temporary period. Even states
that have significant budget surpluses will benefit in order to
give something to everyone. But the temporary relief may actually
make it harder on states in the long term.
Let us assume that the total cost of Medicaid in a state is $6
billion and the federal share is 60 percent, leaving 40 percent of
the cost to the state ($3.6 billion paid by the federal government,
$2.4 billion by the state). Under the new provision, Congress
provides a temporary increase in the federal share of four
percentage points. In our example, that translates to an increase
in the federal share to $3.84 billion and a decline in the state
share to $2.16 billion. Let us assume in our example that the state
does nothing to reform its Medicaid program in the following year
and the total cost has increased by 8 percent and is now $6.48
billion. However, the state share increased, because the FMAP is
calculated over a three-year period, during which the state became
wealthier compared to the rest of the nation. Thus, the state share
is no longer 36 percent nor even the original 40 percent but now 41
percent, or $2.657 billion--an increase of nearly $500 million
above $2.16 billion in FY 2009 state spending. The state will have
to increase spending by 23 percent from FY 2009 (instead of the 8
percent in program costs) to keep total spending at the same
level.
Congress has 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 are 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.
New Flexibility
Prior to the DRA, states had only three options to slow Medicaid
spending: (1) cut provider rates, (2) reduce benefits, or (3)
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, they should send more reform. Currently, the
highest cost populations cannot be put into managed care without a
federal waiver. States should have the authority to use managed
care for all populations. States that have done so have improved
the quality of care and saved money for themselves and the federal
government. It should also include safeguards to ensure that states
cannot "game" the system to bring in even more federal dollars.
There is precedence for this kind of action. When the Bush
Administration worked with California and New York to stabilize
financing of hospitals, the states agreed to measurable benchmarks
tying money to performance. Telling Massachusetts that "business as
usual" was no longer acceptable, the Administration helped to
trigger a reform plan that attracted national attention. On a
bipartisan basis, Massachusetts officials accepted the challenge of
reform rather than just demanding more money to keep doing the same
thing.
If Congress is determined to increase funding across the board,
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?
The Case for Need
Congress should also consider some standard of "need." How does
a congressman 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 another congressional
misdiagnosis taxpayers cannot afford.
Dennis G. Smith, former
director of the federal Center for Medicaid and State Operations,
is Senior Fellow in the Center for Health Policy Studies at The
Heritage Foundati