Plan Would Trade Medicaid Funds For Flexibility

Mississippi Gov. Haley Barbour, seen here in April, is among governors who say they would be willing to accept caps on the growth of Medicaid funding in exchange for more control. i i

Mississippi Gov. Haley Barbour, seen here in April, is among governors who say they would be willing to accept caps on the growth of Medicaid funding in exchange for more control. Susan Walsh/AP hide caption

itoggle caption Susan Walsh/AP
Mississippi Gov. Haley Barbour, seen here in April, is among governors who say they would be willing to accept caps on the growth of Medicaid funding in exchange for more control.

Mississippi Gov. Haley Barbour, seen here in April, is among governors who say they would be willing to accept caps on the growth of Medicaid funding in exchange for more control.

Susan Walsh/AP

Most of the debate about the budget plan passed by House Republicans last month centers on the dramatic changes it would make to the Medicare health program for seniors. But the proposal calls for potentially even bigger changes to the Medicaid program for the poor.

Medicaid actually covers more people than Medicare. In 2010, according to the most recent estimates from the Department of Health and Human Services, Medicaid covered 53.9 million people, compared with Medicare's 47.3 million.

Medicaid's patients are also among the most vulnerable in society.

"Kids [and] pregnant women are the vast majority," says Health and Human Services Secretary Kathleen Sebelius. "But then older seniors, many of whom are in nursing homes ... and very disabled individuals" are also among those on Medicaid's rolls.

And those latter categories consume a lot of very expensive health care.

Currently, states and the federal government share the cost of Medicaid, with the federal government paying about two-thirds and the states one third. That varies by state, however. For wealthy states, the costs are shared 50-50.

What really makes governors chafe, however, isn't so much the money. It's the rules that come with the money from Washington, D.C.

"Governors just want flexibility to run our states," said Republican New Jersey Gov. Chris Christie at the annual National Governors Association meeting in February. "We don't want to pay 50 percent of the cost of Medicaid and have zero percent of the authority. And I don't think that's an unreasonable thing to be asking for."

So a number of governors, most of them Republican, have offered the federal government a deal. If the federal government will get rid of most of the rules for who and what is covered, the governors will accept something very dramatic: an end to unlimited federal funding for Medicaid. A version of that proposal appears in the budget plan passed by the House in April.

"If I could get total flexibility, I would take a 2 percent cap in a heartbeat," Mississippi Gov. Haley Barbour, a Republican, told a congressional subcommittee in March.

What Barbour means is that Mississippi would no longer be entitled to federal funding for every Medicaid patient or service. Instead, it would get a lump sum — what it gets now, plus 2 percent.

Under the plan passed by the Republican-led House in April, states would get increases only for general inflation — which tends to rise more slowly than health inflation — and for changes in population size.

According to the Congressional Budget Office, that would lead to big reductions in most states' Medicaid allotments: Within a decade, states would get a third less money than they would otherwise receive; by 2030, they'd be getting only half as much funding.

"So then we're looking at a huge cost shift onto states and onto taxpayers," said HHS Secretary Sebelius. "This is about taxpayers picking up through more uncompensated care in hospitals; through costs of people who end up under bridges or in streets, or who end up in a workforce where they're totally unproductive because they're not healthy. Those costs are picked up by the rest of us."

Sebelius, who was governor of Kansas before coming to Washington, says she gets it when governors say they want flexibility. "What they would like is, 'Give us the same amount of money and get rid of the rules,' which is always a nice deal," she said.

But Sebelius says those rules are there for good reasons — to make sure those vulnerable patients actually get the care federal taxpayers are helping pay for.

On the other hand, some conservatives say Medicaid is already guilty of shifting costs from taxpayers in wealthier states to those in poorer ones. That's because those less wealthy states get so much money from Washington.

"In the case of low-income states, they get $4 from the federal government for every additional dollar they put into their program," said Michael Cannon of the libertarian Cato Institute. "That creates a huge incentive for them to expand their programs, and many states have enrolled people who could obtain private health insurance."

Cannon says limiting what the federal government provides to each state would make the program more fair to federal taxpayers. "Block grants would make Medicaid more efficient," he says," because they would require states to take responsibility for their Medicaid policy decisions and not shift those costs to other states."

This isn't the first time Republicans in Congress have proposed turning Medicaid's open-ended funding into a capped grant program. Previous efforts haven't succeeded. But never has the pressure to cut federal spending been as great as it is now.

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