President Trump’s budget proposal and the recent House health legislation included substantial reductions in Medicaid. Understandably, those cuts have focused attention on the potential effect on coverage for lower-income individuals. But there’s another important and related conversation that needs attention: how much flexibility should states have in redesigning the federal-state Medicaid program?
State flexibility has long been integral to Medicaid. After Medicaid was decoupled from the welfare system in the 1996 welfare reforms, states could explore using the program to cover working households. And for more than 20 years, Medicaid’s 1115 waivers have been a tool to permit a variety of state-designed modifications of Medicaid, allowing a federal administration to permit (within statutory limits) a variety of state-proposed changes. Recent examples include expanding eligibility and adding new features such as health savings accounts (HSAs) (eg, in Indiana), and using Medicaid funds to enroll beneficiaries in private coverage (eg, in Arkansas).
State flexibility of this kind allows the national objectives of Medicaid to be achieved—even exceeded—in ways that also spur state innovation in coverage and the delivery of care. It has also permitted some modifications to Medicaid that reflect a state’s desire to add “personal responsibility” requirements, such as a degree of beneficiary financial contributions and even forms of work requirements.
The new administration’s approach to state flexibility is likely to differ from that of the Obama administration, no matter what Medicaid budget and statutory eligibility changes it is or is not able to obtain from Congress. That change of direction is intensifying 2 basic questions about the role of state flexibility in Medicaid.
Who Should Decide What a State Can Do?
The 1115 waivers currently give an administration and its Secretary of Health and Human Services (HHS) veto power over state proposals. Thus, while the Obama administration accepted HSAs and some other ideas from conservative states, it did not approve other ideas, such as imposing significant work requirements on beneficiaries. That will change. The new HHS Secretary, Tom Price, MD, has already written to states, saying that he will take a different approach to work requirements, supporting innovations that promote skills training and employment.
Frustrated with different White Houses espousing different philosophies, some governors argue for statutory changes to establish in law greater state control over features of Medicaid, reducing the requirement to bargain with changing federal administrations. Ohio Gov John Kasich and 3 other Republican governors, for instance, recently wrote to Congress, complaining that 1115 waivers provide insufficient latitude to states and urging legislation to grant states much greater statutory authority over such Medicaid features as enrollment and eligibility, work requirements, and benefit design. The worry with this statutory solution to policy collisions between a state and a White House is, of course, that giving unchecked state control over benefits and eligibility would likely erode the national features and goals of the program, especially in poorer and more conservative states.
A possible solution to this quandary might be to adopt the model used in a 2006 bipartisan bill introduced, interestingly, by then Rep Tammy Baldwin (D, Wisconsin) and then Rep Tom Price (R, Georgia). This bill sought a middle ground between HHS micromanagement and transferring greater statutory control to states. The bill created a bipartisan commission, to include not only the HHS Secretary but also members chosen by the states and Congress. The commission would review state proposals for coverage changes that required changes in Medicaid law and, if approved, submit them to Congress for an expedited up-or-down vote on state-specific “legislative waivers.” In today’s context, this model would give the HHS Secretary a vote but not a veto, and would change the Medicaid law in sensitive areas only on a case-by-case basis.
How Much Flexibility Should States Have?
The Kasich letter raises the related question of the degree to which states should be able to merge Medicaid money and funds from other programs. And should Medicaid money be transferable to other programs?
Related to this issue, Section 1332 of the Affordable Care Act (ACA) permits states to submit simultaneous and combined “superwaivers” for Medicaid and for provisions of the ACA itself, to achieve the coverage objectives of both health programs in novel ways—provided there is no net budget impact to the federal government or reduction in the quality of beneficiary coverage. Despite the urging of some analysts to allow funds to be merged between Medicaid and ACA subsidies by applying budget neutrality to the combination of programs, the Obama administration made blending more restrictive by insisting on budget neutrality for each program.
It would be wiser, however, to use superwaivers to make it easier for states proposing plausible ways to allow states that serve Medicaid beneficiaries more efficiently to reprogram federal and state savings into health programs for non-Medicaid eligible households. For households with working, nondisabled adults, it should also be made easier for states to pool their federal and state funds for Medicaid, the Children’s Health Insurance Program (CHIP), the ACA, and other programs to deliver coverage through private plans in the ACA exchanges. Doing the latter would make coverage simpler and more seamless for these households, and it would both expand and help stabilize the exchange insurance pools.
It is also time to allow states more flexibility in using Medicaid and other health care funds to invest in the social determinants of health—items such as adequate housing, school-based social services, improved lifestyles, and safer household environments, which can contribute to improved health and reduced medical costs. Comparisons of social and health care spending across major industrialized countries indicate that a better balance of social and health care spending than is the case in the United States leads to better health. The overmedicalized United States is the outlier among countries, spending a far higher proportion on medical services yet without better health outcomes.
The evidence within the United States is that states with a higher ratio of social to health care spending have better health outcomes. Moreover, there have been important agreements to give some states, such as New York, more discretion in using Medicaid funds to improve housing for low-income seniors, with the aim of improving health while reducing state Medicaid long-term care costs. But the Medicaid statute imposes limits on these experiments. There needs to be legislation to give greater authority to states to switch funds from medical services to other services that reduce the need for costly Medicare services, such as allowing greater Medicaid investments in housing.
Over the next few months, during budget season, the Medicaid debate will center on eligibility and funding. But hopefully, attention will turn back to thinking about how best to use the institutions and techniques of federalism to achieve improved health.
About the author: Stuart M. Butler, PhD, is a senior fellow, Economic Studies, at the Brookings Institution in Washington, DC, where he focuses on developing new policy ideas. He is also an adjunct professor at Georgetown University’s Graduate School, and serves on the board of trustees for the Convergence Center for Policy Resolution. (Image: The Brookings Institution)
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