National Review Online
Tuesday, June 27, 2017
Republicans, first in the House’s American Health Care
Act and now in the Senate’s Better Care Reconciliation Act, are proposing
significant, necessary reforms to the sprawling Medicaid system, to slow its
unsustainable growth rate and to encourage states to prioritize citizens who
are most in need. For this, they are being labeled murderers and terrorists.
Any honest reckoning with Medicaid, established in 1965,
reveals some failures of extraordinary proportions. Over the last four decades,
total spending on the population in poverty has quadrupled, and 90 percent of
that spending per person has gone to health-care costs, almost all of it to
Medicaid. This is in part the result of the perverse incentives created by the
state-match policy, under which every additional dollar on Medicaid benefits
that a state spends beyond its statutory requirement is matched by the federal
government. Given that poorer states enjoy a matching rate as high as
three-to-one, it should come as no surprise that states have expanded their Medicaid
programs massively, using them as magnets for federal cash. Nor should it come
as a surprise that, where money is flowing easily, not a little of it is
vanishing: Last year, improper Medicaid payments amounted to about 12 percent
of total Medicaid spending. If Medicaid waste, fraud, and abuse were its own
economy, it would be around the size of Kenya’s.
And what has been the effect of all this money? Studies
have repeatedly found that Medicaid recipients’ long-term health outcomes are
often no different, and sometimes worse, than the outcomes of the uninsured.
The Senate’s health-care bill would not solve these
problems, but it would put Medicaid on steadier footing. First, the bill
overhauls the Affordable Care Act’s Medicaid expansion, which, besides helping
fuel runaway growth and administrative abuse, has mixed up Medicaid’s
priorities. Because the beneficiaries of the expansion generally have been
childless, able-bodied adults with higher incomes than the rest of the
non-expansion population, and because of the ACA’s preferential federal funding
for expansion recipients, Medicaid now funds benefits for healthier,
higher-earning people without kids more generously than it does for its
original beneficiaries. The Better Care Reconciliation Act would gradually
withdraw the preferential funding, so that the expansion and non-expansion
populations would be treated equally. It also establishes a means-tested tax
credit to help people who are ineligible for Medicaid but have relatively low
incomes purchase coverage on the individual market.
Second, the BCRA puts a ceiling on the federal
government’s Medicaid outlays, by limiting the reimbursements described above
based on a state’s enrollment. Under this policy, states will find it much more
difficult to game the system for federal cash, and so will have strong
incentives to keep their programs’ costs under control. This will be
particularly true after 2025, when the per capita caps will be tied to
conventional inflation (CPI-U) instead of faster-growing medical inflation
(CPI-M), as is the case now.
The CBO estimates that these reforms will reduce federal
Medicaid outlays by $772 billion over ten years (though, to be clear, that is
measured against what the agency expects would otherwise have been a huge increase in Medicaid spending and enrollment
under current law). That would be the largest reform to entitlement spending
since 1996.
Considering this proposal last week, we observed that
because of the slow phase-in, Democrats will likely be in a place to roll back
the reforms before they are fully implemented. That is only one of several
serious problems with the BCRA that ought to be overhauled before this bill
goes to the floor for a vote.
Nonetheless, when it comes to Medicaid, Republicans
should not be cowed by Democrats’ hysteria. The program is unsustainable, and
must be reformed in the name of fiscal sanity.
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