Doing Medicaid Reform Right

Published September 6, 2012

The selection of Congressman Paul Ryan as the Republican Party’s vice presidential nominee has brought the issue of Medicare reform to the forefront of debate. But Ryan’s Medicaid reforms are actually more important–and will provide better care to the American people who need it most.

Medicaid currently covers more than 50 million lower-income Americans. The quality of care it provides is generally poor, and in many cases the uninsured have better health outcomes than those on Medicaid. Given that Medicaid reimburses doctors so little for their time, recipients face challenges accessing care, which exacerbates their health problems and leaves them cramming emergency rooms across the country. And for all this, Medicaid’s costs continue to grow. It is now the largest budget line-item for the overwhelming majority of states, squeezing what can be spent on education, roads, and other priorities.

What Ryan proposes doing with Medicaid is simple: Return the program to the role it was originally envisioned to fill, that of a safety net for the truly needy.

Ryan’s plan would block-grant Medicaid to states. They would get their funding in a lump sum, without strings attached, to tailor programs to the needs of their population–the same approach used with success under welfare reform. States would be cutting a deal: less federal money for Medicaid from Washington, in return for far more flexibility in deciding how that money is spent.

Most governors, Democrat and Republican alike, would be happy to make that trade. One of the reasons for that bipartisan agreement is the success of pilot programs that have lowered Medicaid costs and increased the quality of care.

Chief among these is Florida’s pilot program. A little more than six years ago, then-Gov. Jeb Bush established a pilot program in five big counties in Florida, with a total overhaul of Medicaid. The number of people involved is quite large, roughly 300,000 people–bigger than total Medicaid program enrollments in 17 states.

Under the pilot program, Medicaid recipients are allowed to choose among a wide variety of plans created by multiple insurers. The insurers are allowed to escape the vast majority of mandates on coverage, and instead just have to meet an actuarial value for the plan. This allows the state to keep costs flat while giving insurers incentives to create tailored plans depending on need. The program allows risk-adjusted capitated rates–or in non-insurer speak, allows for better matching of payment to risk–so the program doesn’t give insurers an incentive to avoid sick people. Instead, they’re rewarded for making sick people well.

Medicaid recipients get to choose among a dozen different plans with different offerings: one hospital, multiple, HIV-positive, etc. The plans compete on benefits, copays, and provider networks. There’s a default plan, but according to the Foundation for Government Accountability, 70 percent of recipients in the pilot choose a plan other than the default.

Early engagement makes recipients more likely to seek care earlier, as opposed to waiting until they need to go to the emergency room. Patients also get access to seven extra services not covered by any other Medicaid program, and they have a cash incentive for healthy behavior, including quitting smoking.

These Medicaid recipients are thriving. According to the Florida Agency for Health Care Administration, their outcomes are 64 percent better than with managed care, and 83 percent have a higher satisfaction rate. The program saves money, too: Florida is currently saving roughly $118 million a year on Medicaid in the five counties. The state will be approved soon for a statewide expansion of the program, and it expects to save almost a billion dollars per year.

The problem, of course, is that the pilot exists only thanks to the whim of the federal Department of Health and Human Services. States currently have to go back and beg every five years for an extension of their waivers, and a change in administration could halt renewal. Formal block grants would allow every state to follow Florida’s lead or form their own approaches, resulting in massive improvements to this broken program.

Florida is the best example we have, and perhaps the most replicable, for statewide Medicaid reforms, and why Paul Ryan is right about Medicaid. Throwing money at the problem won’t fix it, and we don’t need to do that anyway. Medicaid should be returned to its original purpose: covering the poorest of the poor, the sickest of the sick. Block-granting the program would make it a true safety net.

Benjamin Domenech ([email protected]) is a research fellow for The Heartland Institute and managing editor of Health Care News.