Washington State Officials Look for Medicaid Flexibility As Costs Rise

Published November 15, 2010

With Washington State facing a projected $4.5 billion budget shortfall, officials are debating the possibility of opting out of Medicaid to preserve flexibility in state health care spending.

The alternative is the potential elimination of state-only health care programs such as the Basic Health Plan, prescription drug coverage, and Disability Lifeline program. The state can’t afford to fund state-only programs in addition to Medicaid match programs.

This debate is not unique to Washington. Health care officials in Nevada and Wyoming have already drafted white papers discussing the impact of opting out of Medicaid to provide more budget flexibility.

‘Will Have to Choose’
The Washington Policy Center recently surveyed state Medicaid directors across the nation to see if they too were discussing opting out of Medicaid. Among the responses we received was this one from Carol Steckel, commissioner of Alabama’s Medicaid Agency:

“We have not specifically discussed this issue with the Governor. However, we [are] about to be transitioning to a new Governor (January 17th). That may be an option he wants to consider. I definitely think that if HHS pushes an expansive definition of the health benefits package and continues to expand in other areas, many states, including Alabama, will have no other choice. If it goes too far, states will have to choose between Medicaid and ALL other general fund services!”

Crowding Out State-Only Programs
Washington State is also considering opting out of Medicaid. Throughout the fall the Washington Policy Center participated as a member of Gov. Chris Gregoire’s Budget Transformation Committee. One of the problems quickly identified concerning health care spending was the crowding out of state-only programs as a result of federal restrictions on Medicaid spending.

According to Washington Medicaid Director Doug Porter, the state is out of options:

“Given the targets I have to reduce expenditures in the current fiscal year ($113M general fund state) and over the next biennium ($521M), I cannot see how Washington can afford to support both the Medicaid program and our state-only programs, such as Disability Lifeline and the Basic Health program.” wrote in an email to Washington Policy Center.

Though it’s unlikely that the state will ultimately opt out of Medicaid, the fact that it is openly being discussed indicates the need for states to have more flexibility in the Medicaid program. Otherwise, state health care spending will be limited to administering the federal Medicaid program at the expense of state-level priorities.

Block Grant Option
One possibility would be to move away from the Medicaid categorical spending categories dictated by federal officials and transform the program into an indexed block grant that would allow each state to design its own program to meet the needs of its citizens.

To help determine what indexed growth factor should be used for a Medicaid block grant program, the National Governor’s Association and the National Association of State Medicaid Directors should work to design a growth factor that would meet state needs while helping to provide predictability of federal Medicaid exposure, thus assisting federal deficit-reduction efforts.

To avoid radical disruptions to state health care networks, Congress should transform the Medicaid program into an indexed block grant program. Failure to do so will result in states merely becoming an administrator of the federal Medicaid program instead of the laboratories of democracy needed to identify innovative health care reforms.

Jason Mercier ([email protected]) is director of the Center for Government Reform at the Washington Policy Center.