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POLICY: Medicaid as the vehicle for Republican health reform?

So please welcome yet another anonymous contributor, this one we’ll call Jones the Policy Wonk.  The Wonk took exception to my recent post which suggested that "big" health care reform would be absent in the next administration whether it was Bush, Clark or Dean at the top. (Don Johson at Businessword indirectly chides me for leaving out Gephardt’s plan, but besides my admiration for Kucinch taking a bold non-conforming stand, I am a realist and Dick Gephardt ain’t got a shot either! The Geek seems to me to be in the Paul Krugman camp who think that the current Administration wants to "starve the beast" (scroll down to #3 here to learn more)–that is, run deficits so there’s no money for moderate income people’s programs like SS and Medicare so those people will turn against the government. Anyway, the Wonk gets her name because she understands Medicaid very well, not because she said I was wrong about no big health care reforms coming. Here’s what she suspects is coming from Bushco in the next couple of years:

    First, I think Bush will unveil some kind of tax credit for individuals, and while it will be deeply flawed policy, it will make for excellent political soundbites.  He’ll run on that and "I fixed Medicare!"

    I see the following happening:  An agenda of caring for the uninsured, which encompasses:
    #1 Med malpractice reforms–it’s ideologically desirable and the right kind of "malpractice reform" would undercut a huge source of funding for Democrats (trial lawyers).  It’s going to be a senate battle, and depending on how well Edwards does in the election, med mal could move WAY up in the agenda),
    #2 some kind of tax credits scheme (probably similar to the TAA bill), and
    #3 Medicaid Reform (largely an intragovernmental fight, and I think the White House will lose).

    My guess that they’ll go to Medicaid is just a guess, but it makes sense–
    Hint #1:  Dennis Smith, head of Medicaid, rather than Leslie Norwalk, currently the acting #2 person at CMS, was tapped to "temporarily" to take over Scully’s position.  I’m reading tea leaves at the Kremlin here, but it suggests to me they’re looking for someone conversant in Medicaid policy, and with the credibility and connections of a former state Medicaid director (Virginia) to push through reform.   

    Hint #2–Bill Frist has said his #1 priority will be helping the uninsured. This doesn’t only suggest tax credits for low-income people.  Interestingly, when George Bush made his initial push for Medicaid reform in August, 2001 he linked it to decreasing the number of uninsured. 

    Rationale for Action: Because of the Federal match, the Federal government has almost no control over the annual budget line for Medicaid, and states love to spend through Medicaid.   Richt now, Medicaid growth is really being driven by medical inflation, esp in the care of long-term disabled and elderly dual-eligibles.  So, the question isn’t "why is Medicaid spending increasing"–all healthcare spending is increasing.  The question is: "why don’t states slash their Mcaid budgets?" 

    States are decreasing Medicaid spending (or, more often, decreasing the rate of growth in spending), but less than one would expect.  This is because aside from all the traditional political pressures against cuts (industries dependent on Medicaid  like pharma, hospitals, nursing homes, etc//political fallout of cutting benefits for poor people), every dollar of state spending through Medicaid is matched federally on a 1:1 or greater level (depending on how poor a
    state is).  So, a Medicaid budget of $100 million  represents (at maximum) $50 million in state spending, and $50 million in free federal dollars.  In most states, every dollar spent on Medicaid brings in way more than a dollar in federal matching funds.

    As a result, states have done things like classify state funded programs as part of Medicaid (eg: NY put its entire developmental disability system in Medicaid), to get the federal match on state spending they were going do even without the match.  Additionally, some states have engaged in fantastic accounting gimmicks with Medicaid to effectively draw down "match" federal dollars that could be used for any purpose.    

    So, the problem from a Bush Administration standpoint is that federal Medicaid spending can be infinitely expanded (states just get a waiver), and there’s not a lot of accountability for where the money goes (in theory, there’s accountability, but in practice not really.  Lots of states, you know.)  So, as you go farther and farther out, it’s gets harder and harder to predict Medicaid spending because you have the typical uncertainties of medical spending growth, but also the uncertainty of "Will California one day declare universal healthcare through Medicaid?" 

    In addition, there is some argument that federal regulations are too onerous.  IMHO, this is a red herring–most of the regulations really prohibit states from slashing benefits to the truly poor, and from providing benefits in a discriminatory manner.  Furthermore, you can always get around them with a good reason and a waiver.  Additionally, if the feds think the federal regulations are too burdensome, they can just not enforce them.  Grant waivers to everyone, for everything.  Problem solved.   

    So, the Bush suggestion is that states should take a block grant instead of a match, in exchange for increased flexibility.  It’s supposed to look like "managed care" for states–they get a block grant and all the flexibility they want to design their programs however they want.  However, the danger is that this will look a lot like "managed care" ended up–capitation with ruthless enforcement of spending caps, and not so much delivery on creating a better, more integrated system.  There’s already sufficient pressure for efficiency–states DO have to foot about 40% of the bill, and with the shortfalls they’re suffering, it’s significant.  So, the "taking on of risk in exchange for freedom" analogy that the Bush Administration is pushing is fundamentally flawed–they already have enough risk to motivate them to maximize efficiency, and they have enough freedom to get the job done. 

    However, it is strongly analogous to employers moving from a "defined benefit" system (we provide insurance to our employees) to a "defined contribution" system (shoot, we don’t know HOW much this damn insurance is gonna cost next year; let’s give all employees $900 annually to buy into a plan)

So there you have it. According to the Wonk, the next Bush administration will dump more people and less money into Medicaid, declare more or less universal coverage victory and go home.  My sense is that this won’t get off the ground politically because it runs into the roadblock of the southern strategy.  Most of those states relying on Medicare match for more than 50% of Medicaid spending, and the ones that get the most pork anyway, are the central and southern "Red" states. It seems unlikely to me that an Administration with almost no interest or appetite for significant policy reform domestically (i.e. outside Baghdad) and showing very little interest in fiscal restraint, will start down this path by upsetting its core supporters. But if I’m wrong the Wonk‘s theory does have a suitably neo-con ring to it!

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