Fiscal Restraint Includes Medicaid

President Barack Obama spoke Wednesday about the nation’s long-term fiscal health, emphasizing the need for restraint.

Where to look for ideas? He can start by championing one that House Budget Chairman Paul Ryan (R-Wis.) is promoting: Reform Medicaid by turning it over to the states.

This is long overdue, the health-care equivalent of President Bill Clinton’s greatest domestic achievement — welfare reform. A Republican cause eventually signed into law by a Democratic president.

Right now, of course, Democrats have harsh words for Ryan’s Medicaid proposal. Rep. Chris Van Hollen (D-Md.), a senior House leader, declared the idea dead-on-arrival, because it would “dismantle” the Great Society program.

But let’s remember some basic facts: Medicaid spending has soared. Federal and state expenditures this year will likely hit $400 billion, nearly doubling over the last decade. The program is generous, now covering nearly one in four non-elderly Americans.

Part of the problem is the unusual funding formula. Medicaid is largely paid for by Washington, but administered by the states. So it’s been a formula for “more.” Enterprising governors have expanded Medicaid — doing so on Washington’s dime. Medicaid now covers ambulance rides (even for non-emergencies), aspirin, antacids and – at least until the media caught wind – Viagra for pedophiles in N.Y. prisons.

Yet Medicaid is also incredibly stingy. To rein in spending, restricted by countless rules and regulations, state governments have cut back on payments, particularly to physicians.

The result? Many Americans have Medicaid coverage — but can’t find a doctor because physicians will not take Medicaid patients.

This is one reason that Medicaid patients’ results, on health problems including cancer, transplants, cardiac procedures or HIV, trail those of individuals with private coverage. Medicaid was associated with the longer hospital stay than other types of coverage, according to a 2010 study that reviewed nearly 900,000 surgeries, yet there was a greater risk of death over private insurance. Even adjusting for socioeconomic status, studies consistently find Medicaid is second-rate coverage.

Ryan’s proposal is to turn the program over to the states with block grants. He would then cap, not cut, Washington’s contribution to the rate of inflation and population growth. The “shredding of the social safety net” – to use Van Hollen’s words – would really just hold spending. That single move would save about $800 billion over the next decade.

Is there any precedent within Medicaid for this type of reform? There is. Rhode Island and the federal government agreed 18 months ago on a new financial arrangement — the state gained great administrative flexibility, but with capped funding.

Though early, the results look positive. Spending is down from $3.8 billion to $2.7 billion.

The Rhode Island program, incidentally, isn’t necessarily smaller — just different. It includes, among other things, an emphasis on wellness and options for seniors hoping to move from institutional care into the community —with home care.

But Washington’s influence is still felt. An effort to add health savings accounts was sunk by the federal government supervisors.

There is another government entitlement precedent: Aid to Families with Dependent Children – the old welfare program. Like Medicaid, that program was owned by Washington and the states —and thus neither. It was expensive and bureaucratic. And it ultimately failed to help the people it was supposed to.

The solution for welfare – championed by Clinton, a Democrat, and congressional leaders, Republicans – was to turn that program over to the states and let them innovate. They did.

Ryan, in many ways, is proposing to reform Medicaid along the same lines. He wants to turn it over to the states — letting them innovate. This reform is not just likely to help the federal Treasury, it could potentially help heal an ailing government program.

Critics have harsh words for this sort of reform. “The most radical and mean-spirited attack against the poor that I have witnessed during my service in government,” said one congressman. That comment was actually made by Rep. Charles Rangel (D-N.Y.), talking about welfare reform back in 1996.

Obama should take note — and take action.

This piece originally appeared in POLITICO

This piece originally appeared in POLITICO