Health Care Reform Must Include Medicare Reform
At this point it is clear that Republicans have no intention to repeal ObamaCare "root and branch" as so many promised on the campaign trail. Many congressional Republicans have begrudgingly accepted that a significant number of their colleagues were only pretending. Since coming to that conclusion, those conservatives are plotting a path forward in the repeal and replace debate that respects taxpayers and drives down the skyrocketing cost of health insurance. That dynamic was on full display in the House as the conservative Freedom Caucus and a handful of moderates worked in good faith to address the crippling costs of ObamaCare’s regulatory architecture.
A similar opportunity exists in the Senate to improve both the regulatory reforms and various other provisions, but there are serious policy risks in the upper chamber as well. One of the most notable is that some moderate Republican Senators are trying to delay the phase out of ObamaCare’s generous Medicaid expansion subsidy and increase the program’s growth rate. Having already conceded on full repeal of ObamaCare, conservatives should resist attempts to essentially lock the failed law’s over-subsidization of the Medicaid expansion in place.
The notion that the House-passed American Health Care Act (AHCA) does not provide a soft enough landing for Medicaid expansion states to transition into a new financing system is inaccurate. If the AHCA were to become law, ObamaCare’s expansion of Medicaid to cover able-bodied, childless adults will remain. The only difference would be that states that choose to cover that population would receive 57 cents on the dollar (the existing average federal share for blind, disabled, children, and aged) instead of the unjustifiable 90 cents on the dollar ObamaCare gives them.
While it is true that the combination of reducing the reimbursement rate and moving toward a new "per capita" cap will create different incentives for the states than ObamaCare’s massive subsidy, it is less clear that the House growth rate would rein in the long-term growth in Medicaid, which was originally designed as an anti-poverty program that covered the poorest seven percent of Americans in 1970. Instead, it now covers nearly one-quarter of all American citizens.
Medicaid is projected to consume nearly one out of every 10 dollars spent by the federal government compared to one out of every 15 dollars in 2000 and one out of every 41 dollars in 1980. It’s also bankrupting states. In 1987, about 8 percent of a state’s general fund went toward Medicaid. Today, Medicaid consumes between 20 to 25 percent of a typical state budget.
Many will point to President Trump’s budget or the House-passed health care bill as a sign Republicans are getting serious about changing this dynamic. Unfortunately, the Congressional Budget Office projects Medicaid will grow faster than the economy as whole even if the AHCA were to become law. That is not to say the new "per capita" cap meant to restrain per-beneficiary growth does not have the potential to rein in costs, but the AHCA’s cap will be rendered meaningless.
The primary concern is that the House caps are artificially inflated. They would grow at CPI-medical or CPI-medical plus one percent. This is significantly higher than the average per beneficiary growth in Medicaid of two percent over the last 15 years. In other words, the cap will save zero dollars.
The only way to put Medicaid on a truly sustainable budget is to ensure it cannot grow faster than the economy as a whole. Sen. Pat Toomey (R-Pa.), for example, has suggested switching the Medicaid "per capita" cap growth rate to CPI-U, the broader measure of inflation. At the very least, the Senate should revise the indexing rates to more closely align with the historical and projected trends for medical care consumption of the different beneficiary groups.
Such an approach has long been a facet of Republican block grant proposals. For example, then-Representative John Kasich’s 1995 Medicaid block grant proposal, which passed both chambers before being vetoed by President Clinton, grew at CPI-U. As a presidential candidate, Kasich’s Medicaid reform plan called for Medicaid spending to grow at three percent on average.
Growing one percent more than Medicaid inflation – i.e., over five percent on average for the past decade – is not only at odds with longstanding Republican policy, but it is also well beyond what most on the left have proposed. In fact, ObamaCare attempted to apply a GDP + one percent growth rate on Medicare. And before that, Bill Clinton’s 1997 budget proposed what the New York Times described as " impos[ing] a firm limit on federal Medicaid spending, to guarantee that per-capita Medicaid costs rise no faster than the nation’s per-capita economic output."
There is no doubt that "per capita" caps are a good step and would change the incentive structure for states to make their programs more efficient while minimizing waste and fraud; however if AHCA were enacted as-is, Medicaid spending could grow at a rate far greater than what the taxpayers or the economy can sustain. That is why we need conservative senators to push for simple changes to the "per capita" growth rate that will actually control costs, as opposed to bankrupt taxpayers.
If Senate Republicans can reform Medicaid and go further in unraveling ObamaCare’s draconian regulations, the legislation would be a good step toward undoing the damage caused by ObamaCare. It would be a proposal conservatives could be proud of and President Trump could eagerly embrace. That would be a welcomed change.
Former Rep. David M. McIntosh is president of the Club for Growth and Michael A. Needham is chief executive officer of Heritage Action for America.