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Monday, March 13, 2017

Start Medicaid Reform Now

The 2017 legislative session will result in the appointment of a commission to develop a new structure for education funding. Hopefully, they will conclude that this is the right time to propose school-choice reform, and to make sure that our state can enjoy the substantial economic benefits of educational freedom. (I am worried, though, that they are going to come back for the 2018 session with an income-tax proposal.)

Education reform is not the only way ahead. Medicaid is another program that offers substantial benefits, both fiscally for the state government and for the Wyoming economy. 

One of the problems with Medicaid reform, though, is that unlike education, federal funds pick up a substantial part of the cost for Medicaid - 51 percent, to be exact.
This means, bluntly, that it is difficult to reform Medicaid without first getting federal money out of the program. It is by no means impossible to do so: there is in fact a two-step application procedure in place for states to use if they want to get out of federal funding. It does, however, require resolve and consistency on behalf of the state government. Both the legislative and the executive branches will have to be behind a reform that liberates our Medicaid program of federal dollars. 

Under the Obama administration, no such application would have been approved, but it may very well happen under Trump. Furthermore, Republicans in Congress are working on a health insurance reform plan that includes some promising changes to Medicaid. Better still: their plan seems to want to reform the private health-insurance market and Medicaid in tandem. That would be ideal, as I explained back in December:
Medicaid "in tandem with" private health insurance simply means that people on Medicaid would become health insurance shoppers like the rest of us. The key instrument here is a voucher for health insurance, which is then used to buy private insurance plans. Under the current ACA, such a voucher would not carry much weight on the insurance market here in Wyoming, but if we open the state's Medicaid system to a national market, it will be a lot easier for Medicaid enrollees to find a plan that suits their needs, at a reasonable cost.  
We already have a measure in place to open up our health insurance market for interstate sales. As I reported back in December, the combination of a nationwide repeal-and-replace Obamacare plan and a voucher-based reform of Medicaid here in Wyoming could reduce the costs of Medicaid by as much as $116 million. This amount is approximately equal to the federal funds that go toward the part of Medicaid that does not cover long-term care - in other words, the part that would be subject to a voucher-based reform.

Unfortunately, not all Republicans seem to be onboard with this reform strategy. On Saturday, March 11, the Wall Street Journal reported (page A4, print edition):
The Republican push to overhaul the Affordable Care Act showed signs of bogging down Friday over the fate of Medicaid, as governors from states that expanded the program under the law faced off against conservative lawmakers who want to cut it back. Republican governors from the 16 states that expanded Medicaid intend to produce their own proposal for preserving some aspects of the Medicaid expansion, according to people familiar with the plan. It is expected to clash with a House GOP proposal that would freeze federal funding in 2020 for states that expanded Medicaid and bring other steep cuts. But all 16 governors don't appear to be in agreement, one of these people said. 
Hardly surprising, states who made the mistake of expanding their dependency on federal funds for Medicaid want those funds to still come flowing into their state coffers. Hopefully, the 16 governors will not get what they want; they should embrace the GOP plan instead. The Wall Street Journal again:
Under the GOP bill [to overhaul the Affordable Care Act], Medicaid would become a block grant tied to the size of each state's Medicaid population beginning in 2020 - a big shift from the current approach in which the federal government matches a state's Medicaid spending. On that date, enhanced federal funding for new enrollees whose incomes are above the poverty line would end, and states would need to pay the difference to continue expanding their programs. 
What this means, plain and simple, is that the federal government would create a funding system that encourages free-market reform and thwarts the slippery slope into a "Medicaid for all" single-payer system. Under this new model, states who want to enroll a larger share of their residents in Medicaid will have to pay for the extra cost themselves. Other states who are more thrifty and manage to move more people over to the private insurance market will have some savings to pass on to their taxpayers. 

While this is not the ideal solution, which again would be for the federal government to gradually withdraw from Medicaid, at least it is a solution that benefits free-market oriented reforms at the state level. But the intention behind the reform - to reduce the presence of federal funds in the program - is such that it should be a simple matter to get approval for a state to eliminate federal dollars in Medicaid. 

Regardless of whether the GOP model becomes the law of the land, or we go all the way ourselves, it is time for us to start reforming Medicaid. If we punt, we will end up with cuts to federal funds around 2020, just in time for our state budget deficit to hit $700 million... 

Medicaid reform is not easy. It takes courage, political leadership and perseverance. Will our next governor exhibit such qualities? Can we count on finding them in the layers of our state legislators? 

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