End Medicaid’s Crony Federalism

Published March 23, 2013

National Review Online

Last year, in an otherwise dispiriting opinion, the Supreme Court handed the nation’s governors an important victory in NFIB v. Sebelius. The Court ruled that the Medicaid expansion mandated in the law was an unconstitutional infringement on state prerogatives. Specifically, the federal government does not have the authority to impose coercive penalties—by withdrawing existing Medicaid funds—on states that refuse to enact Obamacare’s Medicaid expansions.

This is no small matter. The law won’t come close to reaching “universal coverage” if the nation’s governors refuse to expand their Medicaid programs. Which is why these governors, and most especially the 30 Republicans among them, have substantial power and leverage to bend national health-care policy in their direction—if they play their strong hand correctly.

Unfortunately, many of the GOP governors are acting otherwise. Seven Republican governors—including Chris Christie, John Kasich, and Rick Scott—have announced their intention to essentially go along with the Medicaid expansion, and several others are thinking about following their lead.

Not surprisingly, the White House and HHS secretary Kathleen Sebelius are doing all they can to pick off one GOP governor at a time. When Governor Kasich announced his support for the Medicaid expansion a month ago, he said he had been in touch with top White House aide Valerie Jarrett, who had assured him the administration would be open to making special concessions for Ohio. In Florida, Governor Scott’s announcement was accompanied by HHS’s approval of a broader Medicaid waiver program for the state that doesn’t fundamentally alter the nature of Obamacare’s government-centric approach to health-care reform. And news stories now indicate that Governor Tom Corbett of Pennsylvania is planning to meet with Sebelius within the month, no doubt to see what kind of special deal he can secure for his state.

The latest Medicaid frenzy involves a Democratic governor from a red state, Mike Beebe of Arkansas. There was no prospect of securing approval for a straight Medicaid expansion from the state’s Republican-dominated legislature, so Beebe came to Washington recently with what he expected to be a long-shot request: Would HHS allow Arkansas to use the federal money from the Medicaid expansion to purchase private insurance for those who would otherwise have qualified for Medicaid?

In another indication of how desperate the White House is to get red-state America to buy into Obamacare, HHS officials have told Beebe they are open to the idea. Predictably, now more Republicans are interested in getting the same “deal” as Arkansas, even though no one in HHS or Arkansas has yet fully explained what the deal would entail.

The GOP governors engaged in these direct negotiations with the White House are playing a loser’s game, and throwing away a historic opportunity to secure fundamental and lasting reform of the Medicaid program. Even if individual states are able to secure concessions from HHS and the White House, the “deals” they strike will be in the form of temporary and inconsequential “waivers” (the terms of which will always be subject to administration amendment and revision, too). What’s worse, these deals are no way to run a national program. Why should one state receive more favorable treatment than others? And why should the administration be allowed to “buy off” states with federal taxpayer funds in the first place?

Instead, GOP governors should withdraw from this White House game of “let’s make a deal” and instead decide, as a group, what kind of Medicaid reform to demand in return for considering broader insurance coverage. Importantly, the reforms they seek should be in the form of legislative revisions of Medicaid, not temporary “waivers.” By pursuing a legislative approach, the GOP governors could join forces with House speaker John Boehner and Energy and Commerce Committee chairman Fred Upton, who have made serious Medicaid reform one of their top priorities this year.

The right principles for such a reform are clear. The federal government should move toward a fixed and predictable level of support for Medicaid insurance coverage, and states should be given near-total authority to manage their Medicaid budgets without federal interference. States can and should be held accountable for how well they provide safety-net insurance protection and for the quality of the health services they deliver to the program’s participants, but there’s no need for the countless federal mandates and restrictions. It is especially important that states be allowed to convert their Medicaid programs into a version of “premium support” through which the program’s enrollees would choose their insurance plans from competing offerings.

This vision for Medicaid could be achieved by providing federal block grants to the states. But it could also be achieved by converting a portion of Medicaid funding into a “per capita” program (Senator Orrin Hatch has proposed per capita caps for all of Medicaid). Under this reform, the Medicaid program would provide to the states a fixed amount of funding for each person who falls within certain income categories that make them eligible for Medicaid. Unlike a block grant, this approach would allow the federal contribution to Medicaid to adjust with changes in the eligible population due to recessions or other factors.

Even though some GOP governors have already announced their Medicaid intentions, it is still not too late for the broader group to adjust their tactics and use effectively the leverage the Supreme Court handed to them. In criticizing Obamacare, Republicans often say that it makes no sense to add 15 million people to an unreformed and unstable Medicaid program. They are right, and they should take the opportunity that now presents itself to secure permanent, statutory reform of Medicaid, not special side deals.

James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.

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