President Obama Supports State Flexibility in Health Care — Just Not the Kind That Might Work

President Obama said Monday that his administration supports "giving states the power to determine their own health care solutions." Great! Apparently, however, that doesn't extend to giving states what many governors are now asking for: no-strings block grants to run their Medicaid programs.

Currently, the federal government funds state Medicaid programs on a matching basis, with the federal government paying, on average, about 57 cents of each dollar spent. But several GOP governors, including Mississippi's Haley Barbour and Florida's Rick Scott, have said they'd prefer to receive pre-negotiated, strictly capped federal grants—and then be allowed to run the programs themselves.

Switching to a block grant system helped reform the welfare system in the 90s. So why are block grants off the table now? Obama's Medicare and Medicaid director, Donald Berwick, won't say, according to The Hill:

When pressed for an explanation of why the administration opposes block grants, Berwick declined.

"That's all I have to say about that right now," he said.

That's a shame, because a wholesale reform focused around block grants offers a plausible path toward bringing Medicaid spending under control for both state and federal governments. By the end of the decade, total Medicaid expenditures are projected to hit $840 billion, with more than $500 billion of that the federal government's responsibility.

This year, states face about $125 billion in budget gaps—and Medicaid is one of the biggest contributors to the problem. Today, the program already represents more than a fifth of total state spending; it's the biggest single part of state budgets, and it's getting bigger. State spending growth on Medicaid doubled between 2008 and 2009, the most recent year available—in large part because enrollment grew by 40 percent.  

Block granting would on the one hand remove the federal-match incentive to mindlessly ratchet up spending on the program. It would also allow states the freedom and flexibility to manage the programs, including benefits and eligibility, as they see fit—and as they can afford. As former Congressional Budget Office director Douglas Holtz-Eakin and Michael Ramlet note in a report released this week by the American Action Forum, a pre-capped Medicaid waiver program in Rhode Island is already producing big savings:

In January 2009, Rhode Island took the lead on this aspect of reform and became the first state in the nation to cap its entire Medicaid program.  The state received approval to operate the Rhode Island  Medicaid program under an aggregate budget ceiling of $12.075 billion through 2013. The approved Global Consumer Choice Compact Waiver established an expedited 45 day approval process for any  changes to benefits or the Medicaid program during; set new levels of care for determination of long term care eligibility; allowed for benefits in any optional or mandatory program to be customized; placed a priority on preventative services; created a healthy choice account to reward healthy behavior; and implemented new purchasing strategies that focused on quality and competition.

In the first 18 months of Rhode Island's global waiver yielded $100 million in savings, staving off eligibility limitations.  The state projects that it will have saved $146 million by June 2011 with an additional $50 million gained through program integrity efforts and aggressively tracking fraud, waste, and abuse.  Concurrent with the substantial savings, new expenditure growth in the Rhode Island Medicaid program has declined from over 8 percent to 3 percent in the past 18 months.

So Health and Human Services Secretary Kathleen Sebelius says she wants to help states find ways to save money on Medicaid. And President Obama says he wants to empower states to manage their own health systems. Sounds reasonable. 

But presented with a solution that several governors have explicitly asked for—one that's been shown to save money where it's been tried—they're not interested, and the administration's Medicaid chief won't explain why. Seems like Obama's a lot less interested in doling out power to the states—and a lot more interested in maintaining it for his administration.