The case for federalizing Medicaid

If Donald Trump ever moves on from bickering over the size of his inauguration crowd to actually governing, one of the first orders of business will be churning out a promised “terrific” Obamacare replacement plan. While we don’t yet know the exact details of Trumpcare, Trump adviser Kellyanne Conway confirmed this week that block granting the Medicaid program to the states will be a big part of it.

This isn’t a surprise. Republicans like Speaker Paul Ryan and health secretary nominee Rep. Tom Price have called for kicking Medicaid down to the states for years. Unfortunately, it’s the exact wrong direction we should be going toward.

Medicaid provides health insurance to nearly one hundred million people, including children, pregnant women, nursing home residents, people with disabilities, and low-income Americans. For over fifty years, the program has been managed jointly by the federal government and the states. Washington finances at least half of the program’s costs, and often substantially more in poorer states. Obamacare expanded Medicaid to cover those just above the poverty line, and even offered to pick up the entire tab for the first years of the expansion. Still, nineteen conservative-led states turned down free money, causing a Medicaid “coverage gap” currently ensnaring 2.5 million people that would have otherwise gained insurance.

Conservatives in Washington want to drastically change this arrangement by simply cutting a check to the states and letting them run Medicaid. Conservatives like this idea for a few reasons. For one, a block grant creates more predictable (and lower) costs for the federal government. It gets the federal government off the hook for covering a share of whatever costs program enrollees incur, and instead just subsidizes state Medicaid programs. A block grant transfers most of the commitment of insuring vulnerable populations from the federal government to the states.

The problem, of course, is that this is a barely-concealed way of cutting healthcare funding for the poor. The only way for block grants to save the federal government money is to systematically lowball the amount of the grant. For example, the block grant plan pushed by Price and other House Republicans would slash Medicaid spending by $1 trillion — nearly 25 percent — over the next decade. A similar plan offered by Paul Ryan in 2012 would have caused up to 20 million Americans to lose their coverage.

This leaves it to individual states to pick up the slack, but it’s far from guaranteed that they are willing or able to do so. Medicaid is already one of the costliest expenditures for states, consuming on average nearly 20 percent of their budgets (second only to K-12 education). Making up for a $1 trillion funding gap would be a stretch even during relatively good economic times. But during a recession, block granting would be a disaster. While the federal government can take on debt to finance deficit spending, almost every state is required to keep a balanced budget. When revenues dry up during a downturn, states take an axe to social spending to make up the difference. These cuts inevitably come disproportionately from low-income programs. So the end result of block-granting means Medicaid will get cut to the bone just when more and more people will need it.

Block-grant proponents want to give states more of a role to experiment with Medicaid. But just as some states may seize on new flexibility to experiment upward with better, more generous programs, others will ratchet Medicaid downward by providing stingier benefits. Those nineteen states refusing the federal Medicaid expansion in particular have political cultures deeply hostile to insuring the needy. In Texas, for example, childless adults are ineligible for Medicaid regardless of how poor they are, and even parents are “too rich” for coverage if they earn more than 18 percent of the poverty line — $2,118 a year.

Even though national Republicans package Medicaid block granting as an exercise in states’ rights, it’s not clear how many states want the privilege of taking the primary lead in running Medicaid. Even some Republican governors worry that block grants will reduce the effectiveness of their safety nets. Medicaid block grants could easily follow the pattern of welfare reform — another safety net program devolved to the states during years of economic growth that has since shriveled away due to chronic underfunding.

Instead of block-granting Medicaid to the states, a better course is to do the exact opposite: have the federal government assume full responsibility for Medicaid. This would eliminate harsh state-based eligibility restrictions like in Texas, and would guarantee coverage for all who qualify. Because the federal government can run budget deficits, it is better situated to protect the program during economic downturns. And federalizing Medicaid would relieve the states of a massive fiscal burden, freeing up money for education, infrastructure, tax cuts, and other state projects.

Putting Medicaid entirely in the hands of the federal government may also better tame the program’s costs. As Greg Anrig of the Century Foundations writes, “taking 50 separate state bureaucracies out of the picture would be a meaningful step in the direction of reducing confusion and wastefulness.” Congress and federal agencies would also be better able to experiment with cost-containment strategies without the states in the mix.

Federalizing Medicaid could also yield tax relief for low- and middle-income Americans. While new federal revenues would need to be raised, the states would be free to cut taxes. And because the federal tax code is more progressive than the states’, most of the new financing for Medicaid would come from the wealthy. The net result would likely mean lower taxes for most Americans.

Federalization is not a new idea, nor a partisan one. As Anrig points out, Ronald Reagan proposed federalizing Medicaid in 1982 in exchange for giving the states over other safety net programs. Even earlier, in 1979 Jimmy Carter proposed federalizing Medicaid as part of his health reform pitch.

On the campaign trail, Donald Trump promised that he would not cut Medicaid. That’s a promise he cannot keep while also block-granting the program. Instead of pawning Medicaid off on the states, the federal government should lift it off of their shoulders entirely. That would give the states real flexibility.

Note: This post is cross-posted at Medium.

The conservative Medicaid charade

The New York Times had a good piece last week detailing the still-fraught politics of expanding Medicaid in Red States.  To sum up, while some conservative governors like Mike Pence of Indiana and Bill Haslam of Tennessee are coming around to ObamaCare’s Medicaid expansion, conservative state legislators are still vehemently opposed, and are shooting down carefully crafted expansion plans that their governors had painstakingly negotiated with the Obama administration.

It’s remarkable that the anti-ObamaCare fever still hasn’t ebbed in state legislatures.  But what’s more interesting are the evolving pre-textual arguments that conservatives use to justify opposition to embracing the Medicaid expansion.  Remember, ObamaCare offers the states incredibly favorable terms to expand Medicaid to cover more of the poor and near-poor.  The federal government picks up 100 percent of the costs in the early years of the expansion, and will cover at least 90 percent of the costs forever.

Yet conservatives continue to insist that the federal government won’t meet its obligations.  According to the Times, “Opponents in [Tennessee and Wyoming] said that, among other things, they did not believe the federal government would keep its promise of paying at least 90 percent of the cost of expanding the program. It currently pays the full cost, but the law reduces the federal share to 90 percent — a permanent obligation, it says — by 2020.”

I’ve explained before why this argument is hollow.  The federal government has never made permanent cuts to funding for state Medicaid programs.  Cutting federal funding for the Medicaid expansion would require a change in the law — a change that could only conceivably be enacted by conservatives in Washington.

So this justification is weak to begin with.  But in Tennessee, Governor Haslam called conservative legislators’ bluff with a creative insurance policy: “He had traveled the state to promote [his plan] — and to try to persuade people that it was not part and parcel of the Affordable Care Act, partly because the Tennessee Hospital Association had agreed to pay any expansion costs beyond what the federal government covered.”

Hospitals, of course, are losing eye-popping sums of money in states that have refused to expand Medicaid.  The Urban Institute calculated that hospitals in these states are missing out on some $168 million in reimbursement revenue.  That’s why it’s worth it for Tennessee hospitals to agree to be a last-resort backstop to allay conservative fears that the federal government will bail on its Medicaid guarantees.

Yet even with this guarantee from their hospital sector — and a practical plea to take this incredibly good deal — conservatives in Tennessee stuck to their guns and torpedoed Governor Haslam’s plan.  “Less than 48 hours later,” the Times writes, “his plan was dead after a Senate committee dominated by Republicans rejected it before it could reach the full chamber.”

So why are conservatives still so opposed to expanding Medicaid?  Keep in mind how far to the right the terms of the expansion have shifted from the original uniform expansion called for by the Affordable Care Act.  The Supreme Court opened up the Red State option in 2012, making the expansion voluntary for the states.  This gave conservatives states ample newfound leverage to drive a hard bargain with the Obama administration and to adopt a version of Medicaid on more conservative terms.  In states like Arkansas, Indiana, and Tennessee, the Obama administration has agreed to state proposals to use Medicaid funds to put individuals on private insurance, and even to charge covered individuals small premiums.  It’s a far cry from the original plan, which simply called for an expansion of traditional, single-payer Medicaid.

Yet despite policy concessions from the Obama administration, generous funding terms, and backstop funding by the private sector, conservatives in state government are still holding out.  One Wyoming state senator previewed the revised iteration of the argument against expanding Medicaid: “The argument is that the federal government is already in debt and expanding Medicaid will make it worse,” he said.

This is dumbfounding.  Medicaid is a cooperative federalism scheme, jointly funded by the state and federal governments.  In the warped federalism of this Wyoming senator, the states now have veto power to second-guess Congress’s own budgetary determinations.  Because a state senator from Wyoming somehow knows better than federal legislators what the federal government can afford to spend.

Of course, there’s little reason to engage with the merits of these arguments.  The arguments are hollow, and conservatives barely bother to pretend otherwise.  State level conservatives are simply doing the bidding of their ideological benefactors, the Times notes.  “Tennessee’s chapter of Americans for Prosperity, the Tea Party-affiliated group backed by Charles G. and David H. Koch, and the Beacon Center of Tennessee, a Nashville nonprofit that advocates smaller government, urged the Legislature to scuttle the governor’s plan.”

And scuttle it they did.  Once you cut through the spurious publicly-offered reasons, the real source of conservative opposition to these negotiated plans is straight ideological: that government should be minuscule, and shouldn’t be in the business of guaranteeing healthcare for the poor.  As the Obama administration has learned over and over again, it’s impossible to successfully negotiate with people who oppose government’s basic existence.

What would conservatives do with Medicaid?

State-level Republican governors and legislatures are using the voluntary Medicaid expansion to leverage conservative policy concessions from the Obama administration. In states like Missouri and Pennsylvania, this has meant trying to enact work requirements for Medicaid. This would mean that, to receive Medicaid coverage, low-income Americans must be working, actively seeking out work, or participating in a job-training program.

This would be a significant departure from how Medicaid programs are currently constructed. No state has a work requirement for Medicaid — the original Medicaid statute prohibits conditioning coverage on work participation. And the Obama administration has flatly refused to grant a Medicaid waiver for proposed work requirement rules, so these state proposals are unlikely to become law anytime soon.

Nonetheless, the conservative instinct to condition health insurance for the poor on working is telling. And if a Republican wins the White House in 2016, red states would gain a new hearing to enact these ideas through federal waivers.

Interestingly, the attempt to tie Medicaid to working comes at the exact moment that health economists and policy wonks across the political spectrum are aiming to decouple of health insurance from employment for everyone else. Most economists consider traditional employer-sponsored insurance to be inefficient, as it locks workers into their current jobs for fear of losing coverage. They’ve therefore supported reforms to let individuals purchase insurance outside of their workplaces, like ObamaCare’s exchanges.

Some conservatives favor doing just the opposite when it comes to insurance for the poor. True, Medicaid coverage doesn’t have the same job-lock issues as employer-sponsored insurance. It’s a single-payer system, so it follows you from job to job.

But the urge to link Medicaid to employment flows from the conservative obsession with legislating work incentives for the poor. To some conservatives, any government benefit that reaches the poor must be conditioned on working, seemingly because poor people supposedly need constant shocks and prods to keep them employed.

Prominent conservative health economist Avik Roy showed the foolishness of this line of thinking in a recent interview. Roy, the author of How Medicaid Fails the Poor, recently released a conservative healthcare reform proposal detailing how we can “transcend” ObamaCare, using its existing structure to achieve conservative policy preferences.

In the interview, Roy explained — and justified — why his proposed revamp of Medicaid doesn’t include a work requirement:

 “[S]omebody asked me the other [d]ay, he said ‘Avik, is there a work requirement … ‘ (A conservative asked me this …) ‘Is there a work requirement in your plan for eligibility for these exchange subsidies for low-income people?’ and I said no.

“The guy said: ‘Well that’s a problem. We should have a work requirement.’

“I said to him: ‘Would you ask for a work requirement for a low-income unemployed parent to send his child to primary school?’ Of course he didn’t answer.”

Now of course, there may be conservatives for whom this point isn’t an argument-stopper — they may very well support work requirements for parents to send their kids to public school. After all, we’ve seen recent conservative discomfort with giving school kids government handouts in the form of free school lunches.

Though he defends public health insurance for the poor from shortsighted work requirements, Roy is hardly a fan of Medicaid. In Transcending ObamaCare, he argues that it generates little in the way of beneficial health outcomes for the poor in comparison to going uninsured.

Roy acknowledges that the root cause of this has been low Medicaid reimbursement rates to physicians. Doctors are reluctant to take Medicaid patients because Medicaid pays so little. Studies have found Medicaid patients are denied doctors appointments six times more often than those with private insurance — even when they tell the doctor that their child has a serious medical illness.

Why does Medicaid pay so much less? It’s because of the quirky and inefficient cooperative federal structure of Medicaid. “Medicaid is jointly funded by state governments and the federal government,” Roy explains. “Because neither party has full responsibility for the program, both parties have engaged in irresponsible behavior.” Federal regulations prohibit states from charging more to Medicaid patients, and states have responded to budgetary crises by slashing reimbursement rates, plunging as low as 29 percent of private reimbursement rates in New York.

(It should be noted that comparing Medicaid and private insurance reimbursement makes Medicaid look exceptionally bad. It fares a little better when compared to what Medicare pays, as calculated by the Kaiser Family Foundation. For instance, New York’s Medicaid program pays 55 percent of the Medicare rate, and the average state pays about two-thirds of what Medicare pays. Still underfunded, but a bit better.)

Roy’s solution is to blow up Medicaid and give the poor subsidized private insurance on health exchanges. Very well. It’s a totally legitimate proposal that would extend ObamaCare’s subsidy-exchange structure to those below 133 percent of the federal poverty line — the current cut-off point between expanded Medicaid and ObamaCare’s marketplaces.

And in the Obama era of liberal pragmatism, it’s a proposal in spirit with the technocratic amenability to using any practical means to achieve progressive goals. Obama wanted to enact affordable universal coverage in the United States — long a liberal goal — but didn’t mind using Mitt Romney’s private insurance-based marketplace structure to get us there, rather than insisting on liberal means like single-payer.

In the Medicaid expansion already, the administration has been willing to accept conservative ideas on how to extend health insurance to the poor. Indeed, Roy’s plan would largely mimic the so-called “private option” that Arkansas negotiated with the Department of Health and Human Services, using Medicaid funds to subsidize private insurance for those newly eligible for Medicaid coverage.

These are fine ideas, but are hardly the only way to heal Medicaid’s woes. As Roy explained, Medicaid’s problems stem from low reimbursement rates, which in turn stem from its inefficient joint federal-state financing structure. So why not simply federalize Medicaid? The federal government is better positioned to sustain social insurance programs than the stares are. It faces less budgetary pressure, particularly during recessions, because (unlike the states) it can run up deficit spending when social welfare program rolls expand in a weakened economy. This stabilizes financing for these sorts of programs, preventing them from being hollowed out by emergency state budget cuts.

The federal government could then raise reimbursement rates to something closer to what Medicare pays. And to get rid of any lingering discrimination against Medicaid patients, it could simply make such discrimination illegal, relying on testers in the same way housing discrimination laws are enforced.

Yes, this would cost the federal government more, but it would also relieve the states of a significant budgetary burden. It would also better serve the poor, as historically, the federal government has been a far better steward of low-income programs than the states have been. (See welfare reform / TANF; the 24 Medicaid expansion opt-out states; etc.)  And it might even save the government money in the longterm by letting the poor get more check-ups and preventive care, keeping the government from footing costly ER and advanced illness bills later on.

Still, Roy’s proposal is a refreshingly thoughtful constructive critique of ObamaCare — an all-too-rare conservative feat in the years since healthcare reform. If nothing else, maybe it will teach conservatives to love (or at least begrudgingly accept) ObamaCare by showing that it lays a foundation that they too can work with, finally breaking that fever that has plagued conservative politics since 2009. And though Roy would revamp Medicaid, at least doesn’t want to shackle the uninsured poor with work requirements.

The Health Care Chasm & Means-Ends Federalism

Making the rounds today among health care policy wonks is a new set of polling data from Gallup showing encouraging declines in the rate of Americans that lack health insurance. Nationwide, the uninsured rate has declined from 18% of Americans to 15.7%. Not surprisingly, states that have complied with Obamacare – by running their own health exchanges and expanding Medicaid – have seen sharper declines in their ranks of the uninsured than have intransigent states. Vox helpfully illustrates the insurance gap:

Uninsured_cooperative_obamacare_states

This is early empirical evidence of the health care chasm that we are likely to see: the Red State – Blue State Divide, where the force and effect of health care reform depends on your geography. I’ve written before (as have others) about how morally indefensible it is for Red State governors to refuse free federal money to expand Medicaid to cover the poor and near poor. The federal government is offering to cover 100% of the expansion costs in the near term, and at least 90% in the long term and ever after – yet Republican governors have nonetheless found it politically expedient to spurn Obamacare and leave nearly 6 million people stuck in a coverage gap.

Despite legal guarantees to the contrary, Republican officials insist that they will be left holding the bag for the costs of expanded Medicaid if Congress withdraws funds. This has been repeatedly debunked. The federal Medicaid expansion match won’t decline barring some change in the law.

The conservative resistance to the Medicaid expansion is not just hollow, but also deeply overwrought. The Medicaid expansion functions as exactly the kind of pro-state experimentation federal program that compassionate conservatism (is that still a thing?) ought to encourage.

Suppose the federal government had created a program that offered states block grants to provide universal health insurance for all people up to 138% of the federal poverty line. While providing the funding, the government would remain completely agnostic as to the means that states used to achieve full coverage, allowing for experimentation. Vermont could adopt a single-payer Medicaid system; Texas could adopt a voucherized premium-support system.

Suppose further that the federal government also set expansion of traditional Medicaid as a default fallback option in the event that a state didn’t have any novel alternative idea. Moreover, the value of the grants could have been tied to what it would have cost the states to follow the default Medicaid expansion option, with the federal government guaranteeing that it will fund at least 90% of the expanded coverage.

This hypothetical almost sounds like it could have been a conservative, states-rights federalist proposal. But it also happens to be largely how the Obamacare Medicaid expansion has worked in practice.

The Department of Health and Human Services has been highly receptive to granting waivers to accommodate alternative state proposals to expand coverage outside of traditional Medicaid. States have been able to receive Medicaid expansion funds while altering or abandoning all together the expansion of traditional Medicaid. The waivers are conditional on states covering the same number of people, at roughly the same cost, as the Medicaid expansion would have.

So far, Arkansas, Michigan, and Iowa have been granted waivers, while other states such as Pennsylvania pursue them. Arkansas received a waiver to create a “private option” system, where instead of expanding Medicaid, it used Medicaid expansion funds to purchase private insurance for people below 138% of the poverty line.

This flexibility on the Medicaid expansion is emblematic of the Obama administration’s pragmatic means-ends federalism. The Medicaid expansion is functionally a grant to the states to provide health insurance to millions of poor and vulnerable Americans. The administration has defined the end goal, yet the means of how the states get there are entirely negotiable.

Which is entirely in keeping with the Obama’s philosophy throughout his presidency. He holds liberal goals, but is pragmatic and amenable to the means that are used to get there. He’ll pursue universal health care – but is wholly willing to do it on the back of a private insurance system. He’ll seek to narrow the achievement gap across races of students – but is fine with unionless charter schools helping us along.

With free federal money and ample room for state accommodation, recalcitrant governors have no excuse to leave millions of vulnerable citizens in health insurance limbo. These individuals are “too rich” for traditional Medicaid (in Texas, this means they make 20% of the poverty line) but too poor to be eligible for health exchange subsidies. Perhaps this class of people, deprived of any benefit from health care reform, will make governors like Florida’s Rick Scott pay in reelection battles. But for now, despite Obama’s amenable federalism, our health care divide begins.

Obamacare strikes midnight

Normally, I would find the breathless coverage of Obamacare sign-up numbers superficial and vapid. Over the past few days, it has verged on horse race style coverage that we expect from coverage of political races, chronicling every upward tick in state enrollment numbers and every traffic burst on Healthcare.gov.

But there is something admittedly satisfying about watching the law’s enrollment numbers meet (or maybe exceed) expectations in the closing hours. For a law that has been under siege from its inception, this is a moment of vindication. Obamacare now has a number to put on its constituency – a measure of the social good that it is achieving.  The “silent plurality” that liberals wanted to reach now have their moment of recognition, unassumingly putting the noisy opposition that has relentlessly attacked the law on its heels.

Early estimates report that the law has spread health insurance to over 9.5 million previously uninsured Americans – through health insurance marketplaces, Medicaid expansion, and through children under 26 staying on their parents’ health insurance. This is a tremendous accomplishment, but is little more than a solid start in providing coverage to the estimated 45 million Americans that were uninsured before marketplaces went live.

A big reason for this shortcoming is that nearly half of all states have refused to expand their Medicaid programs. Obamacare asks states to expand their Medicaid programs to cover people earning up to 133% of the poverty live. In 2012, however, the Supreme Court made this expansion wholly optional (with no consequences) for the states. This greatly weakened the law’s ability to penetrate states with the highest rates of uninsured. As Alec MacGillis explains, “[n]o one really wanted to say this during the law’s drafting, but its underlying goal was to get coverage to people in red states where there was no local political will to address the problem.”

The states with the gravest insurance coverage crises tend to be red states with skimpy Medicaid eligibility, but are governed by conservatives with deep political opposition to conforming with Obamacare. The law, then, has been unable to reach the populations that need it most. For example, in Texas, Medicaid eligibility is limited to parents making no more than 19% of the poverty line. That’s a mere $4,531 per year. If Texas agreed to expand Medicaid, over one million people would gain health insurance. But with Texas steadfastly refusing to do so, these people fall into the law’s “coverage gap”: too poor to receive the law’s marketplace subsidies, too “rich” (if we can honestly call making 20% of the poverty line “rich”) to join Medicaid – but mostly too cursed by geography. The people stuck in the coverage gap have therefore received absolutely no benefit from Obamacare.

There is no morally defensible reason to refuse to expand Medicaid. Conservative governors warn of future burdens on state budgets and excessive federal control. Yet the expansion is fully funded by the federal government in its first years, and 90% federally funded from 2020 and beyond.

Perhaps more states will come around to accepting a free offer of expanded health insurance for their poor and near-poor populations. The Obama administration has been amenable to compromise solutions from states like Arkansas that want to use Medicaid funds to enroll low-income people in private insurance plans. But some states like Texas will likely remain intransigent for the foreseeable future, neglecting the interests of the politically marginalized uninsured. National uniformity is sacrificed as a consequence of the cooperative state-federal structure of Medicaid.

Obamacare’s enrollment numbers are a great achievement, but we have more work to do in achieving health care justice for all. Specifically, we need to continue to cultivate an ethic of solidarity around health insurance and to cast into moral isolation those who reject the imperative of providing health insurance to the poor. Obamacare does a great job of starting us down this road, but we still have far to travel to reach the rest of the 45 million.