While the nation’s governors are divided on whether to expand their Medicaid programs under the Affordable Care Act, they agree on one thing: their desire to slow spending growth on this program that currently consumes, on average, about 20 percent of their general fund. Recent congressional proposals to cut Medicaid spending are based on a similar desire.
States have limited incentives to save money because, under current law, every time a state saves a dollar on Medicaid, it sends 50 cents to 75 cents back to the federal government. Some provisions of the ACA make this problem even worse. Full federal funding of the Medicaid expansion and tax credits provided to help people buy coverage in the new health insurance exchanges means there is no reason at all for states to pursue efficiencies that control program costs. Congress could fix this problem without reopening the ACA debates.
In a recent article published in Health Affairs, I propose that Congress create a shared savings program so that states can keep a share of the money the federal government saves if the state operates its health programs at a lower cost than federal projections.
Like the Medicare Shared Savings Program created by the ACA, my proposed state shared savings program would require states to make a three-year commitment and maintain or improve quality, as defined by a common set of measures used by all states, to be eligible for its share of savings.
The state shared savings program would be defined in federal statute and clarified in regulations, assuring that everyone knows the rules of the road. This stands in stark contrast to the growing use of Medicaid waivers, which are negotiated one state at a time, shift power from Congress to the executive branch and continue our fragmented approach to quality and performance measurement. Indeed, the Government Accountability Office released yet another report last week describing the shortcomings of and inequities in the Medicaid waiver process.
Medicaid is an essential program that meets the health needs of more than 60 million Americans, including 30 million children. Two-thirds of program spending is on frail elders and people with a broad range of disabilities including traumatic brain injuries, cerebral palsy, serious mental illnesses, autism and more. New health insurance tax credits offer a new path to coverage for millions of working families that don’t have coverage available through their jobs, but the cost of these credits, which is tied to the premiums in the new health insurance exchanges, is already coming under scrutiny.
Some governors and members of Congress claim that states could run the Medicaid program more efficiently if they were given greater flexibility. The shared savings program offers these leaders an opportunity to determine whether this is true. The program would provide flexibility in certain areas, but states can only keep their savings if they can show that beneficiaries are not harmed by the changes.
Despite federal Medicaid spending in excess of $250 billion each year, the federal government has neither funded on its own nor demanded from states consistent performance data that would tell us how the program is doing and how one state’s performance compares to another. Since we don’t seem to have the political will to demand standardized data collection, perhaps the only way to get there is to “pay for reporting” as we are now doing in Medicare’s Physician Quality Reporting System. By tying shared savings payments to standard spending, quality and performance metrics, my proposal helps the nation take a first step toward the performance infrastructure appropriate to a program the size and scale of Medicaid.
The Affordable Care Act has broken an uneasy truce in American federalism. The truce was characterized by limited federal use of spending and enforcement powers, operational flexibility for states, limited federal encroachment into traditional state roles and the granting of waivers when federalism pressure grew to untenable levels.
The ACA expands programs with joint federal/state administration, and it places many new federal requirements on how states structure their health insurance markets, which is increasing tension between states and the federal government. But the bigger challenge is that Congress and the administration are bound to intervene in state implementation decisions since state choices about how to administer Medicaid and health insurance exchanges will directly determine federal spending.
While it may seem that Congress has no stronger tool to encourage state action than having the federal government bear the full cost, it turns out there is one: Let states keep a share of the money they save the federal government if they can perform these functions at lower cost and equal or higher quality. Such a structure can unleash the powers of cooperative federalism that we saw in welfare reform and the Children’s Health Insurance Program where state and federal interests were aligned. Let the states compete against each other and against the federal government on a level playing field and watch the improvement begin.
Alan Weil is the executive director for the National Academy for State Health Policy.