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.