Asking More From Medicaid Than Just an Insurance Card

Give states the flexibility to spend Medicaid dollars on other social services, and then track health outcomes.

The pending Senate HELP confirmation for Seema Verma, President Donald Trump’s choice to lead the Centers for Medicare and Medicaid Services comes in the midst of a tense congressional battle over repealing and replacing Obamacare. Verma’s long experience working with Medicaid programs and providers should lead her through a relatively smooth confirmation. But there is a real danger that the Medicaid reforms she’s championing will become casualties in the partisan warfare over Obamacare.

That would be a tragedy. There is a growing consensus among researchers that America spends too much on Medicaid (and health care generally) relative to other programs and services that might have a bigger impact on measured health outcomes for the poor. Giving states more flexibility in reaching these broad population health goals, along with better tools for measuring their progress, would help states and the federal government scale up what works, while phasing out what doesn’t.        

During her Feb. 16 hearing, Verma called for CMS, “as the nation’s largest purchaser of healthcare…[to] do more, achieve more than the mere distribution of insurance cards,” and should use its programs to “truly make a difference in people’s lives to prevent and cure disease, manage chronic illnesses, and promote healthy lifestyles and independence from government assistance.”  

Verma is right that health is about much more than simply handing someone an insurance card. A 2016 study in JAMA by Raj Chetty and his co-authors found that “geographic differences in life expectancy for individuals in the lowest income quartile were significantly correlated with health behaviors such as smoking, but were not significantly correlated with access to medical care, physical environmental factors, income inequality, or labor market conditions.” Another study published in Health Affairs last spring underscored the importance of the social determinants of health by noting that “states with a higher ratio of social to health spending … had significantly better subsequent health outcomes” for obesity, asthma, lung cancer and heart attacks.

Scholars at the Brookings Institution added to this chorus in a recent report that called for “the new Administration and Congress … to adjust the current ratio of medical-to-social spending by shifting some current health care expenditures to investments in tackling ‘upstream’ social factors with a bigger impact on health,” with the federal government helping the states to take the lead in this rebalancing effort.   

The imbalance between health and social spending is locked in by Medicaid’s current financing structure. The current federal match rate for Medicaid sends at least two dollars into state Medicaid programs for every dollar states spend, and sometimes more than $3. As a result, states find ever more creative ways to expand Medicaid to send more federal dollars sloshing through state economies, even when spending more on other programs might result in better health for the poor.

The open-ended federal match also weakens state incentives to confront inefficient providers and chase down Medicaid fraud and waste, since delivering $1 million dollars in program efficiencies would cut spending by at least $2 million. It’s no wonder the Government Accounting Office has labeled Medicaid as a high-risk program for fraud since 2003.

With health spending on virtual autopilot, my colleague Oren Cass has estimated that from 1975 to 2012, 90 percent of increased U.S. spending on Americans in poverty has gone to health programs.  If some parts of America’s safety net feel threadbare, that is why.   

Congress should set a new framework for federal support that would encourages states to focus on delivering better health outcomes as efficiently as possible. For instance, Medicaid per capita caps (endorsed by President Clinton in 1995) could enable a more predictable framework for state spending for each category of Medicaid enrollees, like the aged, disabled, children and pregnant women, and non-disabled adults. In return, Congress should give states much greater flexibility in Medicaid program design, including spending Medicaid funds on non-health related programs related to housing, prisoner re-entry, or direct cash supports for low-income populations.

This doesn’t mean the federal government should simply hand states the cash and then walk away. Federal and state policymakers and regulators would benefit from a common baseline for measuring and evaluating program changes. A Verma-led CMS should focus the Centers for Medicare and Medicaid Innovations on supporting and evaluating state launched programs designed to address the social determinants of health; set a national RFP for modernizing states’ Medicaid Management Information Systems for linkage to the  national Transformed Medicaid Statistical Information System database (states could choose among competing providers who agreed with CMS to set up such systems for a given price, lowering acquisition costs for states and federal taxpayers); and expand State Innovation Model grants for demonstration projects related to standardized 1115 and 1332 waivers under the Affordable Care Act.

A national Medicaid database, in tandem with other programmatic and financial reforms, would serve to standardize Medicaid evaluation measures (including better fraud detection analytics) and create a much-needed bipartisan baseline upon which to explore and debate additional Medicaid reforms going forward.

Democrats may be tempted to simply resist Republican overtures on Medicaid, suspecting they are merely a cynical cloak for budget cutting.  Just saying no, however, ignores mounting evidence that we can really fight poverty, improve health, and slow health care cost growth through smarter safety net spending.  Instead, they should take Republican plans to reform Medicaid – including last week’s leaked draft – as an opportunity to engage in a once-in-a-generation bipartisan dialogue on modernizing Medicaid’s outdated structure.  

Paul Howard is director and senior fellow for health policy at the Manhattan Institute.

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