Back on August 28, the WSJ had a piece on Rhode Island and their Medicaid block grant system. I was too tired to blog on it, so I just tweeted a response:
WSJ touts Rhode Island block grants today. Time to wheel out an old TIE post: http://t.co/M2zdZymZgx
— Aaron E. Carroll (@aaronecarroll) August 28, 2013
As we reported two years ago (“Rhode Island’s Medicaid Lesson,” March 28, 2011), in its final days the Bush Administration granted the Ocean State a one-of-a-kind waiver from federal Medicaid rules in exchange for a cap on federal costs. A new analysis by Gary Alexander, the former secretary of Rhode Island’s health and human services who later worked in Pennsylvania, shows the state’s annual cost increases have fallen to less than half the pace of the rest of the nation. And health care for the poor has improved.
The idea behind the waiver was to find out if granting states more flexibility would spur efficiencies. Medicaid’s usual reimbursement formula rewards states for wasting money because for every dollar of expenses the federal government picks up between 50 and 70 cents of the tab. A cap on expenditures (in this case $12.075 billion over five years) combined with policy freedom might reverse those screwy incentives.
This is how block grant reform works. You put a hard cap on spending, and then don’t raise it much. Remember, the cap is entirely how the Romney and Ryan proposals saved enormous amounts of money over time. They didn’t model innovation; they modeled not raising the cap. Again, go read this to understand why. Or, you can go read this letter to the WSJ, by Steven M. Costantino, Secretary of Rhode Island Office of Health and Human Services, and Marilyn Tavenner, Administrator of CMS:
In 2008, Rhode Island proposed a Medicaid reform waiver that included a cap on federal funding. The editorial’s focus on the financial caps as a significant factor in keeping cost trends low reflects a stark misunderstanding of the demonstration and how Medicaid financing works. There is no incentive to waste money. Federal funds are paid only if state dollars are expended and state funds are available. Rhode Island’s recent low cost trends are driven by improved management of the program. The state’s innovative approach to cost containment has been replicated across the country without a cap.
Oregon is testing a model that invests federal dollars to create better care and shared savings. The money must be returned if those quality and savings measures are not met. Arkansas is using a federal investment to pay for certain episodes of care in a way that incentivizes high quality, lower-cost care and it is doing it using existing flexibilities, no waiver was necessary.
Because of efforts like these, overall, Medicaid costs are going down across the nation. The cost outlook for Medicaid is as strong as it’s been in a long time. In 2012, Medicaid spending nationwide per beneficiary actually fell 1.9%.
The reality is that the cap on federal funding had absolutely no impact on driving Rhode Island’s success. For that reason, when Rhode Island submitted an extension request, it explicitly did not request a spending cap.
I have no problem with innovation. But it’s hard, and sometimes it fails. What many block grant proponents want first and foremost, though, are the spending caps. That’s how you make the budgets look nice. Restrictive caps can have really bad consequences, though.