Medicaid is ravaging fed and state budgets. The program is expected to cost $338 billion in the current fiscal year, up 80 billion, or about 31%, in just the last three years. The feds pay about 57% of the program's costs, the states the rest. The CBO says that Medicaid will be one of the main causes of the looming explosion in fed spending over the next few decades. If the current trends hold true, Medicaid spending by the fed will grow from 1.5% of GDP to 4.5% by 2050. State Medicaid funding is roughly 1/4 of state budgets right now. We must implement practical and feasible reforms that have already been developed to fix this crisis.
The model is the mid-1990s reform of AFDC. Following that model, federal Medicaid spending would be replaced by block grants to each state for their own programs for the poor. The state programs would have to be based ona work requirement for able-bodied recipients for the state to receive the federal funds.
In the case of AFDC, after these reforms were implemented, the numbe rof recipients in the program dropped by over 50% nationwide, with states with the strictest work requirements trimming the rolls by 80%.
Medicaid gives states an incentive for signing up more people to it. States recieve about a dollar ormore in federal funds for each dollar they spend on the program. This encourages states to sign more people to bring more fed money to the state.
But the reforms provide for a fixed block grant amount for each state, regardless of how much the state spends on its program. Any excess costs the state would incur would be covered by the states alone. Also, as an incentive to getting people to come off the rolls or to save, any savings the state acheives is kept by the state, freeing up state funds for other uses.
With these changed incentives, the states with AFDC moved to aggressively get recipients off the rolls of AFDC. This led to more money going to the truly needy, as opposed to those who could work. And among the able bodied, more decided it was better to get a private sector job than to get a job and recieve assistance.
These same reforms could work for Medicaid. Even keeping total federal spending on the block grants at the current level of federal Medicaid spending, with no federal reductions for the state savings, would still save the Feds almost a trillion dollars over the next 10 years.
After that first 10 years, the fed block grants could be limited to grow no faster than GDP.
Such Medicaid reform would also make Social Security reform involving large personal accounts more feasible. The enormous long run federal saving would be more than enough to cover the transition to federal accounts that has been proposed by Paul Ryan of Wisconsin and John Sununu of New Hampshire. Those large accounts, averaging roughly the employee share of the SS payroll tax, would in turn make Medicaid reform more feasible. With workers saving and investing in such large personal ccounts, they would each retire with several hundred thousand dollars in their accounts in real terms.
Medicaid and Social Security reform, real bold reform, needs to be a main agenda item for Conservatives.
