Block Grants: A prescription for Medicaid reform in Wyoming

by Charles Katebi

Every year, Wyoming taxpayers spend hundreds of millions of dollars on Medicaid. Yet we have little to say in its management. The federal government mandates who Medicaid covers, what it pays for, and how it pays doctors. Because of all these mandates, Medicaid has grown too large and cumbersome to ensure patients have reliable access to quality healthcare.

Fortunately, we can turn this around.

Republicans in the US House of Representatives, lead by Speaker of the House, Paul Ryan, recently unveiled their vision for patient-centered healthcare reform. Most important for Wyoming, Ryan's plan empowers states to reform Medicaid.

Ryan's plan transforms Medicaid from an open-ended entitlement to a Block-Grant. With a block grant, states can choose to receive Medicaid funding through capped per-patient grants known as per capita allotments or as a lump-sum payment for the whole program. In addition, Ryan's plan would let states make Medicaid more accountable, dynamic, and responsive to patient needs, saying:

Governors and state legislatures are closer to patients in their states and know better than Washington bureaucrats where there are unmet needs and opportunities to cut down on waste, fraud, and abuse. All states should have more flexibility to adapt their Medicaid programs, to better design benefit packages in a way that better meets the needs of their state populations, promotes personal responsibility and healthy behaviors, and encourages a more holistic approach to care.

Block grants have a long history of successfully reforming government programs. In 1981, Congress consolidated a total of 50 federal programs into nine block grants, allowing states to tailor them to serve their specific education, health, and transportation needs. According to the Government Accountability Office, these block granting initiatives improved outcomes and cut costs by: "encouraging administrative cost savings, decentralizing decision-making, promoting coordination, spurring innovation, and providing opportunities to target funding."

Then in 1996, Congress applied these principles to the welfare program, Aid to Families for Dependent Children (AFDC). Once Congress turned states off from the federal money spigot, states introduced innovative reforms that put welfare recipients back to work and out of poverty.

Wyoming's Medicaid program is in dire need of greater flexibility. Due to the dramatic fall in mineral tax revenues, the program can no longer provide healthcare on an open-ended basis. If Medicaid was a state healthcare program, Wyoming could prioritize scarce resources for truly needy patients and incentivize cost-effective treatments. But since Medicaid is a joint state-federal program, the federal government prohibits Wyoming from imposing prudent cost control measures.

For example, federal rules strictly limit the out-of-pocket fees states can charge Medicaid enrollees. States can't charge enrollees more than $4 for physician visits, $8 for non-emergency ER visits, and $75 for inpatient hospital care. Without the authority to raise out-of-pocket fees, states can't incentivize patients to seek cost-effective treatments.

As a result, Medicaid must cut benefits for everyone. At the Joint Appropriations Committee's recent meeting, Governor Matt Mead announced $77 million in across-the-board reimbursements cuts to hospitals, nursing homes, mental health clinics, and other providers. These will make it harder for doctors to treat the most needy Medicaid patients.

Why should the poorest and most vulnerable patients settle for government insurance that makes it harder to see their doctors? Instead of trapping the truly needy in this dysfunctional program, we should empower them to choose the best healthcare options for themselves and their families.

A block grant would allow Wyoming to do just that.

For example, a better Medicaid program would provide direct financial support to enrollees through Health Savings Accounts, or HSAs, funded by the block grant. HSAs are tax-exempt accounts patients can draw upon to pay health expenses. They could purchase comprehensive insurance, catastrophic insurance, or even pay for their healthcare directly through a concierge plan. The choice is theirs.

Unlike traditional Medicaid, HSA-financed health plans also encourage enrollees to seek affordable healthcare. A landmark study by the Rand Corporation found that patients with HSA-financed high-deductible insurance spend 21 percent less for their healthcare than patients with little or no out-of-pocket fees. When people pick up part of the tab, they look for the best value and avoid excessive and unnecessary treatments.

Block granting Medicaid would let Wyoming pursue these and other patient-centered reforms uninhibited by onerous federal regulations. Until then, we'll continue paying for a broken entitlement that leaves the neediest Wyomingites with less and less access to care.