Letter of Support: Sen. Coburn's Medicaid Improvement and State Empowerment Act, S. 1031
Dear Senator Coburn,
On behalf of more than 1.7 million Americans for Prosperity activists in all 50 states, I write to applaud your introduction of S. 1031, the Medicaid Improvement and State Empowerment Act. Your bill advances one of AFP’s strongest fiscal policy priorities: putting Medicaid back on a sustainable fiscal path by replacing the current inefficient FMAP funding structure with block grants that promise to bring billions in savings along with improved services for the neediest Americans.
Medicaid spending is growing at unsustainable rates and is heavily contributing to the exploding national debt. Federal government spending on the program has more than doubled in the past decade, jumping from $118 billion in 2000 to $273 billion last year. Despite state governors’ constant complaints of the severe strain it places on their budgets, the Medicaid expansion under the president’s new health care law promises to take an additional $118 billion bite out of their budgets through 2023. Benefits are already being scaled-back in the program and Medicaid recipients are denied care as a result: currently 40 percent of physicians refuse access for Medicaid patients because the program’s reimbursement rates for physicians are too low. Without reform, Medicaid will either crush our nation with further debt and higher taxes, or it will fail to provide promised benefits to needy Americans.
Two major flaws in the current FMAP funding structure are causing this unsustainable spending. First, the funding structure incentivizes bloated spending on Medicaid and S-CHIP while making any cuts extremely difficult. This is a budgetary nightmare for states that are currently facing cumulative budget deficits of $175 billion over the next three years. Matching funds mean that the more a particular state spends on the programs, the more it gets from the federal government – essentially paying states to spend more. Conversely, it costs states double to reform their Medicaid spending – for every state dollar they save from the program they lose a federal dollar as well. This budgeting problem is further compounded by the large chunk of state budgets that Medicaid consumes: the National Governors Association recently reported that Medicaid accounts for nearly a quarter of total state spending, and was quite often the single largest item on states’ budgets.
Second, federal matching funds come with many strings attached: a slew of rules, restrictions, and red tape that ties the hands of state officials and limits opportunities to use the funds most effectively. One prime example is the costly Medicaid “Maintenance of Effort” requirements imposed by the new heath care law that orders states to add millions of individuals to their Medicaid rolls, but fails to provide additional federal funding to do so. With more and more restrictions added over the years, states have in effect become de facto administrators of a federal program.
Block grants would free the states from such restrictions and backwards funding incentives. Instead of matching funds, under your plan states get a lump sum grant that caps total federal funding assistance for the program and grows over time only with inflation and population growth. Cost-savings are further encouraged because states get to keep any grant funds that they do not spend. This empowers states to more effectively budget for health care spending, setting spending levels according to the unique needs and priorities of their citizens. Equally important, states are freed from the federal rules and restrictions previously attached to the matching funds: under your plan states will be allowed to design and innovate in their programs as they see fit, adopting their own methods to improve benefit delivery for the neediest populations, improve efficiency, and find cost-savings that stretch the value of taxpayers’ dollars further. We are pleased to see that your bill repeals Medicaid MOE requirements.
When given the opportunity to innovate through block grants, states have proven the success of this strategy. Rhode Island has already found success with a block-granting waiver that took effect in 2009, saving $100 million on its Medicaid program within the first eighteen months. When the old Aid to Families with Dependent Children (AFDC) welfare program was converted from matching funds to block grants in 1996, states were given incentives to find program-savings by reducing dependency and improving the outcomes for welfare recipients. The result was spectacular success: former welfare dependents were put to work, child poverty declined every year, welfare rolls were reduced by two-thirds nationwide, and total federal spending on the program fell by 31% from 1995 to 2006. By moving people off of welfare and into employment, states were able to more effectively target and improve support for its most vulnerable citizens. Total spending per welfare recipient has exploded, growing from $1,031 in 1996 to $3,756 in 2009, its highest level ever.
Considering the proven success of block grants, we encourage you to consider expanding your bill’s reforms to include acute care for disabled individuals and dual eligibles, those who qualify for both Medicare and Medicaid assistance. Your bill provides a specific exemption for these populations, maintaining the current flawed FMAP model for their acute care.
Americans for Prosperity is proud to support your legislation and its efforts to get government health care spending under control. I urge your colleagues to support its passage, and I look forward to working with you in the future.
Director of Government Affairs
Americans for Prosperity