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For the third time this decade, states
are looking to Congress for help with their Medicaid costs. At least
the Big Three auto manufacturers only come around once a generation.
States got a straight up $20 billion bailout for their Medicaid
programs in 2003. Later that same year, Medicare Part D was signed into
law and went into effect in 2004. Ever since, states have offloaded
tens of billions of dollars in prescription drug costs to the federal
government for their Medicare/Medicaid dual eligible populations.
Now in 2009 the states are back at the federal trough. This time a bailout of up to $100 billion is being seriously discussed.
All of this is despite the fact that since 1966 every state has had
an open-ended claim on the federal treasury for their Medicaid costs.
Whatever a state spends on Medicaid, within very broad parameters, it
receives an average federal match of nearly 60 percent. In poorer
states it exceeds 70 percent.
That federal match has set in motion two dynamics that overwhelm
every discussion of Medicaid in state capitals: “If we spend one dollar
on Medicaid we get two ‘free’ dollars from the federal government,” or
“We can’t cut Medicaid because for every dollar we cut we lose $2.”
The result of these incentives is that the cost of Medicaid to the
states and to the feds has continued to skyrocket disproportionately.
It is worth noting that Congress only mandates a floor of services
and populations that states must cover under Medicaid. All 50 states
exceed that floor and cover “optional” benefits and populations to
varying degrees. Those optional items receive the same federal match
percentage and add considerable cost at each state’s discretion. States
that have chosen rich optional packages are at more fault than states
with leaner programs.
In December, President Bush authorized the bailout of the Big Three
automobile manufacturers. That was a mistake as it merely subsidized
bad management and bloated union contracts, which has led to a flood of
requests for bailouts from virtually every other industry, including
adult entertainment (but at least Larry Flynt was joking).
However, the Detroit bailout did contain two appropriate provisions.
The money was a loan and it came with key requirements for fundamental
restructuring designed to ensure permanent solvency.
The same two standards should be part of any Medicaid bailout and
the latter should aggressively target the tens of billions of dollars
in fraud and abuse that occurs in Medicaid annually. According to the
New York Times and a private study, New York Medicaid alone loses more
than $10 billion each year to fraud and abuse.
States should have to apply individually for their loan with a
detailed plan for serious, long-term reform that includes the following:
If Congress insists on a third federal bailout of state Medicaid
programs this decade, then at the very least it should aim to not have
any more in the future. Taxpayers cannot afford it.
Newt Gingrich is a senior fellow at AEI. Jim Frogue is state project director at the Center for Health Transformation.
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