RALEIGH — Gov. Beverly Perdue and other Democratic governors opposed the Medicaid block grant provision in U.S. Rep. Paul Ryan’s federal budget proposal. They misunderstand how it could improve Medicaid, particularly for North Carolina.
Perdue rejected block grants to help rein in the unlimited growth of Medicaid expansion, and doing so without raising taxes on the people of North Carolina or cutting other public services. Her resistance to block grants shows her inability or unwillingness to understand that the federal health care reform bill makes the currently unaffordable Medicaid program worse. It removes nearly all flexibility from the state to alter the program so that recipients do not suffer from worse care and longer wait times and that state residents do not face higher taxes or fewer government services to fund substandard health insurance.
State Health and Human Services Secretary Lanier Cansler said block grants would mean fiscal disaster for the state, but the president’s health reforms more clearly damage state finances now and over the next decade. In fiscal year 2009, Medicaid cost state and federal governments an estimated $378 billion. At that same time, North Carolina spent roughly $3.4 billion on Medicaid, in addition to the $6.5 billion granted by the federal government.
The health reform bill limits North Carolina’s ability to make cuts to Medicaid eligibility or payments to doctors. It would lead to an enrollment increase of more than 500,000 people. Ryan’s proposal starts with full repeal of the president’s health reforms, saving North Carolina Medicaid immediately and into the future.
The greatest problem with the Medicaid system is that because North Carolina receives nearly two dollars in federal funds for every dollar in state funds, it cannot downsize the program without eliminating two-thirds of its contributions. This, in turn, provides incentives to expand Medicaid. Without cuts, the only solution is to raise taxes or take funding away from other public goods such as education and public safety.
Block grants, in contrast to the federal government’s current payment method, ensure North Carolina would secure Medicaid funding in a predictable amount with no federal strings. Block grants give flexibility and autonomy back to states, allowing each to determine how to spend its own health care funds, instead of a one-size-fits-none program.
This form of cost-sharing will help North Carolina predict how much funding will be available (and for how long), remove incentives to expand coverage, and permit the state to structure the program in a more sustainable way that guarantees care to individuals. One option would be to establish personal accounts for Medicaid recipients combined with subsidies for a consumer-driven health policy.
The John Locke Foundation and others have recommended on several occasions the use of block grants for funding Medicaid. Supporters cite success stories of states such as Rhode Island, whose governor credited its waiver as the prime contributor to the state’s fiscal surplus in 2010. Rhode Island’s success spurred other states, including Michigan, Oklahoma, Washington, and Colorado, to study waivers for block grants. The Obama administration has not shown a willingness to approve any new waivers.
Cansler said block grants would create a spending cap that could not keep pace with population growth and the aging North Carolina population. However, if Ryan’s recommendations “give states the flexibility to tailor their Medicaid programs to the needs of their unique populations,” North Carolina should be able to vary its Medicaid program in a way that allows prices to stabilize and quality of care to improve. Furthermore, block grants would dispose of perverse state incentives to cover as many programs under Medicaid as possible to increase federal contributions.
The Ryan proposal is exactly what North Carolina needs to address Medicaid’s structural problems. It cuts the federal strings that limit program flexibility and leaves recipients with less access to care. Ending the federal health reform removes the threat of ever-higher costs and massive expansions.
If Perdue and Cansler are concerned about the state’s fiscal health, they should seek a waiver from the federal law and work toward its repeal, instead of attacking a plan that would accomplish what they say they want.
Nicole Fisher is a health policy fellow at the John Locke Foundation.