Preventing state bankruptcy: Why Medicaid reform matters

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Nearly every day, you hear about the failure of President Obama’s health care law, and rightfully so. You also hear a lot about the state budget crisis. Virtually every state is straining to balance its budget, and in some states the looming threat of bankruptcy is very real. What you don’t hear about is how the health care law is one of the main reasons for the crisis, and that Congress has the power to alleviate it if it listens to governors from both parties and uses common sense.

First, some background: The largest portion of most state budgets is Medicaid, which consumes about 21 percent of their annual expenditures. Created by Congress in 1965, Medicaid was set up as a partnership between the states and the federal government to provide health care for the neediest Americans — specifically, the elderly, the poor and people with disabilities (the feds pay 57 percent of Medicaid costs, on average). In recent years, however, the program has grown from a safety net for the most vulnerable to a health insurance program for a wide variety of groups.

Since 2007, 8 million Americans have been added to the Medicaid rolls, bringing the total number of Medicaid enrollees to 50 million (or about one out of every seven Americans). As part of President Obama’s health care law, starting in 2014, an extra 16 million Americans will go onto the program. Needless to say, this will bring total Medicaid costs — which currently stand at $346 billion annually — into unsustainable territory.

But it gets even worse. Thanks again to last year’s health care law, the federal government is preventing the states from making cost-saving reforms to Medicaid. Under the so-called “Maintenance of Eligibility” (MOE) requirement in Medicaid, states are prohibited from adjusting their eligibility for Medicaid prior to the program’s explosive expansion in 2014.

While the federal government will pay for its new Medicaid costs the way it usually does — by either borrowing or printing money — the states won’t be able to. Since 49 states require a balanced budget by law, governors of both parties are eyeing the extra hundreds of billions in Medicaid costs with great alarm — especially at a time when they’re already scrambling to make up a combined budget shortfall of $125 billion in Fiscal Year 2012.

Skyrocketing Medicaid costs are forcing governors to consider raising taxes or cutting vital services, such as education and law enforcement. In some states, there is growing chatter about having to declare bankruptcy. That’s why the bipartisan National Governors Association has called MOE reform one of its top priorities for Congress this year.

To deal with this growing program, we’ve come together in Congress to introduce The State Flexibility Act. Our bill would eliminate the MOE requirement and fundamentally change Medicaid from a federally directed, one-size-fits-all program into a true partnership between the states and the federal government. By empowering the states to become “laboratories of democracy,” we can create a climate for innovation and cost savings, while ensuring that Medicaid continues to meet the needs of our most vulnerable.

The State Flexibility Act has been endorsed by Americans for Tax Reform and Citizens Against Government Waste. Rep. Fred Upton (R-MI), the chairman of the House Energy and Commerce Committee, is an original cosponsor. The Senate version was recently introduced by Sen. Orrin Hatch (R-UT), the ranking member of the Senate Finance Committee.

When it comes to most issues, the government closest to the people is the one that governs best. That’s especially true with Medicaid. Whether it’s governors, taxpayers or Medicaid recipients, they all deserve flexibility and choice, rather than top-down requirements imposed by bureaucrats thousands of miles away. Our bill will bring Medicaid into the 21st century, avoid a potential fiscal disaster and ensure the program’s availability for those who need it most. It’s a win-win-win.

Rep. Phil Gingrey (GA-11) is Co-Chair of the GOP Doctors Caucus. Rep. Cathy McMorris Rodgers (WA-05) is Vice Chair of the House Republican Conference.