Conservatives believe in limiting the federal regulatory role and encouraging self-sufficiency. In Medicaid, the Trump Administration has been rightly following these precepts — encouraging state flexibility, work requirements, state-specific approaches to coverage expansion, and possibly even block grants. Conservative believers in federalism have embraced Medicaid’s empowerment of the states to serve as “laboratories of democracy.” Rather than a top-down, one-size-fits-all approach, each state should be free to experiment with different coverage and payment rules and delivery systems.
The administration’s proposed Medicaid Fiscal Accountability Regulation is an odd counterexample to the Trump administration’s generally appropriate Medicaid direction, since it places more restrictions on States and increases the power of the federal agency. The Regulation should be modified to strengthen adherence to the Administration’s conservative goals.
Medicaid is currently financed through a combination of state and federal revenues. States rely on a combination of general revenues, provider taxes, local expenditures, public health spending, and other sources to provide their match to draw down federal funds.
Both Democrat and Republican governors have long chafed at the federal government’s micromanagement; the partnership often feels one-sided. As failed federal policies continue to allow health care costs to rise, state Medicaid budgets consume ever larger portions of state budgets, and governors privately and rightly gripe they could run their programs more efficiently without federal interference. Admittedly, States respond to unfunded mandates and rapid inflation with creative efforts to reduce the burden on their general funds. It is appropriate for the federal government to protect the federal treasury and discourage improper gamesmanship. However, the proposed regulation goes too far, could cause disruptive and unrealistic change and add unintended complexity and uncertainty to the States operating their Medicaid programs, and does not allow States to address the true drivers of higher healthcare spending.
First, the Regulation would immediately change many rules and sunset previous commitments made by the federal government. Some of the rule changes go too far and intrude improperly in a state’s ability to use non-tax revenues (such as tobacco settlement funds that are not in a state general fund) to fund their state share. Other rule changes are more understandable. However, even when the changes are understandable, because states are dependent on their current Medicaid financing arrangements and many have negotiated specific approvals from previous administrations, nullifying these arrangements immediately would cause dramatic state reductions in program investment, resulting in rate cuts and less coverage, increased taxes, and/or reduced spending on schools, roads, or other priorities. Well-funded and locally connected provider groups, in alliance with beneficiary advocacy organizations, would be aggressive in protecting their funding. Although some states would certainly be able to identify efficiencies or cuts to offset the loss of federal funding, many states would struggle to make such large reductions so quickly. Many may not even have legislative sessions that can timely address the immediate changes.
Second, the Regulation specifically states that “…we do not have sufficient data to predict or quantify the impact of the proposed provisions…, although we would expect states may modify existing tax policy….” This acknowledges that as a result of the Regulation, states and local governments may need to raise property, sales, and/or income taxes. Subsequent to this, CMS acknowledges that the “…impact… of the proposed rule is unknown.” These statements are reminders that responsible regulatory stewardship requires a careful and accurate review of the impact on states, providers, and patients, particularly when new state taxes are an obvious threat. What’s more, as opposed to giving states more responsibility tied to greater accountability, the Regulation would entangle the federal government further in what should be state and local statutory, regulatory, investment and revenue decisions. It would move farther away from the concept of an equal, efficient, effective partnership and toward a rigid framework under which states simply would implement a federal program. Equally important, the resulting new costs and administrative burdens do nothing to improve patient outcomes.
Third, the Regulation introduces uncertainty into the program by introducing subjective criteria that move away from the principles of federalism and shift more power to the federal government at the expense of the states. The Regulation permits the federal government to apply subjective criteria to critical Medicaid decisions, including the sources of State share and the governmental character of providers. Though conservatives trust this administration to treat them fairly, imagine the mischief future administrations could cause. A Democrat HHS with the power to approve or disapprove state financing based on “the totality of the circumstances” could essentially condition approval for state financing upon Medicaid expansion, just as a Republican HHS could use this broad discretion to impose an unspoken requirement for states to impose work requirements. To the extent we need federal regulation, there should be bright line tests and safe harbors so compliance is predictable and not unduly burdensome, not subjective criteria that can change drastically with each administration.
The Regulation should be revised to reduce the intrusion and encourage state flexibility within clear rules. Block grants, which the administration is reportedly pursuing for the expansion population, would certainly be one way to accomplish more state flexibility. Block grants also have the advantage of eliminating the incentive for states to use gamesmanship to yield additional federal dollars.
Under a block grant system, States would share in savings generated by encouraging private coverage, would be measured on easily understood health outcomes, and would be given presumptive flexibility on benefit and delivery design. Instead of spending dollars and time complying with onerous and subjective federal requirements, states could devote their resources to actually improving the efficiency of their Medicaid programs, as well as their residents’ independence and health outcomes. The federal government could shift its focus from micromanaging processes to measuring and encouraging better outcomes.
The administration is right to want to align incentives between the states and the federal government to improve health outcomes while lowering costs. State taxpayers pay federal taxes, and federal taxpayers pay state taxes. Medicaid reform should reduce overall spending rather than merely shifting the burden from federal to state taxpayers or vice versa.
Mr. Jindal served as governor of Louisiana from 2008 to 2016 and Congressman from 2005 to 2008. He served as Louisiana’s health secretary and as an assistant secretary at HHS. He consults for health care entities.