The Agenda

Does Medicaid Work Well?

Mark Schmitt takes exception to a recent post in which I discuss his characterization of the conservatism he attributes to William Voegeli, Paul Ryan, and others. His characterization of my post struck me as odd, but that’s fair enough. I’ll let readers decide if his criticisms have merit. But he has given me an opportunity to clarify some issues and to discuss the Medicaid program. 

First, let’s survey the landscape. My view is that there is an emerging strand of conservative domestic policy, which I associate with Voegeli and Ryan. It has a few core characteristics:

(a) it embraces the idea of a safety net;

(b) yet it aims to shift the conversation about the public sector from inputs (“How much are we spending?”) to outcomes (“Are we achieving our social policy goals in the most cost-effective manner?”);

(c) it is concerned about the shifting composition of federal transfers from redistribution from the nonpoor to the poor to redistribution from the nonpoor to the nonpoor, through the instrument of tax expenditures and poorly-designed social insurance mechanisms.

(d) Conservatives in this vein do want to cut spending — but they see cuts as an instrument to drive change in how the public sector delivers services.

(e) It is not a coincidence that people who are deeply skeptical of, say, the value of the productivity revolution in U.S. retail find the idea that cuts could help drive productivity improvements. The missing piece is that public institutions need to have room to maneuver, to embrace new organizational forms and strategies. One potential problem is that because conservatives are seen as hostile to the public sector, this agenda is not resonating with a crucial constituency, namely public sector managers charged with delivering high-quality services. This is a good reason for conservatives to look to Philip K. Howard’s “start-over movement” to find a more compelling vehicle for this productivity agenda. 

There are many other aspects of this emerging conservative sensibility, but I think of these as particularly important. Others will suggest that Voegeli and Ryan et al. are advancing a very different vision, and they may well be right. Perhaps I’m engaged in projection or wishful thinking. But this is what I’ve gleaned from conversations with the relevant parties and from the proposals they’ve advanced. 

I should stress that I don’t always think Voegeli and Ryan get the solutions right. Josh Barro and I, for example, were sharply critical of many aspects of the Ryan Roadmap in its earliest incarnation, though I think the more recent Ryan-Wyden proposal is a significant step in the right direction. 

One view that Ryan has advanced is that Medicaid block grants would help address the diffusion of accountability that plagues joint state-federal programs. Here is how I described the idea in a previous post:

The idea behind Medicaid block grants is that they will give states greater flexibility and align incentives in a more coherent way. There are, of course, problems with some of the Republican block grant proposals. Josh Barro has done an excellent job of summarizing the relevant issues: block grants should reflect the business cycle; they should grow at a reasonable rate, etc. But to the extent there is now an incentive to overspend (“When a state decides to spend an extra dollar on Medicaid, it only costs state taxpayers about 43 cents at the margin”), block grants could help mitigate it.

Clicking through the link to Josh’s post will show you that Josh argues that the Ryan version of Medicaid block grants is not very well-designed, as it doesn’t reflect fluctuations in the business cycle and its assumptions regarding medical cost growth aren’t sufficiently realistic. Well-designed block grants could encourage states to be more frugal, but they wouldn’t yield the savings envisioned by Ryan’s proposal. 

I am increasingly skeptical of Medicaid block grants, well-designed or otherwise. Consider the following passage from Michael Greve’s essay on “The State of Our Federalism“:

Or suppose we follow the recommendation—again, of all Republican candidates, as well as Congressman Ryan’s budget plan—to restore federalism by turning Medicaid and other federal programs into block grants: instead of being ordered about by federal bureaucrats, states will get to design and run the programs in accordance with their needs and at much lower cost, or so we are told. That looks sensible to sensible voters in sensible states—Indiana, Utah, South Carolina. Idaho, for that matter. But a national policy that allows good states to do good things also allows bad states to to bad things. California, which all by itself is much bigger than all good states combined, will hand the block-granted money to its unions, toss the most destitute Medicaid recipients into the street, and then complain about federal “mandates.” Two Washington Post columns later, the funding will be increased. But who will call the bluff— President Perry, who ran on the states’ rights platform and, specifically, on block-granting Medicaid? The Republican majority in Congress? California legislators? Not a chance. Meanwhile, what should your governor or senators do? Support a “states’ rights” scheme that allows California to ruin the nation—or, to forestall that result, insist on rigid federal rules that then constrain perfectly sensible, cost-effective policies in Idaho? Damned if you do, damned if you don’t. You are going to get a bigger, more intrusive, less efficient government either way.

That is, Medicaid block grants will not somehow be immune to political contestation, even if we design them so that they fluctuate with the business cycle, they grow at an entirely reasonable rate, etc. As Greg Anrig, very much a critic of the political right, has argued, the diffusion of accountability is itself a key problem:

Medicaid has always been plagued by inequities, inefficiencies, and scattershot effectiveness, largely because its dual federal-state character diffuses accountability and some state governments simply don‖t care much about the poor.

And so Anrig (from the left) like Greve (from the right) favors federalizing Medicaid, to address this diffusion. Here Anrig describes Reagan’s “big swap“:

One largely forgotten Reagan initiative was a 1982 grand bargain that would make the federal government entirely responsible for financing Medicaid in exchange for giving states responsibility for more than 40 other federal aid programs, including Aid to Families with Dependent Children (AFDC). Back in 1969, again in 1977, and yet again in 1981, the U.S. Advisory Commission on Intergovernmental Relations, which comprised officials in all levels of government, had recommended that the federal government assume full financial responsibility for all public assistance programs, including Medicaid. The Commission argued that its ideas would greatly improve an intergovernmental system that had grown “more pervasive, more intrusive, more unmanageable, more ineffective, more costly and above all, more unaccountable.” While Reagan’s plan proposed basically the inverse–moving programs to the states, with the lone exception of Medicaid–few disagreed with the need to do something dramatic to repair a deeply flawed system of federalism. The “sorting out” idea unraveled quickly, though, largely because of opposition from state officials.

We’ve discussed the “big swap” on numerous occasions. While Anrig doesn’t embrace Reagan’s vision, he makes a good case for why federalizing Medicaid would actually enhance state autonomy:

The perpetual long-term budgetary crunch facing states simplifies the case that can be made for a radical change in course. For anyone who believes that states should be primarily responsible for carrying out basic public services, enabling state governments to shed their Medicaid obligations would give them far greater flexibility and capacity to educate their students, carry out law enforcement, invest in transportation and other infrastructure, avoid deep cutbacks during economic downturns, and, if they choose, reduce state taxes. Supporters of all those other governmental activities ought to be counted on to rally on behalf of federalizing Medicaid, since doing so would greatly benefit their own causes.

Anrig’s core concern is that some states are simply disinterested in poor people. But the diffusion of accountability has other implications as well. The most generous states, for example, have been able to shift much of the cost of Medicaid expansions to the federal government, thus encouraging eligibility expansions that are politically popular but difficult to sustain in a downturn. Suffice it to say, champions of the increased social expenditures will see this differently from those primarily interested in containing social expenditures: generous states will look like heroes to the former and villains to the latter; states that pursue the opposite course will yield diametrically opposed reactions.

But what many on the left and right will agree on is that the diffusion of accountability is a serious problem that makes Medicaid less effective, and less cost-effective, than it might otherwise be. Schmitt writes the following:

States have plenty of incentives to cut costs and there are 84 Medicaid waivers for states that manage their programs more effectively.

The salient question is whether these incentives are strong or weak, whether the incentives are to cut short-term costs or long-term costs, whether a piecemeal approach based on waivers is adequate to the scale of the problem, etc. 

Again, whether or not we embrace this proposition depends on whether or not we think Medicaid eligibility should be dramatically expanded. If you think that it should, the incentives to cut costs may well be too strong if the federal government pays 50 cents or 75 cents or 96 cents on the dollar for Medicaid expansions (that last figure applies to expansions under PPACA).  

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