States can finally slay the healthcare cost dragon that is bankrupting America
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The crash landing of the ObamaCare repeal and replace measure in no way means this country is done attempting to increase access, enhance quality and control the costs of healthcare. The Affordable Care Act (ACA) extends healthcare coverage to more Americans, but the strength (and even solvency) of America’s economy demands that the current political debate focus on real affordability in addition to access and taxes. Stat.

Neither of the Republican alternatives focus on controlling the cost of healthcare. In fact, both have provisions that will increase costs. Yet with spending approaching 20 percent of the nation’s Gross Domestic Product the cost of healthcare and the lack of affordability are virtually bankrupting individuals as well as the three levels of government.

Republicans and Democrats have taken unfair advantage of states in enacting the ACA and proposing alternatives. The Democrats did it in their traditional way and mandated that all states expand Medicaid essentially forcing states to pay a huge amount of their own revenues on the expansion of low-income healthcare. (This was before the Supreme Court made the expansion optional).


Republicans did it in their conventional way, which is to provide block grant payments. Their motives are not really about increasing program efficiency or stimulating innovation, it is purely about saving federal money. Both approaches fail to reflect the principle of dual sovereignty envisioned by our forefathers and are bad public policy.

It is not too late to insert a provision in the current Senate bill or other bills to be proposed that supports states leadership and responsibility for long term cost control. Essentially it would provide incentives to states to do what they do best, which is to be entrepreneurial and policy innovators. Essentially the federal government would pay each participating state a bonus based on the savings they achieve after adopting a range of policies and innovations in cost control.

This would represent the total healthcare savings to the economy each year. This total would include huge saving for the Federal government in Medicare, Medicaid, Veterans Health and other federal programs including for Federal employee healthcare. The savings would be enough to pay states a bonus equal to 5-10 percent of those savings. It would also create huge saving for the private sector making them more competitive in the international marketplace and allowing them to create more U.S jobs.

Such a state-oriented approach is appropriate, as most of the policy levers for cost control already reside at the state level including:

  •  State laws and authorities governing insurance, scope of practice, provider rates and medical malpractice.
  • State laws promoting consumer choice through price and quality information and ensuring market-competition through antitrust authority.
  •  Authorities to enact policies in schools and invest in public health initiatives to improve population health.
  • State jurisdiction in administering government-sponsored healthcare programs such as Medicaid, Children’s Health Insurance (CHIP), state employee health benefits and health insurance exchanges.
  • Governor’s power to engage stakeholders and create a consensus for change.

Once a few states are successful with proven strategies, others will quickly adopt them. First, it allows states to tailor their approaches to the culture and healthcare market of the state. Second, there is little risk from unintended consequences as states are far more adaptable than the federal government in correcting policy errors. Third, it minimizes cost shifting. At this time cuts in Medicare or Medicaid often just shift costs to the private sector and do little good in controlling total healthcare costs.

There are a number of states that are now providing leadership but two examples stand out. The state of Maryland has been setting hospital prices since the 1970s when prices were increasing very rapidly. As a result, the state witnessed the slowest growth in per-patient costs in the nation during the last 25 years. More recently in 2012 the state of Massachusetts created an independent agency to develop policies to control healthcare costs and increase quality. While the state has some of the most expensive hospitals and doctors in the country, the state managed to successfully reduce healthcare spending while expanding healthcare to more of its residents.

Congress has an opportunity to finally slay the cost dragon that threatens not only progress made providing healthcare access to more Americans than ever, but jobs, economic security and growth. Every year that healthcare spending continues to run amok, both state and federal fiscal stability are jeopardized and less funding is left for public investment in education, research and development and transportation. It also brings us closer to enacting a single payer system by default.

The solution is to provide incentives to states to play the role initially specified by Supreme Court Justice Brandeis when he talked about “Laboratories of Democracy” and how a state may “serve as a laboratory and try novel social and economic experiments without the risk to the rest of the nation.”

Raymond Scheppach is a professor of public policy at the University of Virginia’s Batten School of Leadership and Public Policy, and Economic Fellow at the Miller Center. Scheppach was the executive director of the National Governors Association for 29 years. Prior to that, he was the deputy director of the Congressional Budget Office.

The views expressed by contributors are their own and not the views of The Hill.