Talk of repeal and replacement of Obamacare provides an unprecedented opportunity to consider policies that will bring meaningful reform to Medicaid.

Originally aimed to provide care for children, pregnant mothers, the elderly, the blind and disabled, ObamaCare’s Medicaid Expansion provision has transitioned the program into a vehicle to reduce the number of low-income uninsured, able-bodied adults.

{mosads}With the right federal reforms in place, states will be in a position to again exercise their place as “laboratories of democracy” when implementing policies to improve effectiveness in how they serve their most vulnerable populations.

In addition to program expansion, another troubling aspect is the enormous amount of money both federal and state governments spend on the Medicaid program.

Absent reform, Medicaid spending will top one trillion dollars a year by 2020, easily exceeding what the U.S. currently spends on national defense. This trajectory is unsustainable, and should prompt leadership in Washington to allow for greater authority over the design and implementation of the Medicaid program over to states.

Give States the Flexibility They Need to Modernize Medicaid

Congress is currently considering transitioning the Medicaid reimbursement structure into either a block grant or per-capita allotment system, a significant change from how current reimbursement rates are determined.

Right now, federal officials will calculate Medicaid match rates by comparing the poverty level in each state to poverty level in the U.S. Under a block grant, the federal government will award a fixed sum of money to a state each year, regardless of the number of beneficiaries in the program. The per-capita allotment option sets a per-person amount to provide Medicaid coverage for.  

Either option would require states to adhere to performance outcomes while also relaxing federal rules, freeing states of many of the top-down requirements currently imposed on them by the Centers for Medicare and Medicaid Services (CMS).

The success of a block grant system was shown in Rhode Island under the authority of a Global Waiver the state negotiated for during the final days of the Bush Administration.

In Medicaid, CMS must grant states permission to modify their program, and in this case, Rhode Island exchanged a flat sum of $12.075 billion over five years (2008–2012) for greater flexibility to implement reform policies. At the time, Medicaid spending had increased to 30 percent of the Rhode Island state budget, and then-Governor Carcieri was intent on reversing that trend.

The results were groundbreaking. Initiatives that aimed to keep people in their homes longer through the use of home and community based services in conjunction with delivering “the right services, at the right time, in the right-setting” healthcare cost savings in the Rhode Island Medicaid program were close to $2.3 billion, an enormous amount of money for such a small state.

Correct the Disparity in Medicaid Reimbursement

Traditional Medicaid covers the poor, elderly and indigent — the most vulnerable of our society — and on average federal reimbursement to states falls between 50 and 75 percent of the costs of their program. This rate is based on each state’s poverty level, and is re-calculated by CMS each year.

However, with coverage options under the Medicaid Expansion provision of ObamaCare, the reimbursement rate for the expansion population was set at 100 percent from 2014–2016, incrementally decreasing to 90 percent in 2020.

Reimbursing at a higher rate for able-bodied adults was designed to lure states into expanding their program in order to lower the rate of uninsured under Obamacare. As Congress and the president consider reform policies, Medicaid reimbursement rates for the elderly, indigent poor, and able-bodied adults needs to be reconciled.

Ensure Reimbursement Levels Are Fair to Non-Expansion States

As Congress and President Trump weigh transitioning the Medicaid program into either a block grant or per-capita allotment system, they should be mindful states that have expanded Medicaid have been receiving a higher reimbursement level, and should not receive more funding under either a block grant or per-capita based on what they have received in the past.

Obamacare forced expansion of the Medicaid program, stressing a narrow network of healthcare providers ill-equipped to serve rolls of nearly 72 million people.

Implementing the above policies at the federal level will allow states to move forward and reform their Medicaid programs in ways they see best to serve their most vulnerable populations.

Mia Palmieri Heck is the Director of the Health and Human Services Task Force for the American Legislative Exchange Council (ALEC).