MARCH 28, 2011
A case study in how waivers for state innovation can work.
Medicaid is the major cost driver in state budgets these days, so several Governors have proposed a deal to the White House and Congress: They'll take less money in return for the flexibility to run the program with fewer federal strings. A case study in the potential benefits is coming from liberal Rhode Island, of all unlikely places.
Here's the story: In 2008, then-Governor Don Carcieri asked Washington for a Medicaid waiver and block grant to reform a program that consumed 30% of its budget. The state encountered months of federal foot-dragging and, according to one of Mr. Carcieri's deputies, at one point a health administrator in Washington asked: "If you get this waiver, what will our job be?" In January 2009 during the final days of George W. Bush's Presidency, the feds finally gave the Ocean State a sweeping Medicaid waiver.
Rhode Island agreed to a global cap on expenditures over five years of $12.075 billion in exchange for broad reform authority. The waiver is not a pure block grant, because the state agreed not to drop coverage for anyone eligible under federal Medicaid rules and retains the federal-state cost sharing for Medicaid expenses.
The results? After 18 months, Rhode Island's Medicaid spending, which was projected to reach $3.8 billion, has declined to $2.7 billion, according to a report by Mr. Carcieri's Office of Health and Human Services. The state implemented a blizzard of reforms, including wellness programs, co-payments, audits of hospitals and nursing homes, fraud prevention, and letting seniors move from nursing homes into home and community care. The state has also saved a bundle by replacing federal "any willing provider" rules—which require that Medicaid dollars flow to any federally approved doctor or hospital regardless of cost—with competitive bidding.
Not every Rhode Island reform has worked, and some critics question whether the savings are as large as advertised. The state HHS is studying that issue now. But what almost no one challenges is the improvement in the quality of patient care.
The Providence Journal investigated the program and acknowledged last year: "To the surprise of many, everyone involved seems satisfied with the way the state's much-debated 'global Medicaid waiver' is working—at least for now."
Kathleen Connell, the head of Rhode Island AARP, says her group supports the waiver because "Seniors have absolutely benefited from being moved out of nursing homes into home and community-based care. The program is moving in the right direction for seniors."
Steven Costantino, the state's new Medicaid director and former Democratic chairman of the state's House Finance Committee, says "The trend rate of spending [in Rhode Island] has been 7.6% per year, and that's not sustainable. I do believe that the waiver offers us the flexibility to make the necessary policy changes to transform the system."
That isn't what liberal advocacy groups said when they ran ads showing Mr. Carcieri pushing seniors in wheel chairs down the stairs. The usual suspects in the poverty lobby called the waiver "radical," "ideologically driven," and setting a "dangerous precedent" by capping expenditures.
Liberals also claim that $400 million in stimulus cash saved Rhode Island Medicaid's program, not the waiver. But that ignores that the stimulus has forced Rhode Island and other states to spend more on Medicaid because of "maintenance of effort" rules that forbid states from cutting the program. The Obama Administration also insisted that Rhode Island drop its plans for medical savings accounts for Medicaid patients, which also might have saved money.
Rhode Island's experiment highlights the perverse Medicaid incentives that could be fixed with a more complete block grant. The states and the feds share the cost of Medicaid, with the federal government covering between 50% and 70% of a state's Medicaid bills. This rewards states for wasting health-care dollars, because every dollar spent brings another 50 cents or more via taxpayers from other states. Spending caps can be abused when they are used to limit care, but combined with flexibility in this case they improve care.
At least a half a dozen Governors are now asking Washington for a Rhode Island-style waiver, including Haley Barbour of Mississippi, Tom Corbett of Pennsylvania and Rick Scott of Florida. Waivers like this are how Governors like Tommy Thompson of Wisconsin and John Engler of Michigan led the way in reforming welfare in the 1990s. If Congress and the White House are serious about reducing the cost of entitlements, they'll grant a Rhode Island-style waiver to any state that requests one.
Here's the story: In 2008, then-Governor Don Carcieri asked Washington for a Medicaid waiver and block grant to reform a program that consumed 30% of its budget. The state encountered months of federal foot-dragging and, according to one of Mr. Carcieri's deputies, at one point a health administrator in Washington asked: "If you get this waiver, what will our job be?" In January 2009 during the final days of George W. Bush's Presidency, the feds finally gave the Ocean State a sweeping Medicaid waiver.
Rhode Island agreed to a global cap on expenditures over five years of $12.075 billion in exchange for broad reform authority. The waiver is not a pure block grant, because the state agreed not to drop coverage for anyone eligible under federal Medicaid rules and retains the federal-state cost sharing for Medicaid expenses.
The results? After 18 months, Rhode Island's Medicaid spending, which was projected to reach $3.8 billion, has declined to $2.7 billion, according to a report by Mr. Carcieri's Office of Health and Human Services. The state implemented a blizzard of reforms, including wellness programs, co-payments, audits of hospitals and nursing homes, fraud prevention, and letting seniors move from nursing homes into home and community care. The state has also saved a bundle by replacing federal "any willing provider" rules—which require that Medicaid dollars flow to any federally approved doctor or hospital regardless of cost—with competitive bidding.
Not every Rhode Island reform has worked, and some critics question whether the savings are as large as advertised. The state HHS is studying that issue now. But what almost no one challenges is the improvement in the quality of patient care.
The Providence Journal investigated the program and acknowledged last year: "To the surprise of many, everyone involved seems satisfied with the way the state's much-debated 'global Medicaid waiver' is working—at least for now."
Kathleen Connell, the head of Rhode Island AARP, says her group supports the waiver because "Seniors have absolutely benefited from being moved out of nursing homes into home and community-based care. The program is moving in the right direction for seniors."
Steven Costantino, the state's new Medicaid director and former Democratic chairman of the state's House Finance Committee, says "The trend rate of spending [in Rhode Island] has been 7.6% per year, and that's not sustainable. I do believe that the waiver offers us the flexibility to make the necessary policy changes to transform the system."
That isn't what liberal advocacy groups said when they ran ads showing Mr. Carcieri pushing seniors in wheel chairs down the stairs. The usual suspects in the poverty lobby called the waiver "radical," "ideologically driven," and setting a "dangerous precedent" by capping expenditures.
Liberals also claim that $400 million in stimulus cash saved Rhode Island Medicaid's program, not the waiver. But that ignores that the stimulus has forced Rhode Island and other states to spend more on Medicaid because of "maintenance of effort" rules that forbid states from cutting the program. The Obama Administration also insisted that Rhode Island drop its plans for medical savings accounts for Medicaid patients, which also might have saved money.
Rhode Island's experiment highlights the perverse Medicaid incentives that could be fixed with a more complete block grant. The states and the feds share the cost of Medicaid, with the federal government covering between 50% and 70% of a state's Medicaid bills. This rewards states for wasting health-care dollars, because every dollar spent brings another 50 cents or more via taxpayers from other states. Spending caps can be abused when they are used to limit care, but combined with flexibility in this case they improve care.
At least a half a dozen Governors are now asking Washington for a Rhode Island-style waiver, including Haley Barbour of Mississippi, Tom Corbett of Pennsylvania and Rick Scott of Florida. Waivers like this are how Governors like Tommy Thompson of Wisconsin and John Engler of Michigan led the way in reforming welfare in the 1990s. If Congress and the White House are serious about reducing the cost of entitlements, they'll grant a Rhode Island-style waiver to any state that requests one.
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