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But quite to the contrary, the reform was shockingly successful and exceeded even the predictions of its most ardent supporters. The old AFDC rolls were reduced by two-thirds nationwide. Success was even greater in states that most aggressively pushed work for the able-bodied, as those formerly on the program went to work, or married someone who worked.
By 2006, total federal and state spending on TANF was down 31 percent in real dollars from AFDC spending in 1995, and down by more than half of what it would have been under prior trends. At the same time, because the new program encouraged work, the incomes of formerly dependent families rose by 25 percent, and poverty among them plummeted. “[B]y 2000 the poverty rate of black children was the lowest it had ever been,” reported Ron Haskins of the Brookings Institution in his book Work Over Welfare.
THE SAME MAGIC could work for Medicaid if Congress replaced matching funds with fixed, finite block grants. Each state would then be free to use the money for its own redesigned health care safety net, in return for work from the able-bodied.
There’s an example in Rhode Island, which in 2009 received a broad waiver from federal Medicaid requirements in return for a five-year fixed cap on federal financing. The state turned to managed care, competitive bidding by health care providers, and comprehensive case management by private insurers. It shifted more long-term patients out of nursing homes to home and community environments.
The Lewin Group, a top health care consulting firm, studied the reforms and concluded that they were “highly effective in controlling Medicaid costs” while improving “access to more appropriate services.” Indeed, the state’s costs were reduced by nearly 30 percent in the first 18 months alone.
Alternatively, states could use their block grants to provide vouchers that would help poor residents pay for private health insurance of their choice. Such vouchers would free the poor from the Medicaid ghetto and enable them to obtain the same coverage as the middle class. Among their choices would be Health Savings Accounts (HSAs), which maximize consumer control over health care dollars, rather than insurance company control. HSAs, backed up by catastrophic health insurance policies, provide powerful, proven incentives for consumers to reduce costs themselves, so as to preserve future funds.
Like modernized AFDC (TANF), Medicaid vouchers should be subject to a work requirement for the able-bodied. The Children’s Health Insurance Program (CHIP), which helps insure kids from modest-income families that earn too much to qual-ify for Medicaid, should be rolled into the block grants as well and administered by the states.
Block grants would provide each state with incentives to adopt long-overdue changes to reduce health costs, such as tort reform and the elimination of state-mandated benefits in favor of maximum consumer choice.
SUCH FUNDAMENTAL entitlement reform is now mainstream within the Republican Party. Paul Ryan included Medicaid block grants in his 2012 and 2013 budgets, both of which passed the Republican-controlled House. The CBO calculates Ryan’s reform would save $810 billion over the first 10 years. Equally important, the poor would gain the enormous advantages described above.
But the model bill is H.R. 4160, the State Health Flexibility Act, co-sponsored by, among others, Reps. Todd Rokita (R-Indiana), Tim Huelskamp (R-Kansas), Paul Broun (R-Georgia), and Jim Jordan (R-Ohio). It represents the dream legislation of Reagan and his top welfare policy advisor Robert Carleson, and was developed with assistance from the Carleson Center for Public Policy. Under the bill, the federal block grants would not be provided by the Department of Health and Human Services, but directly by Treasury, which would prevent the HHS bureaucracy from doing mischief through interpretive regulation. Moreover, as with the 1996 AFDC legislation, the block grant funding would be kept flat, rather than indexed to grow with population and inflation, as in Ryan’s budget. Consequently, the CBO scores this bill as saving $2 trillion over the first 10 years.
Every GOP presidential candidate endorsed the idea of Medicaid block grants, including apparent nominee and consequently party leader Mitt Romney. But Barack Obama and the dead-end Democrats are fiercely opposed. Obama called Ryan’s Medicaid block grants “the largest cut to Medicaid that has ever been proposed.” Would it be accurate to say the 1996 AFDC reforms “cut” welfare by 50 percent? How can it be rational to oppose reforms that would reduce costs while providing better care through choice, incentives, and competition? Opposition would only make sense if you were ideologically opposed to private, free markets rather than government and taxpayer dependency.
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