Lawmakers are scrambling to address the staggering $14.29 trillion national debt and a vote to raise the debt ceiling is fast approaching. While legislators negotiate cuts to discretionary spending, they must also consider making significant reforms to the nation’s growing entitlement programs.

In January, 33 governors and governors-elect sent a letter to President Obama and congressional leaders requesting “flexibility and relief” from “excessive constraints placed on us by healthcare-related federal mandates.” With a $175 billion collective budget shortfall through 2013, states are looking for viable ways to trim excess spending, reduce deficits, and restore fiscal discipline. This cannot be accomplished without making reforms to Medicaid, an entitlement program that is jointly funded by the state and federal governments. Medicaid is riddled with waste, fraud and abuse; the Government Accountability Office estimates improper payments in Medicaid for fiscal year (FY) 2010 cost taxpayers $22.5 billion.

Although Medicaid was first established as a limited state-federal partnership program, it has grown dramatically since its inception. Today, nearly one out of every four Americans is enrolled in Medicaid, with program spending absorbing nearly one-quarter of all state government budgets. Over the next 10 years, the Congressional Budget Office (CBO) projects the federal government will spend more than $4 trillion on Medicaid.

Senators Richard Burr (R-N.C), Tom Coburn (R-Okla.), and Saxby Chambliss (R-Ga.) recently introduced S. 1031, the Medicaid Improvement and State Empowerment Act. The legislation would reform the Medicaid program to improve care for patients while giving states the flexibility and the financial predictability necessary to strengthen the program. The bill would transition to taxpayer-provided pass-through health grants to provide medical assistance for low-income, uninsured individuals rather than relying on the unsustainable Federal Medical Assistance Percentages (FMAP) system.

The FMAP model was designed to allow the federal government to pay for a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average, but has perpetuated inequities as the current system is exploited by some states that use a variety of taxes, fees and other gimmicks to rake in federal dollars. The Heritage Foundation estimates that New York’s Medicaid program, for example, doles out an average of $18,344 per person in poverty, almost $10,000 more than the national average.

States received a temporary FMAP increase through December 31, 2010 that was included in the American Recovery and Reinvestment Act of 2009 (ARRA or “stimulus” bill) and later extended by H.R. 1586, setting a new expiration date of June 30, 2011. The Administration estimated that the stimulus bill increased federal Medicaid payments to states by $91 billion, and the CBO estimated that the six-month extension in H.R. 1586 provided an additional $16 billion.

Taxpayers cannot continue to pay for Medicaid bailouts and FMAP enhancements. Moving away from the FMAP model and transitioning to pass-through grants will deter states from having to ask for future handouts. Not only will these pass-through grants prevent gaming of the system, states will also be better able to predict and manage their Medicaid recipients’ long-term care needs. Rep. Paul Ryan (R-Wisc.), Chairman of the House Budget Committee, outlined a similar plan in his FY 2012 budget that passed the House on April 15, asking lawmakers to return decisions to the states by converting the federal share of Medicaid spending into a block grant, saving $750 billion over 10 years.

Nearly 40 percent of physicians will not accept Medicaid patients because of low reimbursement rates. In other words, despite high levels of spending on the Medicaid program, patients still have restricted access. S. 1031 would grant states the flexibility to alter program coverage, rather than force them to make drastic cuts to provider reimbursements, which limits patient access to care.

As part of the Obama administration’s 2009 economic stimulus package, Maintenance of Effort (MOE) requirements were imposed on the states, requiring any state with Medicaid programs in effect on July 1, 2008 to keep in place its current standards of eligibility, methodologies, or procedures through the end of June 2011. The Patient Protection and Affordable Care Act (PPACA) expanded these MOE provisions to require states with Medicaid programs in place on March 23, 2010 to maintain these programs through 2013. Failure to comply with these requirements results in the loss of matching federal funding for a state’s Medicaid program. Unfunded Medicaid expansion mandates under the PPACA are estimated to cost state taxpayers at least $118 billion through 2023.

S. 1031, however, would free states from unaffordable PPACA mandates, allowing them to implement innovative reforms that will improve health outcomes and decrease costs. Additionally, some of the savings generated from these reforms will be given back to states which have achieved meaningful medical malpractice reforms, encouraging states to make even more substantial healthcare cost reductions. Finally, while this legislation seeks to restore Medicaid to its original, limited, state-managed intent, it preserves acute care for individuals with disabilities and “dual eligibles” to ensure the benefits of the most vulnerable patients are protected.

The federal government has loaded the states with gigantic Medicaid burdens, while at the same time restricting governors from tackling their states’ fiscal problems. States must be allowed to evaluate program needs and root out waste where necessary. Granting states more flexibility and freeing them from stringent mandates will cut costs at both the federal and state level, improve access to care, and increase program efficiency.

- Erica Gordon