Three Cheers for Rhode Island Medicaid Reform
In return for a significant amount of flexibility, Rhode Island has offered to let the federal government cap its Medicaid contribution to the state for the next several years. As part of the proposed deal, Rhode Island would not have to spend more than 23% of its state budget on Medicaid.
The Center for Budget and Policy Priorities calls this a "block grant" and hates the idea [here]. It looks like a "block grant" to us, too, and we love it. The New York Times [here] can't make up its mind. Bush Administration officials at HHS have not yet approved the waiver but they are working with Rhode Island officials to iron out any differences.
So why do we keep hearing that block grants under Medicaid are impossible? If Rhode Island can do it, can’t every other state?
Under the matching formula, the state’s incentives are horrible. Every time a dollar is wasted, the federal government pays about 60% of the cost. On the other hand, every dollar of waste eliminated returns 60 cents to the feds and only 40 cents to the state.
With a block grant, the state gets the full benefit (the whole dollar) of each dollar of waste it eliminates and bears the full cost of every dollar it wastes.
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