The Medicaid Puzzle

Sen. Pat Toomey’s Serious Medicaid Idea

Conservatives hate the Obamacare Medicaid expansion? Here’s an idea for slowing the vast cost increases that deserves a hearing.

One of the most controversial aspects of Republican efforts to repeal and replace the Affordable Care Act has been Medicaid. The program, which was originally meant to help poor Americans obtain health insurance, was expanded under Obamacare, and it will be dramatically overhauled if Republicans pass their replacement plan.

Liberal opponents have criticized Republican efforts to reverse this expansion and mockingly labeled it “Robin Hood in reverse.” Meanwhile, conservatives are unhappy that the Republican plan keeps the expansion in place until 2020.

While that fight sucks up all the Medicaid oxygen, one conservative Republican, Sen. Pat Toomey of Pennsylvania, is recommending a different tweak that he believes will put Medicaid on a sustainable path for the future. According to Toomey, a major problem with the Republican House plan involves the formula that calculates the maximum permissible growth rate in Medicaid. The problem, Toomey believes, is that its design would actually lead to unsustainable growth.

Starting in 2020, the proposed American Health Care Act (AHCA) would cap the growth in per capita Medicaid expenditures at the medical care component of the Consumer Price Index, known as CPI-M. This approximates the increase in prices of medical care in the United States for everybody, not just people on Medicaid.

This might sound like a commonsense (or even compassionate) idea, but Toomey worries about the unintended consequences of driving up the program’s cost. “This strikes me as analogous to the concerns that conservatives have that escalating federal subsidies for higher education contribute to the unintended consequence of increased tuition rates,” said Toomey.

His solution? Rather than the amount growing from year to year according to the medical component of the Consumer Price Index, Toomey believes House Republicans should link funding to the normal growth rate, known as the Consumer Price Index for All Urban Consumers (CPI-U). This makes sense. CPI-M has consistently been much higher than the average growth in Medicaid expenditures, per capita.

Unlike many of the ideas that have been offered thus far, Toomey’s fix would be easy to implement. It would not affect the underlying architecture of the Republican plan. “It’s like striking two words and putting two words in,” he said. “It’s very discrete. Very modest. This item is very simple to do. It doesn’t have a draconian effect in the short run, but it has enormous savings over the long haul.”

Because the gross domestic product would presumably grow at a faster rate than the CPI-U, this means the program would shrink as a percentage of the overall economy. “Under my preferred approach, I just want to slow down the rate of growth to something that is sustainable,” said Toomey.

For the last five years, the CPI-M has averaged 2.84 percent, according to the Bureau of Labor Statistics, while CPI-U has averaged 1.7 percent. But the key number is the Medicaid per-beneficiary expenditure growth average for the past five years, which is 1.82 percent. What that means is that, for the last five years, Toomey’s suggested cap tracks much more closely with the historical growth and expenditures per beneficiary in the Medicaid program.

In truth, the savings would be minor relative to the size of the program for the next decade. But the goal is to bend the cost-curve for the long-term. This means the program would still grow at the rate of inflation, but it also acknowledges that in order for our entitlement programs to be sustainable for future generations, they can’t outpace the rate of our economy.

Not everyone agrees this would be a smart idea. One senior GOP aide tells me that “the CPI for all urban consumers is even lower than what is in the bill so that would mean an even larger reduction in Medicaid spending. Also, using the CPI-M index should provide better protection for states against fluctuations in the economy than a normal growth rate.”

Still, Toomey believes that changing this one simple formula—not the underlying architecture of this sprawling health care bill—could dramatically affect whether this plan controls costs or becomes yet another unsustainable governmental program.

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Will it work? Toomey has been pitching his idea to colleagues. “I think there is broad agreement on this point based on the feedback I’ve gotten… ” he said. Nevertheless, time is dwindling, and Toomey worries that conservatives are about to miss a golden opportunity if House Republicans don’t act immediately.

Toomey’s goal of making this entitlement sustainable for future generations doesn’t comport with the stereotype that conservatives want entitlements to collapse under their own weight. Under his plan, Medicaid would still grow for enrollment and inflation (though the expansion population would be frozen after 2020). Nobody is suggesting this is a panacea, but politics is the art of the possible. Toomey sees this as a modest change that is achievable in light of the House Republican bill.

Speaking of reforming Medicaid, the other day, Speaker of the House Paul Ryan joked to National Review’s Rich Lowry that “we’ve been dreaming of this since you and I were drinking out of a keg.”

It was meant as a lighthearted line, but his larger point is true: Republicans have a very rare opportunity.

“When is the last time we had a chance to pass legislation and have a president who would sign into law the legislation that would put one of our major entitlement programs on a sustainable path? I don’t know when it was,” Toomey said, “but we have that moment now. We’ve got to get this right.”