Dear Representative Rokita,

On behalf of more than 1.9 million Americans for Prosperity activists in all 50 states, I write in strong support of your recently introduced State Health Flexibility Act, H.R. 4160. Your bill converts funding for Medicaid and the State Children’s Health Insurance Program (S-CHIP) into a block grant, giving states more flexibility to set their own eligibility criteria, control costs, and improve care quality through innovation.

The current Medicaid program is broken. Costs have skyrocketed, with combined state and federal spending nearly doubling from 2000 ($206 billion) to 2009 ($378 billion). It is now the single largest line item on most states’ budgets, consuming well over 20 percent of total state spending and costing more than K-12 education programs. Studies also show that care quality for Medicaid and CHIP recipients is poor, with recipients in those programs experiencing notably worse health outcomes than Americans with private insurance.

One main cause of the program’s runaway costs and deteriorating quality is the current Federal Medical Assistance Percentages (FMAP) formulaic approach to financing it. Instead of encouraging states to control costs and improve quality, FMAP does the opposite. With matching funds in place, when states try to cut spending in the program it costs them double: one for the state dollar they cut, and one for the federal matching dollar they lose as a result.

Similarly, with the rigid federal mandates attached to their funding, states have little room to alter eligibility criteria or try new and innovative approaches to Medicaid delivery. The good ideas that could cut costs or improve health care outcomes for the state’s neediest citizens simply sit on the shelf or wait in the veritable purgatory of the Center for Medicare & Medicaid Service’s special waiver process.

Block grants turn these backwards incentives around. Under your bill the federal government would replace the FMAP formulaic approach with one lump sum payment to each state to help cover the costs of Medicaid and S-CHIP. The lump sum payments are then capped to incentivize cost control, a move that will save taxpayers an estimated $1.8 trillion over ten years. If states want to spend more money, they would have to come up with the funds themselves. If instead they find ways to save money, they can transfer up to 30 percent of that lump sum to other welfare programs like food stamps or put it aside in a Rainy Day Fund for future use – a strong incentive to be smarter, more efficient stewards of taxpayer dollars.

Moreover, your bill eliminates onerous federal mandates like the “Maintenance of Effort” requirement under the President’s health care law. States could thereby have the flexibility to become the “laboratories for democracy” that they were meant to be – trying new approaches that best meet their own citizens’ needs and sharing best practices nationwide.

Your bill builds on the successful welfare reform that transformed the broken Aid to Families with Dependent Children (AFDC) program into the current Temporary Assistance for Needy Families (TANF). Despite the doomsday rhetoric from the old program’s supporters, total welfare spending per recipient under this program nearly quadrupled from $1,031 in 1996 to $3,756 in 2009 – all because states had incentives to run the program more efficiently.

Given this past success, AFP encourages you to expanded your bill to include block grants for all federal welfare programs – certainly one way to make progress on fixing Washington’s massive spending problem. Moreover, we hope that similar smart reforms are included in Budget Committee Chairman Paul Ryan’s forthcoming budget resolution proposal for FY2013.

Americans for Prosperity is proud to support the State Health Flexibility Act, H.R. 4160. I urge your colleagues to support its passage and I look forward to working with you in the future.

Sincerely,

James Valvo
Director of Government Affairs
Americans for Prosperity

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