(Pixabay)

The way that Medicaid is funded is incredibly dysfunctional. When a state spends $1 on the program, the federal government automatically kicks in at least another $1 — far more in the poorest states. This encourages states to spend as much as possible, bringing federal money to local health-care providers.


A new plan from the Trump administration tries to encourage states to opt out of the craziness. Basically, states can apply for a waiver in which they agree to keep their spending on able-bodied adults under a cap, and in return they get a lot of flexibility in how they handle the program. They may also get to “reinvest” some of the money they save the federal government into health-related projects.

In terms of flexibility, they might get to have work requirements for able-bodied adults, control drug costs by limiting the “formularies” of medications they cover, or impose cost-sharing of up to 5 percent of enrollees’ income. In terms of reinvestment, they might get federal funding for programs they’re already running, such as a tobacco-prevention effort.

This is good policy. It encourages states to control their spending when nothing else about Medicaid is doing that, using a waiver authority that by all accounts is very broad. However, it’s still sure to provoke lawsuits. Liberal judges have proven eager to kill the Trump administration’s previous Medicaid waivers for work requirements on the grounds that they don’t promote the program’s stated purposes as the statute requires, and some legal experts say that the plan illegally changes Medicaid’s matching-funds formulas, which are not covered by the waiver authority.


As far as I can tell, it the plan aims to get around the latter concern by doling out all the money through preexisting channels, just with a cap agreed to by the state and extra flexibility granted through the waiver. As the administration puts it, “while federal funding will be capped, federal financial participation (FFP) will continue to flow to states as it does today; nothing in this letter changes the need for states to submit claims reflecting actual expenditures to obtain federal matching funds for the Medicaid program.”

Where is this headed? Your guess is as good as mine.