Eventually, the US will have to confront the entitlements problem.
Anyone who has taken one of my economics courses or discussed politics generally with me knows that I firmly believe one of the most significant tests on Washington, D.C. politicos is whether they’re willing to reform the nation’s entitlements system.
With the annual budget deficit soaring, entitlement reform is critical.
At the start of the century, entitlement spending sat at around $2 trillion; it will soon approach $4 trillion and will eclipse $5 trillion in a matter of years. This massive budgetary line-item puts a significant, ever-increasing strain on the government’s coffers, leading to harmful forced discretionary spending cuts on everything from national security to infrastructure annually.
Unlike most of Washington, CMS Administrator Seema Verma seems to recognize the need to do something about this problem. Unfortunately, however, her proposed remedy is not only coming at the worst possible time; it also will bring the nation its biggest step towards Medicare for All since the passage of Obamacare.
Verma’s “solution” to the nation’s growing entitlement problem, the Medicaid Fiscal Accountability Regulation (MFAR), will prevent the states from funding their Medicaid systems in ways that the federal government deems inappropriate.
Among the highlights of the Verma Rule is imposing severe restrictions on the states’ transfer of funds from other government sources into Medicaid and limitations on how they can use provider taxes to fund their programs.
Even when overlooking the fact that Medicare, the Social Security Act and Medicaid, by and large, restrict the federal government from meddling in this way, the Verma Rule is entirely unresponsive to the needs of the states on a good day, let alone on a day during a nationwide epidemic.
Now is not the time for the federal government to tinker with the healthcare system in this manner. All 50 states are presently scrambling to fund the significant, unexpected demands on their healthcare budgets. Yet, the Verma Rule will go so far as to prohibit longstanding methods that they have used to make their Medicaid programs whole. It’s not a recipe for fiscal conservatism, it’s a guarantee for budgetary shortfalls and/or state tax increases.
President Trump recognizes the budget problems that the states presently face due to COVID-19. To that end, he helped to alleviate some of the pressure by temporarily increasing the federal share of Medicaid spending — a move that even well-respected conservative economists, like Michael Strain at the American Enterprise Institute (AEI), called on Washington to do.
Even the most fiscally conservative analysts and most significant proponents of entitlement reform understand the importance of mitigation steps during healthcare epidemics. It’s the equivalent of increasing the defense budget during wartime. Doing so is necessary and saves the country economic pain over the long run. But the Verma Rule takes the opposite approach. Making a bad economic situation even worse, it will sideswipe their relief efforts by limiting what the state can do with their Medicaid funds.
Perhaps Administrator Verma doesn’t understand the extent of the threat posed by COVID-19. In an interview with Fox News host Martha MacCallum last week, she seemed unaware of the significant toll that it’s causing on hospitals across the country. Nevertheless, this is as much of an economic crisis as it is a public health one and has the potential to sink the S&P 100 to its 2009 low and bring the nation’s unemployment rate at or near 15-percent, if not more, at least for a short time. To prevent the worst from happening, Washington should do everything it can to contain and combat this virus — not take away more states’ rights.
When the coronavirus epidemic becomes more contained, there are more sensible ways that Administrator Verma can explore to help reign in Medicaid spending. At the top of the list should be block granting, a tool that the Trump administration already began permitting earlier this year that worked remarkably well when the federal government implemented them in 1996 with the Aid to Families with Dependent Children Program.
At the end of the day, Administrator Verma’s instincts are right. Still, she needs to think through her prescription, MFAR, before it subjects the country’s healthcare and entitlement system into more chaos and creates significant, long-term economic damage.
Adding bigger government legs to an already massive government program is not the answer to Medicaid — not during normal times and certainly not during the COVID-19 pandemic. A federal healthcare system is already in place, but by grabbing more control of the healthcare decisions of each state, the Verma Rule will bring on its biggest step towards Medicare for All since its implementation. And as can be seen in Italy over the last several weeks, that is the last thing anyone here needs.
Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.