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Congress should apply Clinton-era reform to Medicaid

A successful welfare reform from the 1990s offers a model to reform a currently out-of-control program many Americans assume to be an entitlement, but which is actually welfare. The program is Medicaid, which should be easier to fix, politically, than the so-called entitlements of Social Security and Medicare.

The politicians who invented Social Security and Medicare asserted that these programs would be funded by payroll taxes in order to foster the illusion of entitlement. We pay for the benefits in our working years, as the story goes, and the benefits arrive after we've retired. Like a lot of what goes on in Washington, it's all nonsense, of course.

The taxes that we pay do not go into accounts that belong to us. They go to pay current retirees and fund other government programs. Nevertheless, it is exceedingly difficult to convince people of the truth that we have not paid for our Social Security or Medicare. But Medicaid spending, to which nobody is "entitled," is now greater than Medicare spending.

This has occurred because Medicaid's funding formula incentivizes the political class to overspend. For every dollar a state politician spends on Medicaid, the federal government pitches in at least one dollar -- or even more, as a result of the misnamed "stimulus" of 2009 -- via the Federal Medical Assistance Percentage.

S.1031, introduced by Sen. Tom Coburn, R-Okla., would transform the federal government's funding for Medicaid into a "capped allotment." As it happens, this was the model of the successful welfare reform of 1996, achieved under the Clinton administration, which reformed Aid to Families with Dependent Children into Temporary Assistance to Needy Families.

The number of average monthly recipients dropped from more than 12 million in 1996 to fewer than 4 million in 2008, and low-income Americans faced better incentives to seek productive work.

Coburn's bill introduces even better incentives, from which all states and taxpayers will benefit.

It gives states more control over their program dollars to get rid of waste, fraud and abuse. It encourages states to make Medicaid providers accountable to the neediest patients in their communities, instead of remote federal bureaucracies. Finally, it will protect taxpayers from politicians' worst impulses to spend unaccountably.

It is long since generally recognized that Temporary Assistance to Needy Families, which passed with bipartisan support, produced positive outcomes. It is long past time to introduce similar reforms to Medicaid, a top-heavy system that traps ever more citizens in poverty and poor access to care. The current stalemate on the debt limit should not prevent Congress from taking up this legislation.

John R. Graham is the director of Health Care Studies at the Pacific Research Institute.

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