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states,45 effectively rewarding states that
as Mississippi can even quadruple their money
without limit.
commit to spend more federal dollars than
Medicaid even creates opportunities for
they have been allotted.
states to push even more of their Medicaid
Given federal funding rules, states have
costs onto taxpayers in other states than fed-
little incentive to tailor Medicaid or SCHIP
eral law would seem to permit. For example,
to cover only the truly needy. Instead, they
the federal government is supposed to
face rather large incentives to expand those
finance only half of California's Medicaid
programs to people who do not need assis-
program. A recent proposal by Gov. Arnold
tance.
Schwarzenegger (R), however, would bend
Medicaid's rules so that taxpayers in other
Refocus Aid on the
states would finance three-fourths of
Schwarzenegger's proposed new spending.40
Truly Needy
Since states pay only a fraction of the cost
Congress should apply the same solution
of expanding Medicaid to non-needy fami-
to SCHIP and Medicaid that it applied to
lies, the Medicaid "match" encourages such
expansions. Like the former AFDC program,
AFDC in 1996. Reforming SCHIP and Medi-
States face rather
caid as Congress reformed welfare would
Medicaid's funding mechanism creates a
large incentives
reduce dependence on government and
"pay-for-dependence" incentive, rewarding
encourage states to focus government health
states that increase the number of Americans
to expand
care programs on those who truly need assis-
dependent on government. The states' open-
Medicaid and
ended entitlement to federal dollars--or
tance.
SCHIP to people
As with AFDC, Congress should end the
more precisely, to the earnings of taxpayers in
federal entitlement to Medicaid benefits and
other states--likewise increases the damage
who do not need
stop funding state Medicaid and SCHIP pro-
that Medicaid does to private markets.
assistance.
As with Medicaid, the federal government
grams with matching grants. As with AFDC,
Congress should replace those matching
matches state outlays for SCHIP, though at
grants with one block grant that neither
higher rates. Overall, 69 percent of SCHIP
increases nor decreases with the size of a
spending comes from the federal treasury,
with 31 percent coming from the states.41 At a
state's health care programs. As with AFDC,
Congress should place as few restrictions as
minimum, the federal SCHIP "match" allows
possible on how states spend their block
states to triple their money. In some cases,
grants. Congress should give states the flexi-
states with a high proportion of low-income
bility to spend those funds at the state's dis-
uninsured children can nearly quintuple their
SCHIP outlays.42 Unlike Medicaid, the federal
cretion on a few broad goals, such as:
government caps its contribution to each
1. Targeting medical assistance to the
state's SCHIP program at a pre-determined
truly needy, including the uninsurable;
amount, which ostensibly denies states an
2. Reducing dependence; and
open-ended entitlement to the earnings of tax-
3. Reducing crowd-out of private effort,
payers in other states.
including charitable care.
Nevertheless, the cap on federal SCHIP
allotments is not as binding as it might
As with AFDC, Congress should freeze the
appear. States such as Georgia sometimes
overall amount it transfers to state health
spend all of their allotted SCHIP funds
care programs at current Medicaid and
before the end of the fiscal year. The CBO
estimates that 11 states will do so in 2007.43
SCHIP levels. If Congress were to freeze the
new block grants at 2007 levels, much as it
Typically, those states then petition the fed-
eral government for additional funding.44 So
did with welfare reform, that would produce
a savings of $1.1 trillion over 10 years.46
far, Congress has twice bailed out such
7