Medicaid has become a fiscal disaster for states. With spiraling costs, bulging enrollment, and a degree of complex only a quantum physicist could love, Medicaid is in desperate need of large-scale reform.

The National Governors Association (NGA) has adopted an interim policy on comprehensive Medicaid reform. The policy, which all the governors will vote on at their mid-summer meeting, calls for:

1. A series of new flexibilities to promote cost-effectiveness. These include (a) adopting average sales price for pharmacy reimbursement; (b) tighter controls on creative asset transfers to quality for nursing home care; (c) new cost-sharing options similar to the SCHIP model; (d) ability to modify benefit designs to better accommodate the very different needs of low-income families, the disabled, and frail seniors; (e) comprehensive waiver reforms to make new waivers easier to get and allow proven reforms through the normal state plan process; and (f) litigation reform to make it harder to challenge a state when it exercises its discretionary authority for optional benefits and eligibility, as well as require HHS to join the state in defending approved waiver programs in federal court.

2. Congress should establish a National Health Care Innovations Program to support the implementation of 10 to 15 state-led, large-scale demonstrations in health care reform over a three- to five-year period.

3. A series of federal reforms to strength employer-sponsored health insurance and other private coverage. These include a refundable tax credit for individuals, a new federal tax credit to help small employers, federal grants to establish state purchasing pools, and a new reinsurance program to help buffer employers from the cost of catastrophic cases.

4. Reforms to slow the grow of Medicaid-financed long-term care, including (a) tax credits and deductions for long-term care insurance; (b) ability to expand the range of home- and community-based models; (c) allow every state to create long-term insurance partnerships, which federal law now limits to four states; and (d) allow states to expand chronic care case management across both Medicaid and Medicare services, with savings shared between the state and federal government.

5. Changes to the Medicare Modernization Act (MMA) to ensure that no state is hurt financially. State budget gurus increasing believe that that the new Medicare drug benefit will likely increase state Medicaid costs.

To read details of NGA’s excellent Medicare reform proposal, click here (PDF).