The GOP Entitlement Caucus

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The full dimensions of the GOP’s self-defeat on health care will emerge over time, but one immediate consequence is giving up block grants for Medicaid. This transformation would have put the program on a budget for the first time since it was created in 1965, and the bill’s opponents ought to be held accountable for the rising spending that they could have prevented.

The members of the House Freedom Caucus who killed ObamaCare’s repeal and replacement claim to be fiscal hawks. Most of them support a balanced budget amendment. Yet they gave zero credit to a reform that would have restored Medicaid—a safety net originally intended for poor women, children and the disabled—to its original, more limited purposes.

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Republicans had a rare opening to change the projected trajectory, by limiting the federal government’s open-ended commitment. The federal government “matches” between 50% and 74% of costs for the pre-ObamaCare population, while new Medicaid earns 90%-95%. This formula rewards states that spend more and means they are less accountable for controlling spending or allocating resources toward high-quality care for the most vulnerable.

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The House bill would have transitioned to a per-capita block grant that would grow with an index of medical inflation. The change would have broken the direct link between state spending and federal subsidies and started to make more of a defined contribution. In exchange, Governors would have gained reform flexibility. 

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The bill wasn’t perfect. Per capita block grants that rise with medical inflation is insufficient fiscal discipline, and the bill would have added to the political pressure to join new Medicaid in the 19 states that haven’t. Block grants also would have been delayed until 2020, and the danger of waiting is that they get overturned by a future Congress or become a new version of the old “sustainable growth rate” recipe in Medicare—an orphan that Congress defers year after year.

But the Freedom Caucus decided to wait not until 2020 but forever. A fragile compromise that could attract majority support was rejected in favor of sustaining Medicaid’s march into insolvency. Republicans may not get a better chance for decades to modernize Medicaid in a way that helps the poor and taxpayers, and voters would be right to doubt the Freedom Caucus’s evanescent fiscal bona fides.

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