One way Kentucky can reform Medicaid: FLEX

Kentucky's Medicaid program is in trouble, and we need not look far to see the problems. This year's legislative session focused heavily on plugging the $100 million budget deficit. Kentucky's Chamber of Commerce has identified Medicaid as one of its leaky bucket issues. With the mandated expansion of the program under ObamaCare set for 2014, the future solvency of Kentucky's Medicaid program faces even greater challenges.

Last week, the American Action Forum released a new four-part strategy, called FLEX, for states and the federal government to address the Medicaid problem. FLEX focuses on financial accountability, lean operations, ensured access to care, and expanded state ownership.

The final recommendation of expanded state ownership is the crux of real Medicaid reform efforts, and something that is lacking in the commonwealth. Under the current system, the federal government bears more of the financial burden, and therefore, gets the upper hand in establishing state Medicaid rules. As a result, states have little incentive to focus on maintaining solvent programs. Authors Douglas Holtz-Eakin and Michael Ramlet explain,

"At its core the flawed federal-state matching formula has fueled runaway spending. Medicaid’s current payment structure gives states a perverse incentive to spend with little incentive to save or innovate. "

In order to fix this structure, the authors argue that program incentives need changing:

"Adopting the FLEX strategy would establish a long-term commitment to improving the Medicaid program and put in place the type of aligned incentives for states that encourage savings and innovation through coordinated care delivery."

If left unaltered, Kentucky's Medicaid program will continue to cripple the state budget, and worse, not effectively provide care for the commonwealth's most vulnerable residents. Kentucky must begin to address the root causes of our Medicaid problems instead of just focusing on the symptoms.