“As everyone knows, the Medicaid cap per cap was proposed by President Clinton. Now it is seen as this draconian measure.”
— Former senator Rick Santorum (R-Pa.), testimony before the Senate Finance Committee, Sept. 25
Santorum was a critic of Clinton at the time — as a senator, Santorum voted to find Clinton guilty during the impeachment trial — and so it is striking to see him cite Clinton as a source for a key GOP policy proposal.
While Obamacare repeal seems dead for now, this issue is likely to reemerge at some point. So here’s a history lesson on what actually happened.
Medicaid is a health-care program for the poor and disabled that was greatly expanded under the Affordable Care Act to include more working Americans (if a state choose to do so). Republicans have often been skeptical of Medicaid, established as part of Lyndon B. Johnson’s “Great Society” in the 1960s, believing it delivered substandard care and is unsustainable in the long run.
The Republican repeal plan that cleared the House, and key proposals considered in the Senate, all have featured a “Medicaid per capita cap.” This is not the same as a “block grant,” in which states would be given a set amount of money, no matter how many enrollees show up. A per capita cap is based on a formula (such as the consumer price index for medical care) that limits growth in spending per person but does allow for growth in enrollees.
The distinction is critical. In the mid-1990s, Clinton did propose a per capita cap for Medicaid to thwart a GOP push for turning the program into block grants. Medicaid was growing 9.5 percent a year, and a lengthy government shutdown was prompted by Clinton’s veto of a bill that would have block-granted Medicaid. Nevertheless, the president felt he had to respond to a growing concern about the budget deficit.
“Under the budget, a per capita cap limits Federal spending growth per person while retaining current eligibility and benefit guidelines,” Clinton’s 1997 budget proposal said. “This approach guarantees that the elderly, people with disabilities, and pregnant women and children who depend on Medicaid will remain eligible for health benefits while it cuts the rate of increase in spending to a level that States and the Federal Government can support. In contrast to a block grant, the Administration’s plan protects States facing population growth or economic downturns.”
“The most important structural difference between block grants and per capita caps has to do with whether individuals retain an entitlement to Medicaid,” wrote GOP analyst Doug Badger in a history of the dispute. “The per capita cap proposal retained the entitlement; the block grant proposal, at least in its initial form, did not. This single difference produced an ideological divide that the Republican Congress and Clinton White House were unable to bridge.”
Former Clinton administration officials say now that Clinton’s proposal was intended to blunt the GOP initiative as a matter of politics, not as a matter of policy.
“Clinton felt you had to beat something with something,” said Gene Sperling, who headed the National Economic Council under Clinton. “So it was proposed — and gained acceptance by Ds — as a way to show we had a kinder, gentler option that allowed us to use, to beat up on block grants. It would have been surprising if they ever took it — as our formula hardly led to any savings.”
Chris Jennings, a senior Clinton policy adviser on health care, said: “It is important to underscore that the primary/overwhelming reason that work by our administration was done on the per capita cap was explicitly strategic — to avert the very real threat of a Medicaid block grant.”
Clinton’s formula — pegged to growth in the gross domestic product, with different rates for pregnant women, children, people with disabilities and older individuals — certainly would not have achieved much savings. The per capita cap was estimated to reduce spending by $6 billion over five years, or 0.7 percent of Medicaid spending during that period.
Indeed, John Holahan of the Urban Institute estimates that if the Clinton formula were applied today, it would actually result in more than $225 billion more spending over the next 10 years for Medicaid than anticipated under current policy. Even so, there was only tepid support — and some opposition — among Democrats at the time for Clinton’s proposal. (Vice President Al Gore, eyeing his run for the presidency in 2000, succeeded in making sure it was eventually dropped as administration policy.)
A separate Clinton proposal to reduce disproportionate share (DSH) payments to hospitals that serve low-income patients was estimated to save more money than the caps. Indeed, the 1997 balanced budget deal between Clinton and the GOP Congress incorporated that idea, as well as greater flexibility for states in managing their programs. Both the block grant and per capita cap concepts were abandoned at the time by both sides.
The various GOP repeal plans this year would have had a different formula than GDP growth.
For instance, the Cassidy-Graham bill and the Better Care Reconciliation Act (BCRA) in the Senate had caps indexed initially for medical inflation for children and non-expansion adults, and medical inflation plus 1 percentage point for aged, blind, and disabled beneficiaries. Beginning in 2025, the caps would have been adjusted for general inflation for urban consumers (for children and non-expansion adults) or medical inflation (for aged, blind and disabled). The House bill would have indexed initially at the medical inflation rate, but adjusted to 2020 to medical inflation plus 1 percentage point for the elderly and disabled.
The biggest reduction in Medicaid spending in the GOP plans would have stemmed from reversing Obamacare’s expansion of Medicaid, such as scraping the promise of a 90 percent federal match rate. Various studies produced different estimates for the impact of such caps, but it was a relatively small part of the reductions. The Urban Institute calculated a $52 billion reduction over 10 years for the traditional Medicaid population under the House repeal plan, known as the American Health Care Act (AHCA), while an analysis by Badger found it would be only $3.4 billion.
“The per capita cap growth rates in AHCA are quite high relative to projected per enrollee spending growth, thus have only a small effect,” Holahan said. “In the BCRA and Graham-Cassidy they fall to CPI in 2025 so there’s a bigger hit. So bottom line is that per capita caps by themselves are not necessarily a problem for states; it is all in the growth rates and what happens to them over time.”
Still, former Clinton officials reject the notion that this is Clinton’s policy.
“We would argue that the context for this debate has completely changed,” Jennings said. “The per capita growth rates [under Clinton] are extremely low, and any policy rationale for doing it no longer exists — and that is before one gets to the challenges and complications of passing and implementing such a policy.”
Santorum did not respond to requests for comment.
The Pinocchio Test
To some extent, this reminds us of how the individual mandate — a key feature of Obamacare that Republicans detest — started as a GOP initiative to blunt Hillary Clinton’s health-care proposals in the early 1990s.
The difference is that the individual mandate was eventually adopted by Mitt Romney, a Republican, when he pushed through a health-care plan as governor of Massachusetts. So Democrats could rightly point to its Republican provenance when Barack Obama adopted it for his health-care overhaul, though Romney was consistent in saying it should only be applied at the state level, not nationwide.
As far as we can tell, Democrats never embraced the idea after Clinton abandoned it once he had struck a deal with Republicans on the budget. Thus it remains a tactical gambit, not a serious proposal. That’s demonstrated also by the fact that Clinton’s caps were so high that they were virtually meaningless in terms of saving money.
In making his rhetorical point, Santorum ignores this history. He earns two Pinocchios.
Update, Sept. 29: Keith Hennessey, who in 1996 worked for Senator Pete Domenici (R-N.M.) as the health and retirement economist on the Senate Budget Committee majority (Republican) staff, objected to our awarding of Two Pinocchios. He was directly involved in the debate at the time. “It might have been true at the time that the proposal was cynical and tactical,” he wrote in an email. “Senator Santorum could not have known this. I did not know this, and I was enmeshed in it. It is irrelevant what the president’s motive was–he proposed it.”
Hennessey, who now teaches at Stanford Business School, argues we gave too much credit to the recollections of Sperling and Jennings. “Gene and Chris have both professional and policy incentives to rewrite this element of history now, given the tremendous change in sentiment among their Democratic party peers for their past policy work,” he noted. Further, he points out that the actual statement made by Santorum — “As everyone knows, the Medicaid per capita cap was proposed by President Clinton. Now it is seen as this draconian measure” – is objectively correct. Hennessey expanded on his critique in a blog post.
Regular readers know that we sometimes award Pinocchios for statements that on the surface appear true but lack significant context. We sought Santorum’s input and did not receive a response. The fact that Democrats never again sought to resurrect the policy proposal appears to back the claim that it was a tactical ploy. Still, we would welcome the recollections of others who were involved in this debate in order to assess whether the ruling should be altered.
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