Health Care Compact: Let States Take the Reins

In April, Kansas Governor Sam Brownback, a Republican, signed into law the national Health Care Compact, making the Sunflower State the ninth to embrace the bold new idea.

And what, you ask, is the Health Care Compact? It’s a proposal to allow participating states to take the reins of health care away from the federal government while reducing overall federal health spending.

A shorter description for this idea is “devolution,” and it’s exactly what we’ll need, if we’re ever going to get control of federal spending and debt.

This is the most creative and exciting policy proposal in a generation. It has to be approved by Congress, and is far from perfect, but in my humble opinion every American should get behind it.

As I mentioned, nine states have signed on, so far: Alabama, Georgia, Indiana, Kansas, Missouri, Oklahoma, South Carolina, Texas, and Utah.

Meanwhile, James Lankford, a Republican representing Oklahoma’s Fifth Congressional District, introduced a bill in February to approve the HCC. It currently has 12 sponsors, all of them Republicans and all of them representing states that have approved the compact.

How It Would Work

The brainchild of Houston conservative activist Leo Linbeck III, the HCC cleverly combines two existing ideas, interstate compacts and federal block grants, in a way that can fairly be described as revolutionary.

Individual states would voluntarily enter an agreement (an interstate compact) to take over health care spending from the federal government. In those states, most existing federal health programs would be cashed out and folded into a single, gigantic grant to be administered by the state. (Defense and veterans health would be excluded. So would the big tax breaks for employer-sponsored health benefits, which come through the tax code.)

In non-compact states, the status quo would continue unchanged.

Remarkably, the grant would come with no strings: the state would just have to use the money to improve health care. Member-states could even suspend federal health care regulations within their borders!

Each state would receive the amount of money the feds spent in that state, on the relevant health care programs, in 2010, plus an add-on payment to reflect any inflation and population growth. If the HCC were in effect today in all fifty states, the total spent on it in 2015 would be around $937 billion, or about 24 percent of that year’s projected total federal spending of $3.9 trillion.

Think about that: one quarter of the federal budget, handed over to the states.

The Pros

Compact supporters predict this would save a bundle: at least $3 trillion over ten years, assuming all fifty states opt in. That’s because because the grants would grow less rapidly than health care inflation, and thus less rapidly than the current-law programs they’d replace.

Opponents, of course, think that’s a downside. How dare we cut health care spending! But I think most normal people would see the prospect of less federal spending, more local control, no more Obamacare, and the possibility of universal coverage (in participating states), as a plus.

The Left should love this idea. States would suddenly have more than enough money to provide all of their residents with a basic level of health coverage (thanks to all that Medicare money, which they currently have no access to), with maximum freedom to try new ways to deliver care.

So, for example, some states could institute single-player, while others could emulate Singapore and give everyone a Health Savings Account. It would be “laboratories of democracy” on steroids.

If it succeeds, the HCC will become a template for devolution in other areas, such as education and transportation.

The Cons

Now about those downsides.

1) The Compact wouldn’t devolve health care jurisdiction, it would merely devolve health care dollars and administration. That makes it basically the world’s biggest revenue-sharing plan. Uncle Sam would get to be the perpetual tax collector for the states in the area of health care. Is that a good idea?

2) It could lead to higher spending and taxes. State politicians would control one-quarter of the federal budget, funded entirely through federal debt and taxes, which would give them a powerful incentive to lobby for higher federal spending and taxes.

3) It would let states use my money to pursue things I object to, like single-payer health care and (probably) abortion funding.

4) It puts a floor under federal health care spending, when if anything we need a ceiling. Such spending would be fixed at its 2010 level, forever. If Congress ever wanted to reduce federal health care spending, it would have to repeal the Compact. And then what? Bring back the previously existing programs? Or replace it with one or more block grants? In which case, why not just skip the Compact step and go right to enacting one or more block grants?

So the bad news is the Health Care Compact promises more than it can deliver.

Why We Should Support It

And yet I think we should support it, because:

1) It’s a whole lot better than the status quo. It reminds me of to the 1996 welfare reform, which I had the honor of working on, as a Hill staffer. That historic reform block-granted the old, truly awful AFDC cash-welfare entitlement, which ended up saving federal taxpayers a ton of money, while improving the incentives of welfare recipients and bureaucrats. It wasn’t true devolution; but it was progress.

2) It’s a tool for promoting devolution. We need every tool we can lay our hands on, to get Leviathan under control. Realistically, Washington will not reform itself. It needs to be forced to do so, by the states and the people. If more states approve the HCC—along with parallel, bottom-up movements like the convention of states project—Washington will eventually wake up and realize that the only way to avoid losing power is to actually reform entitlements and spending.

Now, I freely concede the Compact is unlikely to be approved in its current form. Not only will Congress cling to Medicare, its second most popular program, but it will very likely gridlock over issues like abortion funding.

So what. If anything, that should encourage states to sign on. What have they got to lose?

Worst case, we get nothing. Best case, we get devolution.

And in between those two possibilities is something like, say, a true Medicaid block grant.

That, by itself, would be a huge victory.

The Health Care Compact is a flawed idea whose time has come.

Dean Clancy, a former senior official in Congress and the White House, writes on U.S. health reform, budget, and constitutional issues. Follow him at deanclancy.com or on twitter @deanclancy.