Is Healthcare Decentralization the One Great Idea in Graham-Cassidy or its One Great Flaw?

The Graham-Cassidy healthcare bill shares many traits with earlier GOP reform efforts. It repeals key elements of the Affordable Care Act. It cuts total federal spending on healthcare. And it would, if enacted, add millions to the rolls of the uninsured. It does, however, differ in one key respect: It goes much further than its predecessors in decentralizing healthcare policy to the states. (See this Vox Explainer for details.)

In a New York Times op-ed, the Washington Examiner’s Phillip Klein tries to spin this sweeping decentralization as the One Great Idea in an otherwise flawed bill. As Klein puts it,

It makes sense to allow states to set their priorities and direct their resources based on the characteristics of their populations.

As states come up with innovative solutions to their health care problems, it means there are 50 opportunities to experiment. States can test solutions that worked elsewhere, or steer clear of ideas that failed. This path makes more sense than having politicians and distant regulators impose one giant experiment on the entire nation that is harder to undo if it fails.

It makes sense, perhaps, until you actually think about it. If you do, you quickly recognize that healthcare decentralization has some nasty unintended consequences.

One of them is to further undermine the already-declining interstate mobility of American labor. That is a big deal in an era of unprecedented trade and technology shocks. Displaced workers often need to move to a new state to find new jobs — but how can they move if doing so means a loss of access to healthcare? Right now, even if a worker transfers to a different employer’s program or a policy bought on a different state’s ACA exhange, at least they know it will cover a standard list of conditions and treatments. Under Graham-Cassidy, each state could set its own list.

Up to now, state-administered Medicaid has posed the greatest problems. Displaced workers often end up temporarily on Medicaid, but Medicaid is not freely portable from state to state. States can impose waiting periods or deny care to newcomers, especially for services like in-home care for elderly relatives or special-needs children.

Graham-Cassidy would, at a stroke, subject the entire working-age population to the same problems. Ironically, the only demographic group that would still enjoy more-or-less portable benefits would be Medicare-eligible retirees.

Balkanization healthcare also creates serious macroeconomic problems. Recessions, when they come, affect the U.S. economy very unevenly. In the last recession, for example, states like Florida and Arizona were hit much harder by the housing bust than those in the Midwest or Northeast. The states that are most affected by an economic downturn find tax revenues declining at the same time the demand for unemployment benefits and social services is rising.

Federal spending on healthcare helps spread the fiscal pain of a recession and speeds the recovery of the hardest-hit states. That has always been seen as a strength of the US economy compared to the EU, where each member country is fully responsible for its own social services. If Florida had had to raise taxes by enough to pay the full costs of social services for all its citizens, it might have ended up with 40 percent unemployment like Greece did in the aftermath of Europe’s recession.

In short, Graham-Cassidy would seriously weaken the economy by undermining both labor mobility and fiscal burden-sharing. No, decentralization is not the One Great Idea in Graham Cassidy. It is the One Great Flaw.

See my post at NiskanenCenter.com for a more detailed discussion of the unintended consequences of excessive healthcare decentralization.