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House Republicans have promised to announce their long-awaited plan to repeal and replace Obamacare on Feb. 27, shortly after returning from recess. Judging from the policy brief released before the President’s Day break, Medicaid reform will be a major component of that plan.

This is welcome news. Obamacare drastically expanded eligibility for the healthcare entitlement for low-income Americans while doing nothing to address the program’s central flaws. All but 19 states expanded their Medicaid programs under the law. Those states that did so now receive 90 percent of the cost of expansion. The latest House plan, by contrast, would give Medicaid the overhaul it has long needed by empowering states to meet the unique healthcare needs of its least-advantaged residents.

First, it would roll back Obamacare’s Medicaid expansion, while providing a transition period in which states would continue to receive the health law’s enhanced funding. States would then have a choice between two new funding models. The first is a per-capita allotment, which would cap the amount of federal funds available to states based on the number of Medicaid enrollees. The second is a block grant model, in which states receive a fixed funding amount each year.

Both approaches allow states to spend their Medicaid dollars as they see fit.

To see what can happen when states have the freedom to adapt Medicaid, consider Rhode Island’s recent Medicaid reform. The state recognized that an excessive reliance on emergency care among Medicaid patients was driving up the program’s costs.

By adjusting the entitlement’s structure to improve primary care and home- and community-based services, Rhode Island will be able to reduce its Medicaid costs by over $100 million, all while improving the quality of care patients receive.

But block grants can also be used to empower individual patients, too. For instance, states might use the GOP reform as an opportunity to implement Health Opportunity Accounts, which work similarly to Health Savings Accounts. States would deposit funds into individual HOAs, and Medicaid enrollees could use that money to cover a wide array of medical expenses.

At least one state has enacted this program with encouraging results. In February 2015, Indiana enacted the Healthy Indiana Plan 2.0, which created Personal Wellness and Responsibility accounts for individuals whose incomes were at or near the federal poverty line. Initial reviews of the program found that 70 percent of HIP enrollees are taking advantage of their POWER accounts, a number that Indiana only expects to grow.

States have been trapped in an expensive, one-size-fits-all Medicaid model for too long. A block grant approach would give states the freedom to break out of the current system, and give their low-income residents the care they truly need.

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Sally Pipes (@sallypipes) is a contributor to the Washington Examiner’s Beltway Confidential blog. She is president, CEO and Thomas W. Smith fellow in health care policy at the Pacific Research Institute.

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