July 22, 2014

The Honorable Mitch McConnell

317 Russell Senate Office Building
Washington, D.C. 20510

The Honorable Lamar Alexander
455 Dirksen Senate Office Building
Washington, D.C. 20510

The Honorable John Barrasso
307 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Leader McConnell and Senators Alexander and Barrasso:

Thank you for your interest in working with Republican governors to devise solutions to our countrys ongoing healthcare
crisis. We agree that a state-centric approach would have been far more successful in improving health outcomes and
containing unsustainable healthcare costs. Unfortunately, neither Republican nor Democratic governors were offered a
seat at the table during the drafting of the Affordable Care Act (ACA).This is unfortunate because governors have
innovative, bold ideas and policy preferences that could have informed our nations actions on this critical issue.

As governors, we do not have the luxury of sitting out this debate. We must make things work for the people we serve.
We commend and support our colleagues proposals to repeal and replace the federal health law; however, we recognize
that this endeavor is unlikely to succeed without a willing executive in the White House. In the meantime, the Republican
Governors Public Policy Committee (RGPPC) puts forth the following framework to address these challenges.

The ideas contained in this letter provide solutions to challenges that the ACA has created or has failed to address.
Through policy priorities that encourage market-based principles and an improved federal-state partnership in healthcare
programs, governors will be able to decrease healthcare costs while addressing the unique healthcare needs of their states.
The need for true healthcare reform remains, and Republican governors are bringing solutions to the table.

The state-federal partnership needs to be revisited.

States should not be considered a stakeholder by the federal government. States need to be genuine, full partners.
Instead of adhering to a one size fits all approach to administering Medicaid, states should be able to tailor their
programs to fit the needs of their unique populations and align incentives to achieve their target outcomes. The federal
government should be a willing partner, allowing governors the flexibility to design innovative, patient-centered programs
while holding them accountable for improved health outcomes.


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Republican governors are ready to act. The federal government must embrace this leadership and work with us to improve
our health systems. It is time for a genuine partnership that will empower chief executives who know how to make things
work in their states.

Governors across the country are facing increased Medicaid enrollment both in expansion states and non-expansion
states. An American Action Forum analysis of the latest CMS enrollment report estimated that the increase in previously-
eligible Medicaid enrollees will cost non-expansion states $700 million in 2014 alone.
i
Without state-led reform, the
growing cost of Medicaid, which is already the largest portion of total state expenditures, threatens to crowd out other
essential government services such as education, transportation, and public safety. We believe the following reforms will
curb this unsustainable trajectory and lead to better health outcomes.

Program Design

First and foremost, states need full flexibility to incorporate market-based innovations into their Medicaid programs. The
convoluted federal financing system should be reformed to promote innovative, patient-centered program design and not
be tied to obsolete benefit requirements. With additional regulatory flexibility, states can add components to their
Medicaid programs that promote personal ownership of health decisions and incentivize individuals to seek employment.
Unfortunately, the ACA is hindering state efforts to design programs that incorporate market-based provisions, such as
Health Savings Accounts, job training incentives, and wellness initiatives to the extent states find necessary.

Waiver Reform

One area of the Medicaid program in desperate need of flexibility and reform is the antiquated Medicaid waiver approval
process. As a process that has long impeded state innovation, it must be reformed to increase efficiency, transparency, and
predictability. A true, state-federal partnership would empower states with greater autonomy to design their programs,
allowing them to focus on quality of care, patient outcomes, and stewardship of taxpayer dollars, rather than on
compliance with authoritative protocols imposed by the federal government.

The waiver process should be reformed by streamlining funding to give states more flexibility coupled with federal
accountability reform. The Center for Medicare and Medicaid Services (CMS) is granted with the authority to approve
Medicaid waiver programs, and should be accountable to states for a timely review and approval process. In particular,
CMS should fast-track approval of waivers already approved in other states. States should be held accountable for
financial management and improvements to health outcomes, not processes. Additionally, Congress should replace the
"state plan amendment" process, which requires states to get permission from CMS for changes to their Medicaid
programs, with a "file and use" process based on state designed "Program Operating Agreements" (POAs).

Medicaid Eligibility Determination

Medicaid was designed to serve the most vulnerable Americans. The ACA undermines that premise by pressuring states
to add more people to an entitlement program that already faces serious access issues. Because Medicaid reimburses
doctors at a rate lower than private insurance, many doctors do not accept Medicaid patients. According to a 2011 study,
nearly one-third of physicians said they would not accept new Medicaid patients.
ii
To ensure that the neediest Americans
have access to care, states should be able to move lower-income families out of low-access, low-quality Medicaid acute
care plans and enroll them in the private health insurance market, which offers patients greater access to doctors and
specialists.

Program Integrity

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An alarming level of waste, fraud, and abuse remains in Medicaid programs across the country. In February 2014, the
Washington Post reported that fraudulent Medicaid schemes in the District of Columbia had cheated taxpayers out of
tens of millions of dollars and made clear that Medicaid fraud in [D.C.] is at epidemic levels.
iii
Combating fraud in the
nations capital is not a confined issue government health programs face widespread fraud across the country. States are
in the best position to fight fraud due to their systematic understanding of how their unique programs function. Thus,
program integrity should be left to the states, with states using existing federal funds to proactively detect and address
improper activity, instead of the federal governments retrospective, ineffective pay and chase approach.

Market-based principles ensure long-term fiscal sustainability.

Any improvements to existing law should be guided by market-based principles instead of a top-down, federally
prescriptive approach. Government at all levels should be enabling health industry participants to thrive, not burdening the
system with overregulation. A market-focused approach will help to manage the growing price of healthcare in every
state. The issue of rising healthcare costs was not adequately addressed in the ACA. Instead, the federal government
pumped billions of taxpayer dollars into a broken system to subsidize coverage and pay for enhanced matching rates for
able-bodied, childless adults. True healthcare reform should empower states to design and develop programs that promote
competition and drive down costs, targeting their own unique populations.

In 2012, Republican governors discussed applications of the policy goals listed above in the release of their reform. These
concepts, designed to improve health outcomes and contain costs, are just as essential to rejuvenating our healthcare
system today as they were two years ago.

Economic Opportunity

Access to healthcare should increase economic opportunities, providing support for individuals to grow professionally and
enabling investment in other aspects of ones life. Government at all levels needs to embrace financial incentives that
increase economic opportunity and mobility. According to the nonpartisan Congressional Budget Office, the federal
health law will reduce hours worked by the equivalent of at least 2.5 million full-time workers by 2024.
iv
This is an
unacceptable product of a misguided policy. The law should be altered to reflect the broader influences on a persons
health, such as employment, education, and personal responsibility. This means expanding economic opportunity and
offering incentives for healthier lifestyles, as opposed to federal mandates. Able-bodied individuals should be afforded the
opportunity to find a job, keep a job, and move beyond the cycle of poverty.

Price Transparency

For consumers to become more active and engaged purchasers of healthcare, they must be able to make informed
decisions about their healthcare choices. Having access to clear and meaningful information about cost and quality of
medical services is crucial to Americans ability to make educated health decisions for themselves and their families.
Despite recent strides to address price transparency, healthcare continues to lag behind other industries in providing
consumers with actionable information. This lack of information on provider prices catalyzes higher costs, forms major
price variation, and impedes competition. As Americans face rising prices and higher costs, dramatic change is needed to
allow consumers to compare the price and quality of healthcare needs across providers and facilities in their area.
Consumer engagement will not only incentivize the healthcare field (as it does every other industry offering a competitive
product), it will also increase the likelihood that consumers will make choices based on value. For price transparency to
become a more meaningful tool in Medicaid, states should be permitted to impose enforceable cost sharing for higher-
income beneficiaries. Having a financial stake in the game will help prepare individuals to take ownership of their

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healthcare when their circumstances improve and they move to market-based plans. Additionally, health plans should
promote the use of transparency tools that encourage cost-conscious behavior while ensuring the confidentiality of patient
identities and sensitive information.

Private-sector Options for Medicaid

Just as incentives must be leveraged in the private sector, changes to Medicaid policy must promote better health
outcomes while allowing states to rein in costs associated with a perpetually growing program. As stated in RGPPCs
2011 Medicaid report, the Medicaid program has evolved into a cumbersome, complicated, and unaffordable burden on
nearly every state.
v
Unfortunately, the Affordable Care Act has only exacerbated timeworn Medicaid issues, such as
limited access to care, inadequate physician reimbursement, and poor health outcomes. The time is ripe for the federal
government to allow states the flexibility to modernize Medicaid -- to replace the concept of entitlement with the
concept of opportunity. For example, the federal government could permit (and encourage) states to transition low-
income families and able-bodied adults into private insurance. By design, this would increase access, ensure portability,
and reduce the perverse incentives that thwart economic mobility. Additionally, by increasing the degree of private sector
options for Medicaid, beneficiaries will gain a better understanding of how to utilize the system more efficiently as they
achieve upward mobility and enroll in plans with deductibles.

For Medicaid beneficiaries with disabilities and those in need of long-term care, states should be empowered to create a
more integrated and coordinated approach for beneficiaries through the expansion of managed care. This arrangement
would be mutually beneficial; states would benefit from reduced budgetary exposure and patients would benefit from
being able to receive at-home care in more cases,
vi
as well as improved quality of care. The implementation of managed
care for Medicaids most vulnerable would ensure the coordination of care for a fragile population while allowing state
policy makers to plan more confidently for Medicaid expenditures. Instead of paying doctors and nursing homes directly
for individual services, moving to a model of managed long-term services and supports would bundle all of the costs
associated with a patient into one payment that incentivizes coordination and communication.
vii
It would also enhance
opportunities to better align payment with value, including outcomes related to health, healthcare, and quality of life.
Congress should allow states to take the lead in strengthening the safety net for the most vulnerable by appropriating a
predictable federal funding stream for long-term services and supports and acute care services for people with disabilities
that is indexed for inflation and population growth.

The framework outlined in this letter illustrates how market-based principles and state flexibility can be adopted to
address the major challenges facing our healthcare system. In practice, these reforms will help create a more sustainable
healthcare system, spearheaded by states, which serves the most vulnerable, while preserving a vibrant and competitive
marketplace for the private sector. We look forward to working with you to evaluate these commonsense measures that
empower states to improve health outcomes and rein in healthcare spending.

Sincerely,
Governor Bill Haslam Governor Gary Herbert
Chairman Healthcare Taskforce Chairman
RGPPC RGPPC

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i
http://americanactionforum.org/insights/the-woodwork-effect-costing-non-expansion-states-up-to-700-million-in-2014
ii
http://content.healthaffairs.org/content/31/8/1673.abstract
iii
http://www.washingtonpost.com/local/crime/more-than-20-charged-in-federal-crackdown-on-dc-medicaid-fraud-services-not-
delivered/2014/02/20/22d19c48-9a5c-11e3-b88d-f36c07223d88_story.html
iv
http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-Outlook2014_Feb.pdf
v
http://rgppc.com/rgppc-medicaid-report/