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The pending health reform legislation enacted by Congress will negate two decades of Medicaid reform, and will increase Medicaid spending by $438 billion over the next decade. The federal government will pick up much of the cost in the initial years, but the states will have to eventually pay their share.

If there ever was a time for the states to challenge federal unfunded mandates, it is now.

On average, states pay for 43 percent of total Medicaid costs. This means that down the road, states must pick up $188 billion in higher Medicaid costs tied to increased eligibility and coverage mandated by Congress. This is the largest increase in Medicaid costs since the program began.

Currently, states set their own reimbursement rates paid to primary physicians. The average reimbursement rates for primary care physicians paid under Medicaid relative to that under Medicare is 66 percent for the nation a whole.

However, the rate varies significantly, from a low of 36 percent in New York and Rhode Island to 140 percent in Alaska. Many states, especially those with low reimbursement rates, are having difficulty in getting doctors and hospitals to accept Medicaid patients in the current program.

It is difficult to see how these states can get doctors and hospitals to accept Medicaid patients in a greatly expanded program, without significantly increasing reimbursement rates.

It would appear that Congress is setting up the states for a perfect fiscal storm. States will confront significantly higher Medicaid costs at about the time that federal stimulus dollars disappear. This unfunded mandate imposed by the expanded Medicaid program will exacerbate fiscal crises in the states, spreading fiscal profligacy from the federal government to the states.

Fortunately, state legislators are taking the bull by the horns.

Twenty states have enacted legislation to defend health care choice modeled after the American Legislative Exchange Council’s Freedom of Choice in Health Care Act. The Montana constitutional amendment, for example, preserves the right of individuals to pay directly for medical care, and prohibits any individual from being penalized for not purchasing government-defined insurance. Any federal or state law requiring individuals to purchase health care insurance, or prohibiting an individual from purchasing health care services directly, would be declared unconstitutional.

The Vote on Taxes Committee, of which I am a co-founder, is proposing a constitutional amendment prohibiting federal unfunded mandates. With a prohibition on unfunded mandates the state could simply refuse to implement or fund such a mandate. This amendment would restore the right of states to design and implement their own Medicaid program.

A prohibition on federal unfunded mandates would provide an important and perhaps essential constitutional basis for the states to challenge federal law under the Tenth Amendment.

If a state determined that a federal law mandated a program abrogating that state’s rights under the Tenth Amendment, the state could simply refuse to administer or fund the program. This constitutional provision would allow the states to determine federal programs they wish to administer and fund, with state laws preempting federal laws.

With states determining which federal programs they wish to administer and fund the federal government’s role in those programs would recede to the provision of federal funds in the form of a block grant necessary for the federal government to meet some minimum federal effort.

Barry Poulson is a senior fellow in fiscal policy at the Independence Institute and a co-founder of the Vote on Taxes Committee.