Friday, January 9, 2009

If you really want to control entitlements, Mr. President-Elect …

…I know a great place to start.

President-elect Obama says he's going to take a long, hard look at federal spending on "entitlements" – programs for which spending is automatic, and spent on every American who fits eligibility criteria. Social Security and Medicare are classic examples of entitlements.

Entitlement spending takes up a large part of the budget, but usually such spending at least does some good. Things like Social Security and Medicare are expensive, worthwhile entitlements.

But there is at least one entitlement that actually does harm: That is the entitlement states get for throwing children into foster care. For every eligible child (slightly fewer than half of foster children nationwide are "eligible") the federal government picks up anywhere from 50 percent to 83 percent of the tab; it varies from state to state. But there is nothing like that for safe, proven alternatives to taking children from their parents. That's the key reason why federal spending on foster care vastly outstrips federal spending on better alternatives.

And there is a possibility that President-Elect Obama may inadvertently make this worse.

The amount that states get back for foster care is linked to the amount they get for Medicaid, the health insurance program for the poorest Americans. So, for example, if State X is reimbursed 70 cents for every dollar spent on Medicaid. It also gets 70 cents back for every dollar spent on foster care for an "eligible" child. As the Medicaid rate rises or falls, the reimbursement for foster care (and also some adoption assistance) rises or falls with it.

Some child welfare groups expect that a new economic stimulus package will include an increase in this "match rate." So that state that was getting back 70 cents on the dollar might get back 75 cents or 80 cents on the dollar. Such an increase for Medicaid would be good. But if Congress does this, the reimbursement for foster care also will rise by the same amount, automatically, unless Congress acts to apply the increase to Medicaid only.

And that's exactly what the new President should ask Congress should do – apply any increase to Medicaid only. Then the additional dollars that would have gone to foster care should be directed instead to family preservation. It would be a tragedy if one of the new president's first acts actually increased the already huge financial incentive for states to take children needlessly from their homes.

But President Obama should not stop there. He should end the open-ended entitlement for foster care entirely. As things stand now, safe, proven alternatives to foster care cost less in total dollars, but throwing a child in foster care sometimes can cost a state less – because the federal government picks up so much of the tab. That is insane.

The way to restore sanity to the system is to estimate the amount that states would get under this system, and then give it to them as a flat grant, indexed to inflation. But instead of limiting the funds to foster care, let states use the money for alternatives as well.

Suddenly, billions of dollars previously available to states only for foster care also would be available for better options. Of course, it couldn't all go to alternatives – some children really need to be in foster care. But the flat grant should be structured so that, as foster care is reduced, the grant does not go down – the states get to keep the savings, as long as they plow the money into more help for families. That's the carrot. The stick is that states that experience foster-care panics, huge sudden surges in needless removal of children, will have to foot the entire bill for those panics. And that's the whole idea. States might be a little more reluctant to tear apart families needlessly if they had to pick up the entire tab.

This also would be a great chance for the new President to show that he means what he says about bipartisanship. Because this particular idea came from the Bush Administration. They proposed to offer it on a purely voluntary basis. But the foster care-industrial complex, the network of child welfare agencies with a huge vested interest in keeping children in foster care, and its dutiful allies, made sure that got nowhere. Instead, the administration offered a similar plan to some states and localities in the form of a "waiver" from federal regulations.

Only one state took them up on it: Florida. And it's made a huge difference.

The waiver is one of the key reasons that Florida, once a national symbol of child welfare failure, has begun a significant turnaround. In Florida alone, more than $100 million a year formerly restricted to foster care now is available for alternatives. And that's one reason why, in 2007, Florida saw its first significant decline in entries into care in nearly a decade. Now, with Florida hit particularly hard by the collapsing economy, the progress is in danger. But while the waiver won't completely make up for state cutbacks, it will help cushion the blow.

In California, where individual counties run child welfare, Los Angeles and Alameda Counties accepted waivers.

Michigan, on the other hand, won't get that cushion. Michigan also accepted the waiver. The state Department of Human Services bragged about it publicly, and it was the subject of news accounts. Then, suddenly and mysteriously, with no public announcement, it was gone. At the very last minute, someone at DHS changed her or his mind, and the waiver was dead. It does not appear that the agency didn't even had the guts to explain who did it or why.

Michigan's fiscal cowardice leaves its children entirely at the mercy of an economy that probably is collapsing faster in the home state of the American auto industry than anywhere else.

But this is one time the federal government could offer a "bailout" that won't cost any money. All it has to do is end the foster care entitlement and require that the other 49 states do what only Florida and those two California counties had the guts to do on their own.