Yesterday President Obama announced support for the “Empowering States to Innovate Act” authored by Senators Ron Wyden (D-OR) and Scott Brown (R-MA). The Wyden-Brown proposal would advance the enactment date of an Obamacare provision that allows states to pursue alternative routes to reform if they can meet the same targets as the President’s overhaul. Though touted by Secretary of Health and Human Services Kathleen Sebelius as “another crucial step in empowering states to lead,” the proposal would fail to deliver the level of flexibility states need to achieve successful health care reform.

Members on both sides of the aisle admit that states’ health care reform needs are vastly different and cannot be addressed by a one-size-fits-all approach like Obamacare, which imposes a pre-ordained federal version of reform on the states. A group of 29 Republican governors has written to the White House to demand greater flexibility to innovate, and even some governors on the left have quietly made the same appeal. But as Heritage expert Stuart Butler warns, Wyden-Brown won’t do the trick:

An inherent defect of the ACA is that it does not unleash the potential of states to redesign the health care system to achieve the goals that Americans agree on and at a cost we can afford. The Wyden–Brown bill recognizes this defect but merely advances the effective date of the legislation’s limited and flawed flexibility provision. Only legislation more sweeping than Wyden–Brown can achieve the full potential of state flexibility and reduce state opposition to the ACA.

States especially need flexibility to innovate within Medicaid, the federal-state partnership to provide health care to the poor and disabled, which is responsible for growing budget shortfalls as a result of the program’s mounting cost. Spending on Medicaid has more than doubled in the past decade, rising from $187 billion in 2000 to $346 billion in 2009.

The program’s expansion is due primarily to poor decisions by politicians, which have been exacerbated by the economic downturn. The federal government bailed out states to the tune of more than $100 billion, but this additional aid will expire in July, leaving states accountable for a larger portion of the program’s cost. Heritage analyst Brian Blase writes,

[E]ach time state budget situations deteriorated in the past decade, states received extra federal money for Medicaid. This enabled states to avoid making responsible reforms and set the stage for the current state predicament by incentivizing states to expand their programs beyond sustainability.

Now is the time to put Medicaid on solid footing. In his research, Blase highlights how states can reduce Medicaid’s cost and increase its effectiveness by transforming the program to a premium support model, “under which individuals take state vouchers to purchase private health plans, including employer-based coverage, that best suit their needs. Enrollees would benefit from increased choice and improved access to providers.” States would experience savings due to greater efficiencies, administrative savings, and more appropriate use of medical care.

Until states are able to implement systemic transformation, Blase offers a number of changes that would reduce impending deficits. These include greater cost-sharing, a sliding scale of premiums to target aid to those with the most need, and stricter enforcement of eligibility requirements. Lastly, Blase discusses reform of Medicaid long-term care coverage to improve quality of care and reduce government spending.

Obamacare puts states between a rock and hard place by failing to provide the flexibility they need to innovate within Medicaid, while requiring an expansion of the program in 2014. States cannot afford this, and weak measures like the Wyden-Brown proposal will not go far enough to alleviate the pain.