Now is the opportunity for Congress to reform Medicaid

Congress is currently debating Medicaid reform as part of the 2025 budget package. The stated Republican goal is a continuation of Trump’s 2017 tax cuts, which are set to expire at the end of this year and need offsetting savings somewhere else in the budget. The original proposal was a $880 billion reduction in the projected increase to the Medicaid entitlement over the next ten years, along with other line-item savings in federal spending.

Medicaid began in 1965 as part of President Johnson’s Great Society legislation. It originally was a safety-net health insurance entitlement for lower-income patients, the disabled, and pregnant women. Costs were shared on a 50/50 basis between state taxpayers and federal taxpayers.

In 2010, Obamacare expanded Medicaid to any low-income, able-bodied adult ages 18 to 64 and enticed states to participate by changing the financial match to 90 percent federal money and 10 percent state taxpayer money. Forty states elected to expand the entitlement, with Wyoming, Texas, and Kansas as the only states west of the Mississippi River that declined the expansion.

Total spending for Medicaid was $5 billion in inflation-adjusted dollars in 1970. Last year, spending had skyrocketed to $870 billion and enrollment has exploded to 20 percent of Americans. Medicaid is one of the largest non-discretionary budget items for the federal government and is one of the top three budget spending programs for every state.

It is beyond time for Medicaid reform. Spending on the able-bodied adults in the program is crowding out the spending on the truly needy and disabled. This point cannot be emphasized enough.

To begin with, Medicaid should return to a true safety-net health insurance plan. Opponents of reform loudly broadcast that over eight million people would lose their health insurance if the able-bodied were removed from the entitlement. This number is absolutely false. The number of people leaving Medicaid is not the same as the number who would go without health insurance. These individuals would still potentially have access to the private insurance market or the employer-paid market.

The budget debate has also raised the issue of a work requirement for those enrollees who are able to work. However, even some supporters of the requirement are seeking political cover by delaying the requirement until 2029, when another administration and another Congress could simply overturn the requirement.

Also included in the debate are more frequent eligibility checks. The current proposal is twice a year, which should be a very minimum since many enrollees move, enter the workforce, or find other health insurance such as Medicare.

One other issue that has been raised in the debate is the nearly ubiquitous Medicaid hospital tax. Many states tax their hospitals, which increases the amount of state spending on Medicaid. Because of the 50/50 match, the federal government then gives states more money, which the states use to give back to the hospitals in higher Medicaid payments. This is basically legalized Medicaid fraud. There seems to be little enthusiasm in Congress to eliminate the hospital tax game.

Unfortunately, meaningful Medicaid reform is not being debated in the budget proceedings. Welfare reform in the late 1990s was very successful because it placed limits on how many years people could expect support. Likewise, Medicaid should be viewed as a temporary program and, for most recipients, should be a transition health insurance plan.

Medicaid enrollees should have a copay requirement based on income. It is not unreasonable to require recipients to pay a small amount to receive otherwise free health care provided by taxpayers. It is condescending to believe poor families cannot manage their own health care. Allowing them to control their own health care dollars through subsidized health savings accounts or a voucher system would financially reward enrollees for leading a healthy lifestyle and making smart personal choices.

Local control of the management and financing of entitlement programs works best. States, rather than the federal government, should be placed in charge of Medicaid. Block grants and waivers from the federal government would allow states to experiment with program design and to budget for Medicaid more efficiently.

Now is the time to reform Medicaid and place it on a sustainable trajectory. The current budget proceedings would be a great place to start.