Michael F. Cannon
New Congressional Budget Office (CBO) projections confirm the worst fears of inefficient health care providers and other Medicaid supporters: states and voters do not support current Medicaid spending levels. They also show that Medicaid is a highly inefficient program. Congress needs to go much further than current proposals and fundamentally reform Medicaid with zero-growth block grants.
The CBO examined five options for reducing the growth of federal Medicaid spending.
Eliminate enhanced “match”: reduce the ratio by which the federal government matches state expenditures on Obamacare’s Medicaid expansion from 9:1 to (depending on the state) somewhere between 3:1 and 1:1.
Reduce “provider tax” scams: reduce states’ ability to use shell games to boost those ratios.
Per-capita caps, all enrollees: cap federal spending per enrollee for all Medicaid enrollees.
Per-capita caps, Obamacare expansion: cap federal spending per enrollee only on able-bodied, childless adults in Obamacare’s Medicaid expansion.
Less scrutiny of eligibility: revert to pre-Biden practices on Medicaid eligibility determinations and re-determinations.
None of the options the CBO examined would cut federal Medicaid spending. Under current law, federal Medicaid spending will grow 4.5 percent per year. Under any of these options, federal Medicaid spending would continue to grow at least 3 percent per year.
The CBO found these options would have the following net effects on federal spending (2025–2034) and the number of uninsured:
Reduce deficits by $710 billion; reduce Medicaid enrollment by 5.5 million; increase uninsured by 2.4 million.
Reduce deficits by $668 billion; reduce Medicaid enrollment by 8.6 million; increase uninsured by 3.9 million.
Reduce deficits by $682 billion; reduce Medicaid enrollment by 5.8 million; increase uninsured by 2.9 million.
Reduce deficits by $225 billion; reduce Medicaid enrollment by 3.3 million; increase uninsured by 1.5 million.
Reduce deficits by $162 billion; reduce Medicaid enrollment by 2.3 million; increase uninsured by 0.6 million.
Again, even with these changes, federal Medicaid outlays would grow an average of at least 3 percent each year for the next decade.
Medicaid Is Highly Inefficient
The CBO’s projections reveal that Medicaid is a highly inefficient way of covering the uninsured. Those projections imply that it costs more to cover an able-bodied, uninsured adult through Medicaid ($29,583) than to cover an entire family through employer-sponsored health insurance ($25,572), and more than three times what it costs to cover a single adult through employer-sponsored health insurance ($8,951).
Current Medicaid Spending Levels Are Unpopular
Though evaluating public opinion is not part of the CBO’s mandate, the agency’s projections illustrate that current Medicaid spending levels are unpopular with voters.
The CBO projects that if participating states had to furnish not 10 percent of spending on Obamacare’s Medicaid expansion but instead somewhere between 26 percent and 50 percent, states would drop 5.5 million people from the program. Note: States would be under no obligation to respond this way. They could maintain enrollment at current-law levels simply by increasing taxes and shouldering a greater share of the cost. They could even increase Medicaid enrollment if they like.
When the CBO projects that states would instead reduce Medicaid enrollment, the agency is implicitly making the following reasonable assumption: however much states and voters might value enrolling those 5.5 million people, they consider the benefits to be worth less than half of the cost (i.e., less than 50 percent of the necessary taxes). States and voters value enrolling those 5.5 million people when states must furnish only 10 percent of the spending, but not if they must furnish between 26 percent and 50 percent of the spending. If the CBO’s projections are reasonable, and Medicaid supporters seem to think they are, the necessary implication is that enrolling those 5.5 million people lacks political support.
These projections reveal a troubling and dangerous aspect of Medicaid. If the CBO’s assumptions are reasonable, they further suggest—and I expect every Medicaid observer would agree—that if Congress were to eliminate all federal Medicaid funding, states would respond by dropping tens of millions of enrollees from their programs. Again, the reason would be the same: states and voters value enrolling those people if states need only furnish 23 percent to 50 percent of the spending, but not if states must raise taxes high enough to furnish 100 percent of the spending.
This should terrify anyone who cares about providing health care to vulnerable patients. Rather than make medical care and health insurance more affordable and secure for low-income households, Medicaid makes tens of millions of people dependent for their health care on government subsidies that lack political support and could therefore crumble like a house of cards.
Zero-Growth Block Grants
Any of the reforms the CBO evaluated would be an improvement over the status quo. Yet even if Congress enacted all of them, they would be woefully inadequate. Congress must enact serious Medicaid reforms, such as zero-growth block grants.
As my colleagues Krit Chanwong, Dominik Lett, and I write elsewhere:
Congress should combine federal Medicaid, CHIP, and Obamacare funding into a single block grant that the federal government distributes to each state. The amount that states receive would not rise or fall with state actions. Block grants would, therefore, end the scams that have contributed to wasteful and fraudulent Medicaid spending.
Block grants could deliver any level of savings Congress desires. Congress should set the total amount of federal Medicaid, CHIP, and Obamacare funding at the level the Republican Study Committee has proposed: $342 billion for 2026. Congress should set the growth rate of this funding stream at zero percent. Each year, in aggregate, states would receive $342 billion. Whereas the House Republicans’ budget resolution would merely reduce the rate of growth in federal Medicaid spending from 4.5 percent to 3 percent, this proposal would actually cut federal spending by $5.6 trillion below the CBO’s current-law baseline. It would reduce “primary” federal deficits (i.e., deficits excluding interest payments) by 61 percent over the next decade. It would eliminate the primary deficit by 2035. Even with these significant cuts, however, Congress would still have to take additional steps to balance the federal budget.
If it turns out that voters actually support current-law Medicaid, CHIP, and Obamacare spending levels, then states can simply raise taxes to replace any federal funds they lose. To the extent that states do not replace those federal funds, however, it indicates that current spending levels on these programs are unpopular with voters. Contrary to the claims of Medicaid supporters, that prospect is a reason why Congress should cut federal Medicaid funding. Democracies should not fund unpopular government programs.
Zero-growth block grants would encourage states to build sustainable Medicaid programs and help avert a federal debt crisis that would bring down that house of cards.
Outlook
Congress isn’t considering anything so responsible. Reports vary, and there are occasional signs of hope. But congressional Republicans are averse even to reducing the rate of growth of federal Medicaid subsidies. (To say nothing of how they are running away from Medicare’s problems.)
Even the Paragon Health Institute’s moderate but worthwhile proposals for reducing the worst Medicaid abuses are facing a tough slog. Paragon would slowly reduce the federal government’s contribution to Obamacare’s Medicaid expansion, rather than drop it all at once. For a handful of the wealthiest states, Paragon would reduce the ratio by which Congress matches state Medicaid expenditures to as low as 0.8:1.
This budget debate offers another illustration of how the health care industry has captured, and contorts to its ends, government interventions that purport to improve health care. Medicaid channels money to health care providers in every congressional district. Those providers are furiously lobbying their members of Congress to increase Medicaid spending at the highest rate of growth they can. Relatively speaking, members hear almost nothing from those who want to reduce inefficient Medicaid spending. The taxpayers who bear the cost of those subsidies are hard to organize, in part because deficit spending allows Congress to shift those costs to future generations.
And so the spending binge continues.