The American Health Care Act includes per-capita federal spending caps for Medicaid. These caps are widely denounced as draconian. They are not. The caps would increase well above the rate of per-enrollee Medicaid spending growth over the past 20 years. The proposed caps are a very modest first step that does not alter Medicaid’s existing commitments.
Per-capita spending caps do, however, offer a way to correct a systematic bias in in the program favoring the wealthier states.
Medicaid was primarily intended to help the poorest states with the thinnest tax resources and the greatest unmet health-care needs. In practice, however, the federal government currently distributes funds to states according to how much they are themselves able to spend on the program. As a result, the wealthiest states with the deepest tax bases and lightest social-services burdens currently receive the largest subsidies. Those states use these additional funds less to increase the provision of medical care than to expand eligibility for long-term services and supports.
Medicaid per capita spending cuts would constrain states from unilaterally expanding federally supported benefits. By doing so, they would establish regular scrutiny and a conversation about priorities, purposes, and opportunity costs in the Medicaid program, so that its future growth is better focused on the nation’s most pressing unmet health-care needs.
Christopher Pope is a senior fellow at the Manhattan Institute.