Congressional Democrats are considering establishing a nationally administered Medicaid benefit to fund healthcare services for low-income people in states that opted not to expand the program under the Affordable Care Act.
Though the proposal is most immediately appealing to the Left, by making benefits more standardized and administered at the national level, the reform might, in the long run, make it possible to rein in the program’s rapidly growing costs.
The Supreme Court in 2012 ruled that the Affordable Care Act’s attempt to require states to expand Medicaid to all low-income adults was unconstitutionally coercive of states. To this day, 12 states have chosen not to expand the program.
That seems likely to change, thanks to the victories by Sens. Raphael Warnock and Jon Ossoff in January’s Georgia runoff elections, which gave the Democratic Party control of both chambers of Congress. As their state has shown little interest in expanding Medicaid, so Warnock and Ossoff have sought to establish a new purely federal Medicaid benefit to cover low-income people left out by states like their own. Such a provision was included in the elements of the reconciliation bill recently marked up by the House Energy and Commerce committee.
This reform could add 2 million people to the 75 million who are now enrolled in Medicaid. But it could also lay the groundwork for a more sweeping transformation of the program.
Medicaid is operated by states but mostly funded by the federal government, which provides between $1 and $3 for every $1 that states spend on healthcare services for those traditionally eligible for the program. To entice states to expand the program to all low-income able-bodied adults, the ACA provides $9 in federal funds for every $1 that states spend on individuals made eligible by the program’s expansion.
Medicaid’s funding structure has proven to be a very lucrative arrangement for states, which have clamored to claim as much aid from the federal government as they can by augmenting their own expenditures on the program. From 2000 to 2020, the cost to taxpayers of Medicaid surged from $206 billion to $683 billion.
All 50 states have imposed taxes on hospitals to inflate the cost of medical care delivered so that they can claim higher reimbursement from the federal government. The true cost of services delivered by the program may be impossible for the federal government to track. A federal auditor once testified that financing mechanisms are often "designed solely to maximize federal reimbursements to states and serve to obfuscate the source and final use of both federal and state funds."
As there is no limit to the Medicaid matching funds that states may claim from the federal government, the wealthiest states with the deepest tax bases have been most able to profit from it. This has led to a perverse situation whereby a program intended to help states who are unable to provide basic care for the poor instead steers funds disproportionately to the states that need the least help. In 2020, the federal government provided $17,973 Medicaid funding per resident under the poverty line to Massachusetts, but only $12,768 to West Virginia — even though both states had expanded the program under the ACA.
For much of the past three decades, congressional Republicans have sought to reform this arrangement by capping the amount of Medicaid funding which each state can claim from the federal government. Yet, wealthy states and medical provider interests have each time successfully blocked such reforms by portraying them as an attack on the poor.
Even if the caps proposed by Republicans in 2017 had been enacted, they would likely have proven ineffective at constraining the program’s costs. The proposed caps were loose, and tighter caps would have been politically unsustainable. States that have overexpanded the program are already able to count on federal bailouts in economic downturns when their caseloads increase and revenues decline. In March 2020, the federal government provided $50 billion in extra funding, and similar bailouts were provided by Congress in 2001, 2003, and 2009.
When Medicaid was established in 1965, the program’s mission was loosely defined and open-ended. In 1982, President Ronald Reagan proposed nationalizing Medicaid, but he was stymied by the politics of moving away from a system in which the program’s scope varied so much from state to state. But Medicaid now imposes rules which are highly prescriptive with respect to the population that must be covered and the package of benefits to which they must be entitled. State involvement in Medicaid now serves mostly to inflate the program beyond its core purpose and scramble responsibility for meeting this objective in a cost-effective way.
Congressional Democrats may now be taking the first step toward the nationalization of Medicaid, increasing the harmonization of eligibility across states and building the infrastructure necessary for direct federal administration. Republicans looking to rein in the program’s cost should seek to venture further down that path.
______________________
Chris Pope is a senior fellow at the Manhattan Institute. Follow him on Twitter here.
This piece originally appeared in Washington Examiner