How House Republicans Can Tame the Medicaid Monster

A s Republicans take over the House of Representatives this month, focusing on fixing Medicaid, the giant of the U.S. health system, should be at the top of their agenda. While creating Medicare in 1965, Congress added a small funding source of less than $1 billion to help states with medical services for poor and disabled Americans. Since then, Medicaid has grown to account for nearly $800 billion in federal and state expenditures and covering more than one in four Americans. House Republicans should restore Medicaid to its original form as a safety net reserved only for the neediest.

First, the federal government’s three-year public-health emergency must end immediately. During this period, states have been prohibited from conducting routine eligibility reviews, which has resulted in Medicaid caseloads’ growing by over 30 percent. Many of the current recipients are likely ineligible and have employer coverage. Simultaneously, managed-care organizations’ profits have soared because they are paid a monthly fee for each recipient, regardless of whether the recipient uses their services. Many state governments already face labor shortages, and redeterminations for current Medicaid recipients may take states a year or longer to complete. By allowing states to immediately resume Medicaid-eligibility reviews, 20 million ineligible individuals could potentially be removed from the program, ultimately saving taxpayers billions of dollars.

Next, Congress must scrap the current open-ended funding scheme by which the federal government reimburses states for 50 to 90 percent of their expenditures, depending on the service and the population. As the number of Medicaid recipients has grown by more than 250 percent since 2000, largely as a result of Obamacare, states now receive more reimbursements for able-bodied adults than for the disabled or neediest. This encourages states to expand the program beyond its means. Many states overpay health-care facilities operated by local governments to increase the federal aid they receive, and they impose taxes on providers for increased federal match that they then funnel back to providers, thereby doubling their revenue. Meanwhile, Medicaid waivers that are supposed to be budget neutral have greatly exceeded spending and lack program-integrity safeguards.

Many state leaders consider Medicaid a stimulus and an economic multiplier, with a November 2020 Congressional Research Service report’s estimating that state spending alone on Medicaid will top $400 billion by 2027. This chase for more federal money, coupled with federal mandates to relax or suspend eligibility reviews, has led to a national Medicaid-eligibility-error rate of nearly 22 percent, massive overcharges by managed-care companies, and even spending on dead people. If this disregard for program integrity continues, people and corporations will keep receiving taxpayer money for which they are not qualified.

As hundreds of thousands of disabled and elderly Americans painstakingly wait for basic Medicaid services, the Biden administration’s recent actions — such as expanding Obamacare’s fast-track Medicaid-enrollment policies and paying for non-medical services such as housing, food, and even climate-change-related expenses — move Medicaid even further away from the program’s original purpose. This waste in the system, and the management chaos that ensues, has a negative impact on health outcomes. Economists from MIT, Harvard, and Dartmouth recently showed that Medicaid recipients place a low value on its services, and they suffer lower survival rates from them compared with those who are otherwise insured.

Fixing all this requires that we acknowledge that federal and state governments have disparate budget and management philosophies. States have balanced budgets — they can’t print money as Washington does. Splitting the management of a $800 billion enterprise into two distinct operations with different financial goals is bound to create problems. Congress’s first step, therefore, should be to create a Medicaid-payment system that is transparent, fair, minimizes fraud and abuse, encourages innovation, and pays only for the neediest.

Unless Congress acts now to undo the chaos it has created over the past six decades, more disabled and poor Americans will be left waiting to receive health care, and more taxpayer money will be wasted and exploited in the process.