Medicaid Enrollment Should Decline

W henever conservatives talk about reforming Medicaid, the health-care program for the poor and disabled, they are immediately accused of wanting to kick people off the program. There are many unfair attacks on conservatives in the area of welfare policy, but, in this case, it’s guilty as charged. It would be good for the poor and disabled if fewer people were enrolled in Medicaid, and it’s the people who want the Medicaid rolls to increase forever who are making it harder to help them.

The number of people enrolled in Medicaid is now twice as high as the number of people below the official poverty line (which overstates the number of people who are actually in poverty). Program enrollment has tripled in the past 30 years. In 1988, there were five working people per Medicaid enrollee; today there are only two. The federal government already doesn’t have the money to fund care for the elderly in Medicare, and now Medicaid is becoming an all-purpose federal health-care program for the non-elderly.

Medicaid is no longer for the poor and disabled, though that was the justification for the program when it was created. Obamacare allowed states to expand coverage to able-bodied, working-age people. Moreover, it encouraged them to do so by providing a higher federal funding share for spending on that population than on the poor and disabled.

States receive between 50 percent and 77 percent of their Medicaid spending on traditional Medicaid recipients in federal matching funds, but they receive 90 percent for their spending on the Obamacare expansion population. That means the bang for the buck in state budgets is higher for able-bodied working-age people than for the poor or disabled.

The apotheosis of this perversion of the Medicaid program is in New York. Forty-four percent of New York residents now get their insurance through Medicaid or the state’s Essential Plan, eligibility for which tops out at 250 percent of the federal poverty level. About half of New York’s Medicaid recipients are able-bodied and between the ages of 21 and 64. About a third likely aren’t even eligible to be covered. Bill Hammond of the Empire Center for Public Policy ran the numbers last year: According to Census data, about 5.5 million New Yorkers have incomes below the thresholds for Medicaid or the Essential Plan, but about 8.5 million are enrolled in those programs. “In other words, roughly one-third of the people receiving taxpayer-funded coverage from New York appear to be earning too much to qualify,” Hammond wrote.

Nationwide, there are probably 6.6 million ineligible Medicaid recipients, according to a paper by Liam Sigaud for the Paragon Health Institute. When the cost of covering ineligible recipients is included in the calculations, improper payments in Medicaid likely exceeded $1 trillion between 2015 and 2024.

Because of that higher matching rate for the Obamacare expansion population, states have good reason to look the other way when enforcing eligibility rules. It’s made worse by what Paragon Health Institute president Brian Blase calls “Medicaid money laundering.”

States use a mechanism called the “provider tax” to take money from hospitals. Then, they use the money raised by the provider tax to increase Medicaid spending, which means the money ends up flowing back to the hospitals, with federal matching funds on top. The hospitals support the tax — it’s a major red flag when someone is asking to be taxed — because it makes them more money, and the states come out ahead with the extra federal funds. It’s a fake tax with fake spending but a very real federal budgetary impact.

Politicians will point to increased health coverage as a goal in and of itself, with universal coverage as the goal. “The number of New Yorkers without health insurance dropped by 1.2 million over the past decade,” Hammond acknowledged, “but enrollment in state-sponsored coverage increased by 3.7 million — a sign that most new sign-ups were people who otherwise would have been insured elsewhere.”

Medicaid is a horribly inefficient way to provide health coverage. The Congressional Budget Office (CBO) made projections about the effects of reducing the federal match for the Obamacare expansion population. “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),” wrote Michael Cannon of the Cato Institute.

Paul Winfree of the Economic Policy Innovation Center noted that the CBO also estimates that Obamacare Medicaid expansion provides an average of $7,970 in coverage. If cutting the federal match for able-bodied working-age people would save $29,583 per person, Winfree asked, “Where’s the other $21,613 going?”

A bunch of it goes to hospitals, which have been loving Medicaid expansion and are doing everything they can to encourage the ten remaining holdout states, the largest of which is Texas, to join the Obamacare gravy train. The financial affairs of hospitals are so tied up in Medicaid expansion now that when Republicans said they weren’t going to change the federal matching formula in the reconciliation bill on May 13, hospital stocks rallied.

An anti-poverty program, which is what Medicaid is supposed to be, should not have increasing enrollment forever. In fact, policymakers should view decreasing enrollment as a success because it would mean fewer people are in need. But, as the program is currently structured, states have strong incentives to increase enrollment, ignore eligibility rules, and focus on able-bodied working-age people who need Medicaid less.

Congress could slash Medicaid enrollment by millions without affecting the coverage of poor children or disabled people, and it should do so if it wants to prioritize scarce resources for their care.