The Agenda

The Swap

This summer, I wrote a post on the case for federalizing Medicaid, one that drew on Ronald Reagan’s proposal for a swap between state and federal governments. Ezra Klein offers another argument for doing so:

Medicaid is a counter-cyclical program. When the economy gets bad, the program gets more expensive. That’s obvious enough: People lose their jobs and suddenly need help affording health-care coverage. Medicaid exists to help them. The problem is, that’s the exact moment when state revenues go down, because people who lose their jobs pay less in taxes. And 49 of 50 states are required to balance their budgets, so they can’t deficit spend.

The precise moment when Medicaid costs more and is most needed, in other words, is also the precise moment when states are least capable of increasing their contribution. The federal government, conversely, is able to deficit-spend during recessions, and often does. The federal spending pattern makes sense for Medicaid. The state spending pattern doesn’t. Give it to the feds.

Now, Reagan’s idea for a swap posited that income-maintenance programs would be shifted to the states, and these are counter-cyclical programs as well. I think we need to do a far broader rethinking of state and federal responsibilities. 

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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