2026-09-01
Medicaid has some problems:
- High Growth Rate: Medicaid spending has grown much faster than other federal programs, including Medicare, Social Security, and defense spending.
- Waste, Fraud, and Abuse: The program made over $1 trillion in federal improper payments from 2015 to 2024, equivalent to nearly one-fourth of federal dollars spent on the program.
- Matching Grant System: The matching grant system, which provides states with 7-9 times more federal funds for every dollar they spend on Medicaid, incentivizes states to overpay for services and engage in money-laundering schemes.
- Inequitable Distribution of Funds: The system allows wealthy states with larger tax bases to receive more federal funds, while poorer states with smaller tax bases receive less, leading to an inequitable distribution of funds.
- Lack of Accountability: The program's financing structure rewards states for overspending, rather than incentivizing them to spend responsibly.
- Optional Benefits: The program's optional benefits, such as payments for home care and dental services, are not well-targeted and can drive up costs.
- Bailout Pressures: The program's financing structure can lead to bailout pressures, where states argue that they cannot afford to cover mandatory benefits and require additional federal funds.
- Lack of Rainy Day Funds: States lack the financial cushion to absorb costs during economic downturns, leading to pressure for federal bailouts.
- Federal Debt: The program's unsustainable growth and financing structure will make it a target for cuts as federal debt grows.
- Unsustainability: The program's current financing structure is unsustainable and will require drastic changes to prevent further growth in costs.
Ways to address those problems:
- Reforming the Matching Grant System (matching grant system incentivizes states to overpay for services and engage in money-laundering schemes):
- Eliminating the enhanced federal match for able-bodied adults in the Medicaid expansion population.
- Enforcing and implementing new limits on provider taxes and state-directed payments.
- Structural Reforms: There are two competing visions for structural reform.
- Convert Medicaid to a fixed block grant, which would curb spending growth, eliminate state incentives to draw federal dollars through financing gimmicks, and incentivize states to spend "much more responsibly" to match Medicaid spending and tax levels.
- Fully federalize mandatory benefits, such as hospital and physician services, for core enrollees that states are already required to cover. Optional benefits or eligibility expansions would be left to states to pay for.
- Improving Program Efficiency:
- Requiring states to redetermine eligibility for expansion population every six months.
- Implementing a system to cross-check enrollment across states to catch people signed up for benefits more than once.
- Budgeting and Funding:
- Implementing a "rainy-day fund" to help states prepare for downturns.
- Resisting pressure to delay or roll back new limits on provider taxes and state-directed payments.
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