Blue Dog Medicaid Deal Will Devour Us

Boy, are they wrong. The Medicaid amendment that they passed will cause states to accelerate their already out-of-control spending on Medicaid.

Medicaid is a program for low-income households that is jointly financed by the federal and state governments. It has always contained a flawed incentive that causes states to overspend: the FMAP, which is the percentage of total Medicaid costs paid by the federal government. Because FMAP has been at least 50%, state politicians have an incentive to spend one dollar to pull down at least one dollar from the residents of the other 49 states (as laundered by the federal government).

This has caused Medicaid spending to increase even faster than the bankrupt Medicare program for seniors. President Obama made it worse in February, when he signed the so-called “stimulus” bill, which significantly increased the federal match.

The Blue Dog deal would make states finance 7% of the proposed, permanent, Medicaid expansion. They appear to believe that by forcing states to swallow some of the cost of the Medicaid expansion (which was originally 100% federal) they could dampen it somewhat.

No way! If states only have to spend $7 of their own residents money to pull down $93 of federal money, they will go into a feeding frenzy the likes of which we’ve never seen in the history of Medicaid.

(In case you doubt that the FMAP already creates horrible incentives for states, you might have missed the $540 million settlement that the U.S. Department of Justice made last month with two Medicaid fraudsters who wrongly billed the program for school-based health services. The busted scammers? New York State and New York City.)

This post originally appeared in National Review Online’s Critical Condition.
It also appeared on Free American Health Care.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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