Medicaid’s Cracked Halo – Pacific Research Institute

Medicaid’s Cracked Halo

President Trump’s recent 2018 budget proposal, which includes roughly $800 billion in cuts to Medicaid over the next decade, has led to howls of outrage from Democrats.

Senate Minority Leader Chuck Schumer, D-N.Y., said last week that the cuts would “carry a staggering human cost.” Sen. Bernie Sanders, I-Vt. has called them “just cruel.”

Medicaid’s defenders claim that it’s a bargain for patients and taxpayers alike. As Sen. Schumer put it, “Medicaid has always benefitted the poor. That’s a good thing.” A recent issue brief from the Kaiser Family Foundation, meanwhile, concludes, “Medicaid is cost-effective.”

But the data tell a different story. Medicaid is a budget-busting program rife with waste, fraud, and abuse that doesn’t even expand access to quality care or improve health outcomes.

For starters, Medicaid’s costs are spinning out of control. In 2015, total Medicaid spending shot up almost 10 percent. Overall national health spending, by contrast, climbed only 5.8 percent. Last year, the Congressional Budget Office had to raise its projections for the 10-year cost of Medicaid by $146 billion, as per-enrollee costs came in far higher than expected.

Medicaid now accounts for 19 percent of states’ general fund spending. It’s their second-biggest budget line item, after education.

States across the country are facing budget crises this year, largely because of ballooning Medicaid costs. Sixteen governors want to freeze or cut Medicaid payments to doctors and hospitals to help close budget gaps. Eight want to hike taxes on healthcare providers.

Last year, the Obama administration warned that Medicaid spending was on an unsustainable path. In its “2016 Actuarial Report on the Financial Outlook for Medicaid,” the Centers for Medicare and Medicaid Services noted that costs are expected to climb an average of nearly 6 percent annually over the next decade. That growth rate could “displace spending on other important programs,” CMS concluded.

When the Obama administration is sounding the alarm about cost growth in Medicaid, something must be off.

Even worse, a significant proportion of the money Medicaid spends is wasted. A Government Accountability Office report from January found that 10.5 percent of the program’s 2016 budget went toward “improper payments” — mostly stemming from waste, fraud, and abuse. That’s roughly $36 billion!

The remaining 90 percent of the budget doesn’t accomplish much, either. Research has shown that Medicaid beneficiaries aren’t any healthier than those who have no insurance at all.

Consider the findings of a 2008 study of Oregon’s Medicaid program. The state had instituted a lottery to determine which individuals to include in its Medicaid expansion. Researchers compared the health of those randomly selected for the program with those who didn’t get Medicaid coverage — including those who were uninsured.

The result? Compared to patients without insurance of any kind, Medicaid “generated no significant improvements in measured physical health outcomes in the first two years.”

That’s surely due in part to the fact that beneficiaries struggle to put their coverage to good use. As of 2013 — the most recent year for which data are available — nearly one-third of doctors weren’t taking new Medicaid patients.

Unfortunately, that shouldn’t be surprising. Medicaid’s reimbursement rates for doctors are well below those for Medicare and private insurance. In some cases, doctors lose money on every Medicaid patient they see.

If beneficiaries can’t get care in a doctor’s office, they turn to the emergency room. A follow-up to the Oregon study found that emergency-department use increased by 40 percent in the first 15 months after patients gained access to Medicaid. Similarly, in a 2015 survey of ER doctors, three-quarters reported a surge in ER visits after Obamacare’s Medicaid expansion went into effect. A 2016 study of ER use in Illinois discovered the same trend.

In other words, expanding Medicaid eligibility with an eye on decreasing expensive ER care may actually backfire. And that could make the program’s spending problems even worse.

House Republicans are attempting to address Medicaid’s shortcomings by transitioning the program to a per-capita, block-grant funding model. This would give states the flexibility — and financial incentive — to spend their Medicaid funds in ways that genuinely improve the health of their low-income residents.

The House plan would also reduce federal spending on the program by more than $800 billion over ten years — savings reflected in Trump’s budget proposal.

Now that Congressional Budget Office has completed its analysis of the House bill, the Senate is poised to take up the issue. Sadly, it’s far from clear that the upper chamber will retain the House’s roll-back of Obamacare’s Medicaid expansion, or its per-capita funding reforms.

As for the Democrats, instead of offering an alternative vision for how to fix Medicaid, they are pretending that the program is a galloping success — and condemning Republicans for propagating “myths” about the program.

But if Democrats are truly concerned with the well-being of low-income Americans, then why are so many committed to a health program that consistently fails the nation’s most vulnerable patients?

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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