GAO: Half of All Medicaid Money Is Spent on Only 5 Percent of Enrollees

Published July 23, 2015

A small percentage of Medicaid-only enrollees—those who are not also eligible for Medicare—account for a large percentage of total Medicaid expenditures for Medicaid-only enrollees, according to a new report from the U.S. Government Accountability Office (GAO).

In “Medicaid: A Small Share of Enrollees Consistently Accounted for a Large Share of Expenditures,” GAO analyzed data collected between 2009 and 2011, finding in each fiscal year the most expensive 5 percent of Medicaid-only enrollees accounted for almost half of the expenditures for all such enrollees. The least expensive 50 percent of Medicaid-only enrollees accounted for less than 8 percent of the expenditures for these enrollees.

According to the GAO, the most expensive 5 percent of beneficiaries were disabled, children, mentally ill, or had diabetes. In 2013 there were about 72 million Medicaid enrollees whose expenditures totaled about $460 billion in fiscal year 2013.

Does not Work Well for the Poor

Peter Ferrara, a senior fellow for The Heartland Institute, which publishes Health Care News, says Medicaid is not well-run by the federal government. Ferrara says the states should run Medicaid instead. 

“First, the Constitution does not give the power to provide welfare and perform income redistributionist policies to the federal government,” Ferrara said. “The feds are given the power to promote the general welfare, which means perform functions that benefit everyone. Examples include the national defense, foreign relations, the administration of justice, the national highway system, [and] the national post office. The Constitution envisioned welfare to be a domain of the states.”

Each state should be given the freedom to experiment as to how to best provide health care for the poor, says Ferrara. 

“Fifty states could then try 50 experiments as to what works best, and the states could then learn from each other,” said Ferrara. “Moreover, the same answer may not be right for all 50 states.  Some states have higher incomes and higher health care costs; others have lower incomes and lower costs. With power and control devolved to the states, the voters of each state know who to hold accountable for the program, and they can better exercise democratic control over the program to enact their own state preferences.”

Medicaid is a very troubled, poorly functioning program not working well for the poor. Ferrara says the failures are due to shared responsibilities between state and federal governments. The program does not pay doctors and hospitals enough to provide first-rate health care because of overlapping authority and a poor program design.

If states provided impoverished Americans with health insurance vouchers they could use to buy the health insurance they prefer, says Ferrara, everyone would be much better served. Impoverished people would have the same health care as many middle-income earners, because they would have the same health insurance offered to middle-income Americans. 

“Private health insurance has to pay doctors and hospitals enough so their insured can get health care,” Ferrara said. “Otherwise, they would have no customers. Each state could then also determine what work requirement their Medicaid assistance should be subject to. This worked fabulously in the 1996 reforms of just one federal welfare program. That should be expanded to all.”

Block-Grants are Necessary

Jack McHugh, a policy analyst for the Mackinac Center for Public Policy, says the problems found in the study exemplify the major deficiencies of federal health care programs, and he argues for devolving these responsibilities to the states.

“This is another good reason to block-grant Medicaid to the states and let them tailor programs to meet the needs of their own unique populations, rather than having to follow one-size-fits-none diktats from Washington, DC” McHugh. “States could then establish reasonable rules to eliminate some of the perverse and destructive incentives that currently dominate today’s medical welfare state.”

Spending is ‘Unsustainable’

“The current trajectory of Medicaid spending is unsustainable,” said Naomi Lopez-Bauman, director of health care policy at the Arizona-based Goldwater Institute. “If we are to truly care for the neediest among us, we need to look at wholesale program reforms, such as ending categorical eligibility for most federal welfare programs and imposing cost-sharing and/or time limits for able-bodied recipients.”

Bruce Edward Walker ([email protected]) is a policy analyst for The Heartland Institute.

Internet Info

“Medicaid: A Small Share of Enrollees Consistently Accounted for a Large Share of Expenditures,” U.S. Government Accountability Office, May 2015: