With the Trump administration aiming for large cuts to the federal budget to eliminate waste, the federal portion of the Medicaid program is shaping up as a primary budgetary battleground.
Rep. Jodey Arrington (R-TX), chair of the House Budget Committee, has circulated a proposal for mandatory spending cuts to various programs, including Medicaid.
Senate Democrats immediately responded warning their GOP colleagues in a news release “against bankrolling tax cuts for the rich by gutting Medicaid and slashing health care for children, seniors, and people with disabilities.” A Democrat-aligned advocacy group, Protect Our Care is launching a $10 million “Hands Off Medicaid” campaign targeting key Republicans.
Republicans are focused on several areas to reduce the size of Medicaid, including block grants, reducing Obamacare Medicaid funding rates, cutting the federal match base rate to 40 percent, work requirements, and reducing continuous eligibility.
Medicaid costs skyrocketed after the Affordable Care Act (ACA) in 2010 opened eligibility to large swaths of low-income Americans above the federal poverty level and under the age of 65 who had not previously been eligible. In 2010, states paid a total of $130.9 billion for Medicaid while the federal government spent $266.5 billion. By 2023, those costs had more than doubled to $274 billion for states and $606 billion for the federal government.
Removing the Waste
The Government Accountability Office (GAO) published an April 16, 2024 report that identified over $100B in “improper payments,”—payments in an incorrect amount or that should not have been made at all—for 2023 alone.
As such, Medicaid is a prime area where states can cut wasteful spending, says Christopher Talgo, a coauthor of American Health Care Plan: State Solutions, released in 2024 by The Heartland Institute, which co-publishes Health Care News.
“Since 2003, the GAO has listed Medicaid on its high-risk list due to rampant fraud and abuse,” said Talgo. “Some experts estimate that up to 20 percent of Medicaid payments are fraudulent. Reducing improper payments could result in huge savings for the states as well as the federal government.”
Medicare needs stronger oversight, says Gary Alexander, head of the Medicaid and Health Safety Net Initiative at the Paragon Health Institute.
“Over $100 billion in improper payments is a staggering figure and indicates systemic issues in oversight and enforcement,” said Alexander. “Implementing stricter eligibility verification processes, adopting advanced fraud detection technologies, and increasing accountability measures for providers could recover billions annually.
“While addressing fraud and waste is vital, however, it cannot entirely offset the structural cost pressures from expanded enrollment and rising health care costs,” said Alexander. “It should be viewed as one piece of a broader reform strategy.”
Keeping the Healthy In
Although fraud and abuse are major drivers of Medicaid cost overruns, expanded eligibility under President Barack Obama’s ACA has been another force behind Medicaid budgetary woes. The ACA encouraged states to expand the program well beyond its original intent of assisting the disabled and elderly, burdening the program beyond viability in multiple states, says Talgo.
“The Medicaid expansion under Obamacare has been a catastrophe and has put Medicaid on a completely unsustainable path,” said Talgo. “By getting rid of work requirements and increasing the financial threshold for those eligible for Medicaid, the Obama administration is directly responsible for the surge in Medicaid enrollees who are now putting the entire program in jeopardy.”
The ACA’s funding formula encourages expansion of the program to able-bodied enrollees, says Alexander.
“The ACA provides states with a higher federal match—90 percent—for expansion enrollees compared to traditional Medicaid populations, where the federal match averages closer to 50 to 75 percent, depending on the state,” said Alexander.
“This disparity creates an imbalance in resource allocation, incentivizing states to prioritize enrolling the expansion population over the traditionally eligible groups, who often have more complex and costly health needs, and encouraging states to expand benefits to a healthier, less vulnerable population while potentially underfunding services for those with severe disabilities or long-term care needs,” said Alexander.
Keeping the Wealthy Out
One of Medicaid’s biggest expenditures is covering long-term care (LTC) for seniors and the disabled. According to a 2022 report by the Paragon Institute, Long-Term Care: The Problem, 42.1 percent of the nation’s $475.1 billion bill (2020) for LTC was paid by Medicaid.
Current policy disincentivizes Americans from financial planning for LTC, says Stephen A. Moses, president of the Center for Long-Term Care Reform and author of the Paragon report.
“On the LTC side of Medicaid, the issue isn’t removing current recipients from coverage but rather preventing more people from becoming dependent on the program in the future,” said Moses.
“Medicaid’s availability to pay catastrophic LTC costs late in life while allowing people to preserve wealth has enabled their denial of the risk early in life, leaving [people] dependent on public assistance when LTC need occurs,” said Moses. “We must break that cycle so that more people plan early to save, invest, or insure privately for LTC. That will save Medicaid billions of dollars, enable the program to give better care access and quality for the genuinely needy, and prepare most Americans to receive outstanding care in the private market.”
Instead of Medicaid cuts benefitting the wealthy as Democrats are claiming, it is the other way around when it comes to Medicaid LTC, says Moses.
“Our goal is to save Medicaid for those most in need by incentivizing the affluent to plan early, pay privately for LTC when they need it, and stay off Medicaid,” said Moses.
Kevin Stone ([email protected]) writes from Arlington, Texas
