Last week, the House of Representatives passed a budget resolution by the narrowest of margins. The most controversial component of the bill concerns Medicaid.
Democrats have castigated the resolution on the grounds that it would make steep cuts to the joint federal-state public healthcare entitlement. Even some Republicans have expressed unease about that possibility.
But the hand-wringing about Medicaid cuts is misplaced.
The program is bloated and rife with fraud and waste, and it has veered significantly from its original intent of caring for the poor and disabled. It's long overdue for paring.
First, some background.
Back in 2010, Obamacare loosened the eligibility requirements for Medicaid, extending coverage to all Americans earning up 138% of the federal poverty level, or $44,367 for a family of four as of this year. In order to entice states to go along with this scheme, Obamacare stipulated that the federal government would cover 90% of the cost of covering this "expansion population" in perpetuity.
The rest of the Medicaid population — which is to say, even poorer people and disabled Americans — receive much less federal support. For these beneficiaries, the feds cover anywhere from half to a little over three-quarters of the cost, leaving the rest to the states.
The result is that states are rewarded more for enrolling able-bodied adults in Medicaid than the far more disadvantaged people for whom the program was created decades ago under President Lyndon Johnson's "Great Society" program in 1965. All those additional expansion enrollees are competing for scarce medical appointments with Medicaid's legacy population.
The result is that everyone is waiting much longer for care — including the truly destitute.
This situation is not only plainly unfair — it's a waste of precious taxpayer dollars. So it's encouraging that House Republicans are considering equalizing the federal match for both traditional and expansion enrollees — a reform that could save as much as $690 billion.
Cracking down on state-level provider taxes is another way to wring savings from the program.
Here's how this scheme works. States first levy a tax on healthcare providers.
They then return much of the money they collect to providers in the form of higher reimbursement rates for Medicaid beneficiaries. That additional state spending on Medicaid attracts federal matching funds.
The only losers are federal taxpayers. If a private entity engaged in this kind of deceptive financing, it might well be accused of fraud.
Limiting the use of this underhanded tactic could save federal taxpayers $175 billion.
Democrats have tried to cast such ideas as ruthless cuts to an essential welfare program. But in these two cases, the reforms in question would simply restore a degree of common sense to Medicaid.
Further, a significant share of Medicaid funding is going toward people who should be able to take care of themselves.
The program covers roughly 72 million people, making it the single largest provider of health insurance in the nation. In California, where I live, Medicaid covers one-third of all residents.
Just 15% of Medicaid spending goes toward children.
Medicaid's growth has come at the expense of the very patients it was created to serve.
Suggesting, as the House GOP has, that we reduce some of this bloat, and refocus the program on those who can't get by without it, isn't inhumane. It's the responsible, decent thing to do.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It (Encounter 2025). Follow her on X @sallypipes. Read Sally Pipes' Reports — More Here.
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