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Stretching Medicaid Too Thin

Extending government healthcare to people who don't need it is a bad idea.

Medicaid is unusual in the world of healthcare in that it provides access to comprehensive medical services without substantial cost-sharing or waiting lists.  This has only been sustainable because eligibility for the program has been limited to the neediest sections of society, who cannot be expected to contribute anything to the cost of their care.  

The expansion of the program to able-bodied childless adults by the Affordable Care Act represented a departure from this guiding principle, and proposals for Medicaid to be expanded to all would cause its ability to maintain these core priorities to collapse.  The GOP proposals to shift subsidies for low-income able-bodied adults to the exchange therefore represent a laudable attempt to refocus Medicaid’s assistance on those who need it most. 

Medicaid was originally designed to provide essential medical care to individuals who could not be expected to work for reasons of disability, age, or family responsibilities.  For this reason, and unlike most other healthcare benefits in the United States, it provided care without requiring any premiums, deductibles, or co-pays from beneficiaries whatsoever.  But eliminating the sensitivity of enrollees to prices when visiting physicians, getting tests, selecting drugs, or undergoing procedures, potentially greatly increases the per-enrollee cost of coverage.

Most healthcare systems where medical services are available to all individuals without cost-sharing, such as Canada’s, constrain spending by limiting access to expensive treatments–so that the frustrations of the poor are extended much further up the income distribution. Canadians must wait an average of ten weeks for an initial consultation with a gynecologist, 38 weeks for joint surgery, and 47 weeks for neurosurgery—which is then only available after referral. The United States has traditionally avoided this heavy-handed rationing by requiring most individuals to make some contribution to the costs of their care, and by limiting the provision of entirely-subsidized care to the small subset of the population who cannot be expected to work.

The choice of physicians under Medicaid already falls well short of that under Medicare and private insurance, and the program’s provider payment rates for existing beneficiaries would have to be increased substantially in many states for expansion to be possible without undermining access to care. This helps explain why many low-spending Medicaid states did not immediately leap to claim what was being sold as an expansion of the program almost-entirely paid for by the federal government.  

The Medicaid program already costs more than the U.S. Department of Defense, and is projected to double over the coming decade. Good arguments can be made for further increasing payments to physicians, for broadening covered dental services, or for expanding the array of long-term services and supports that are available under the program. But the more Medicaid’s eligibility is expanded, the thinner its resources will be stretched, and the less it will be able to do for each enrollee.

Both House and Senate GOP healthcare reform proposals implicitly recognize that taxpayers ought to do more than they did pre-ACA to subsidize the healthcare of low-income able-bodied adults. A reasonable case can be made that subsidies proposed (no more than 58 percent of expected healthcare costs in the Senate bill) remain inadequate. But the across-the-board implicit 99.5 percent subsidy for all medical services used by able-bodied adults enrolled in the ACA’s Medicaid expansion is excessive.

As a matter of principle, the exchanges are a more appropriate vehicle for subsidizing the care of able-bodied adults, with Medicaid reserved for those with the most extreme needs who lack any ability to pay for care. The Senate bill is therefore right to expand the exchange to encompass able-bodied adults earning under the federal poverty line.

The federal government pays states between one dollar and three dollars for each dollar that they spend on Medicaid services for eligible low-income elderly, disabled, children, or pregnant beneficiaries.  The ACA expanded the program to cover able-bodied childless adults and provided nine dollars for every dollar that states spend on them.  The congressional GOP has correctly proposed to reduce the matching rate for this expansion group, so that states would not have any incentive to provide Medicaid services to those able to work before caring fully for the neediest.

Several expansion-state Republicans have resisted this “repeal of the Medicaid expansion” out of concern that it would increase costs for their states.  Yet, a main reason why the ACA assigned able-bodied adults under the poverty level to Medicaid rather than the exchanges, was so that the state-financed portion of the expense could be deducted from that bill’s CBO score.

If states dropped low-income able-bodied childless adults from Medicaid, the federal government would be entirely responsible for subsidizing their premiums, which would also help to stabilize the risk pool on the exchange.  States would be then able to top up this cost-sharing with funds they currently spend on the Medicaid expansion population, and have more freedom to target assistance at sub-sets of the low-income able-bodied population in greatest need of assistance.

Medicaid works best when its benefits are focused on those who need it most. By reducing the enhanced matching rate associated with the Medicaid expansion, Congress would eliminate the greatest affront to that principle.

Chris Pope is a senior fellow in health policy at the Manhattan Institute.