BRIEF: Medicaid Reform

Background: Established in 1965 along with Medicare, Medicaid is a joint federal and state government run program that provides health care services to low-income Americans. Today, almost 73 million Americans are covered by Medicaid. It is the nation’s largest single health coverage program in the nation. For Fiscal Year 2015, combined federal and state Medicaid spending surpassed $500 billion, with the federal government contributing almost 62 percent of the spending and the states contributing about 38 percent.

Problems: Initially designed to be a safety-net for poor Americans, especially children, pregnant women, and the disabled, Medicaid has expanded in terms of eligibility and in terms of the care and services covered. Under Obamacare, an able-bodied, working age adult—the vast majority of who do not have dependent children—with an annual income no greater than 138 percent of the federal poverty level is eligible for Medicaid. This unprecedented Medicaid expansion will likely increase the number of able-bodied adults enrolled in Medicaid to 27.9 million by 2022, trailing only slightly behind the 33.1 million children expected to be enrolled in the program.                                                                  

Obamacare’s Medicaid changes have resulted in a deliberate and massive expansion of government spending. Medicaid spending is now consuming state budgets and increasing state dependence on the federal government for additional funding. According to the Centers for Medicare and Medicaid Services (CMS), by 2023, total spending will reach $835 billion of which the federal share will be $497.4 billion and the state share will be $337.5 billion.

In additional to the financial problems, Medicaid has a reputation for failing to provide high quality care to patients. Doctors are unintentionally discouraged from accepting Medicaid patients because of the program’s notoriously low levels of reimbursement, and because of burdensome rules and regulations. Studies show that Medicaid patients have less access to care, longer hospital stays and higher mortality rates than the privately insured. On average, Medicaid pays physicians about 66 percent of what Medicare pays. A recent study by the Centers for Disease Control found only 68.9 percent of physicians would accept a new Medicaid patient.

Solutions: Congress should refocus Medicaid as a primary safety-net program and return eligibility back to pre-Obamacare levels. Medicaid should provide care for low-income disabled individuals who have unique and complex needs that are not adequately met through other public or private coverage. For able-bodied individuals with low incomes, Congress should use Medicaid funding to finance a defined contribution to health plans in the private market chosen by these enrollees themselves. Private plans, with a broader network of doctors and other medical professionals, can offer superior coverage and better access to care than traditional Medicaid. Low-income elderly individuals would also benefit from being fully transitioned into Medicare coverage through a new Medicare premium support model. In that capacity, they would still receive income-related Medicaid support for Medicare premiums and cost-sharing assistance.

Finally, Medicaid, as well as Medicare, should be put on a real, multi-year budget just like other federal programs. This will enable Congress to make sound decisions in allocating federal dollars, spending, and making the appropriate trade-offs with other budgetary priorities. This would not only help insure that Medicaid dollars are focused on those who need it most, but it would also add another layer of protection to the taxpayers who are now financing four major federal entitlements.

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