Spotlight Report

The Mechanics of Medicaid: How Medicaid’s flawed financial design drives program costs

posted on in Health Care & Human Services
Featured Image

With a nationwide price tag of almost half a trillion dollars, Medicaid is the largest public health insurer in the United States. It currently serves over 72 million low-income patients.
Medicaid’s fundamental flaws stem from the way in which it is funded, as both state and federal government share the total bill. North Carolina’s $14 billion program currently pulls down a 65 percent federal match — well above the national average.
Each state’s federal share, their Federal Medical Assistance Percentage (FMAP), is renewed every year. Federal funding creates a strong disincentive for North Carolina to flush out waste in the system, since a hefty portion of any savings reverts back to the feds.
A prime example in which North Carolina uses Medicaid’s federal share to its advantage is its Provider Assessment Act of 2011, which imposes taxes on certain classes of medical providers. The state uses this revenue to shell out enhanced reimbursements to medical providers, which in turn pulls down more federal funds. The state can use these excess federal funds for budget purposes not limited to Medicaid.
If Medicaid’s federal share was transferred to North Carolina as an annual block grant, the state would have to shoulder more program costs. But this injection of fiscal responsibility would allow lawmakers to exercise more control over the program and create a stronger incentive to sort out system waste and abuse.
It would be ideal for a universal, refundable tax credit to be distributed to healthier, able-bodied Medicaid patients. This premium support model could cover the cost of private coverage, freeing up Medicaid funds to more effectively coordinate care for the most vulnerable medical assistance populations — the elderly, blind, and disabled and those in need of mental and physical long-term care.

Spotlight 458 The Mechanics of Medicaid: How Medicaid's flawed design drives program costs

Katherine Restrepo is the Director of Health Care Policy at the John Locke Foundation. Before joining the John Locke Foundation, she interned at the Cato Institute under the direction of Michael Cannon, Director of Health Policy Studies. Katherine’s… ...

Donate Today

About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.