John Locke Update / Research Brief

Medicaid Problems and Solutions: Part 1

posted on in Health Care, Health Care & Human Services
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This is the first part of a two-part research update series on Medicaid. Part 1 will look at the current state of Medicaid as well as issues that the federal and state governments encounter with the administration of the Medicaid program. Part 2 will look at some potential solutions to the problems plaguing Medicaid.

Medicaid has grown significantly in scope and cost since its inception. Obamacare’s dramatic expansion of Medicaid has led to a surge in ineligible enrollment and improper payments. Every dollar that goes to someone in the form of an improper payment is a dollar that does not go to the people most in need.

Tax dollars fund every government program, and government bureaucrats decide how those tax dollars will be spent to carry out the mission of the program. Spending tax dollars is an extraordinary responsibility, and we agree to pay taxes with the expectation that the government will execute its core functions efficiently. That’s why all citizens should be concerned by the amount of ineligible enrollment and improper payments that arise under the Medicaid program.

The Current State of the Medicaid Program

Medicaid was created under the Johnson administration and was intended to be a public health program for low-income mothers and seniors, children, the disabled, and the blind. This was the population served by Medicaid until the Obama administration vastly expanded the scope of the program to include able-bodied, working-age adults. Since 2014, enrollment and spending have surged to record levels as a result of expansion, as well as from greater uptake by those who met traditional eligibility requirements.

According to a Kaiser Family Foundation survey, Medicaid currently covers 72 million people nationwide. That means one in five Americans is covered by this public health insurance program, making it the largest public insurer in the nation. Furthermore, in Fiscal Year (FY) 2017-18, Medicaid spending totaled $593 billion, with the federal government covering 62.5 percent and the states covering the remaining 37.5 percent Projections show flat enrollment and higher spending over the next ten years. The projected annual spending growth rate in 2020 is 6.2 percent, while enrollment is expected to grow by 0.8 percent. Absent any reform, CMS projections indicate that the 6 percent annual growth rate in Medicaid will be consistent from 2020 to 2029.

Improper Payments and Eligibility

Tax dollars that are improperly spent on ineligible patients or wasted on non-medical spending is one notable problem with the Medicaid program. The Centers for Medicare and Medicaid Services (CMS) defines improper payments as “payments that did not meet statutory, regulatory, administrative, or other legally applicable requirements and may be overpayments or underpayments.” According to the GAO, nearly ten percent or $36.2 billion of federal Medicaid expenditures in 2018 was improperly spent. CMS estimates that improper payments in 2019 have skyrocketed to $57 billion, a 57 percent increase in just one year.

Furthermore, there appeared to be a concerted effort by the Obama administration to turn a blind eye to what was going on in state Medicaid programs following the beginning of Medicaid expansion under Obamacare. Dr. Aaron Yelowitz of the University of Kentucky and former Special Assistant to the Trump administration’s Economic Council explain:

The Obama administration did not perform Medicaid eligibility audits for fiscal years 2014-2017. Instead, it simply plugged the eligibility rate from the pre-Obamacare era into its improper payment calculations. This change would tend to hide any increases in improper enrollments that may have accompanied the implementation of ObamaCare’s Medicaid expansion. Indeed, other evidence suggests severe eligibility errors and problems accompanied the Medicaid expansion. As a result, the 2015, 2016, 2017, 2018, and 2019 reports likely underestimate the true extent of Medicaid improper payments because they use pre-ObamaCare data to describe what was happening under ObamaCare.

Presumably, the Obama administration failed to conduct proper audits to increase enrollment in Medicaid under expansion to bolster support for the program.  These two researchers estimate that improper payments are likely closer to $75 billion.

Furthermore, recent research suggests that the Obama administration’s disregard for annual Medicaid audits may have produced a massive spike in ineligible enrollment. According to a study published in the National Bureau of Economic Research, states that expanded Medicaid have far higher rates of ineligible Medicaid enrollees than states that did not. 

Not only did the Obama administration choose to ignore the improper enrollment in Medicaid following expansion, but states likely were complicit in allowing improper enrollment. On average, the federal government will pay for nearly two-thirds of the cost of state’s traditional Medicaid enrollees based on the Federal Medical Assistance Percentage (FMAP), and the state government would pick up the rest. Under Medicaid expansion, however, the federal government covers 90 percent of the cost, incentivizing states to enroll as many individuals into the expansion population rather than the traditional Medicaid population.

So why should you care about the problems that exist in the Medicaid program? First, rather than tackling systemic problems that harm our health care system, elected officials simply want to throw money at Medicaid. Our health care system needs to move in the opposite direction.  We need a health care system that is affordable to all, necessitating much less government money. Second, given the state of the federal budget, further inattention to this issue will add to an already unmanageable national debt. Year after year, the federal government spends far more than it collects through taxes. The further the federal government kicks the can down the road on issues such as those in Medicaid, the more we all pay for it through the national debt.

Check back for Part 2 to learn about potential solutions for these issues.

Jordan joined the Locke Foundation in the summer of 2018 as Health Care Policy Analyst. After two years in the research division, he moved over to the government affairs team. Jordan now works with state decision-makers in the public and… ...

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