Common-Sense Fixes in Medicaid Could Save Hundreds of Billions, Making Reform Less Daunting Than Pundits Suggest

Congressional Republicans are currently negotiating a budget reconciliation package that aims to wrest $880 billion in savings from Medicaid over the coming decade.Democrats have asserted that this effort will be devastating to Medicaid’s beneficiaries. They underestimate just how widespread waste, fraud, and abuse are in the program. For starters, consider the “provider taxes” that every state except Alaska uses to extract extra funding from the federal treasury. Here’s how they work. A state imposes a special levy on healthcare providers and raises $1 billion in tax revenue as a result. The state earmarks that $1 billion to boost Medicaid spending — perhaps by expanding eligibility to able-bodied childless adults under Obamacare, or by offering new benefits, or by increasing reimbursement rates. The state then receives “matching” funds from the federal government — in reality, up to $4 for every $1 the state spends on legacy beneficiaries like pregnant women, children, and nursing home residents, and $9 for every $1 spent on low-income adults who qualify through Obamacare’s Medicaid expansion.Now the state has several billion additional dollars from the federal government, plus the $1 billion raised from the tax, to spend on Medicaid. Providers end up receiving far more back in reimbursements than they paid in taxes. Even Democrats acknowledge that provider taxes violate the spirit, though not the letter, of the law. As former Trump administration economic adviser Brian Blase has noted, President Obama’s budget proposals repeatedly sought to restrict provider taxes because they undermine “the integrity of Federal-State financing.” As Mr. Obama’s vice president, Joe Biden called provider taxes a “scam” that allowed states to game the system.Eliminating this abuse could save the federal government an estimated $720 billion over the next decade. Or consider another common-sense reform — tightening compliance and auditing requirements to ensure that only people who legitimately qualify for Medicaid are enrolled. Medicaid officials freely admit that the program loses hundreds of billions each decade to waste, fraud, and abuse. In fiscal 2024, the Centers for Medicare and Medicaid Services reported an improper payment rate of 5.09 percent, amounting to $31.1 billion. That’s almost certainly an undercount. An analysis by the Paragon Health Institute suggests that Medicaid’s improper payments over the past decade totaled approximately $1.1 trillion, roughly double the government’s estimate. This discrepancy largely stems from the fact that CMS wasn’t auditing whether new beneficiaries that states added to Medicaid were actually eligible. Merely requiring states to more frequently check whether current beneficiaries still qualify would save federal taxpayers $115 billion over a decade. By definition, such checks — known as “redeterminations” — shouldn’t harm anyone who is legitimately entitled to benefits. They’d simply spare taxpayers from spending money on coverage for people who were fraudulently enrolled or qualified at one point but no longer do — perhaps because of an increase in income.Requiring able-bodied adults on Medicaid to either work or actively look for work would save $140 billion over a decade. It’s also enormously popular. Six in ten Americans, including 82 percent of Republicans, 60 percent of Independents, and even 47 percent of Democrats support such work requirements.Addressing Medicaid’s inefficiencies is more than a matter of budgetary prudence — it’s a moral imperative. The current system incentivizes states to route hundreds of billions of dollars towards able-bodied adults at the expense of truly vulnerable people. The Federalist recently detailed how dozens of Medicaid beneficiaries with mental and physical disabilities have died of abuse and neglect — all while states expanded enrollment for healthy, working-age adults. Special interest groups are already trying to paint Republicans’ Medicaid reform efforts as an assault on the poor. But congressional Republicans shouldn’t accept such framing of the debate. Even if Republicans enact all the reforms they’re considering, Medicaid spending won’t be “cut.” It will just grow more slowly.The federal government is poised to spend about $8 trillion on Medicaid from 2026-2035, more than $1 trillion above the level the government projected over that timeframe as recently as 2021. Trimming that future spending by a bit over 10 percent — back to the level projected early in the Biden administration — won’t cause the sky to fall. Instead, it will relieve the burden on taxpayers and force state Medicaid programs to refocus their efforts on the truly vulnerable.

Common-Sense Fixes in Medicaid Could Save Hundreds of Billions, Making Reform Less Daunting Than Pundits Suggest

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