Democrats are attacking the House Republican budget, saying that the $1.2 trillion of savings it calls for will “gut” social services. In particular, they call out the proposal to save $880 billion over 10 years from Medicaid.
But these savings reforms need not “gut” Medicaid, In fact, well-designed reforms may finally restore some fiscal common sense to the health-care program.
Republicans should own this proposal, and confidently assert that Medicaid’s waste, fraud, and poor accounting practices absolutely provide room for savings without harming the most vulnerable.
After all, since 2013, the number of Americans living in poverty has fallen by by 10 million. Yet during that time Medicaid’s monthly enrollment has leaped from 54 million to 79 million, and its inflation-adjusted federal cost has nearly doubled from $351 billion to $643 billion. Opportunities for savings certainly exist.
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An easy place to save up to $160 billion over the decade would be repealing a Biden administration rule that limited how often states may verify the eligibility of their Medicaid recipients.
Essentially this rule forced states and the federal government to continue providing benefits to families whose income has risen high enough to graduate out of this anti-poverty program.
Limiting benefits only to those deemed legally eligible should be an easy call.
Medicaid could also save up to $720 billion over the decade by curtailing, or even banning, a practice known as the Medicaid provider tax gimmick (MPTG).
States set up their own Medicaid programs and then the federal government reimburses state governments for between 50% (for high-income states) and 83% (for low-income states) of those costs. The MPTG is an accounting trick by which states exaggerate their Medicaid spending levels in order to claim additional, unearned federal reimbursements.
It is not hyperbolic to call this fraud, and Washington should ban it.
Next, Medicaid could save $650 billion over 10 years by standardizing reimbursements across similar populations.
When the Affordable Care Act expanded Medicaid to able-bodied, higher-earning, childless adults, it also offered states a 100% (since trimmed to 90%) federal reimbursement for this group — which exceeds the aforementioned 50% to 83% reimbursement rate for Medicaid’s remaining population of children, seniors, disabled individuals, and lower-earning adults.
Congress need not reverse the ACA’s expansion of Medicaid to this new population. Yet there is no reason for these able-bodied, higher-earning adults to receive preferential funding treatment over more vulnerable populations. Their Medicaid costs should be reimbursed to states at the same rate as other Medicaid recipients.
Finally, government auditors have calculated that Medicaid improper payments — essentially fraud and erroneous payments — cost the federal government $50 billion annually, which extends to $500 billion over the decade.
Eliminating improper payments is not easy: it requires designing new payment systems and fraud controls as well as expanding investigations. Thankfully, government auditor recommendations already exist and should be implemented to provide some savings.
These are just four of the many reforms that can achieve the required $880 billion in Medicaid savings.
Yes, banning Medicaid provider taxes and standardizing the reimbursement rates for able-bodied, less-poor adults may create some funding holes for states to fill in with their own resources. The money that states save from re-verifying participants’ eligibility and reducing improper payments can be reallocated toward those costs. Ultimately, states can absorb these reforms without reducing aid to the most vulnerable.
Saying “we need to cut spending” is easy. Actually designing such cuts can be difficult and politically fraught. If Republican lawmakers want to show that they can truly restrain spending, they should not exempt a swollen Medicaid system with significant waste and inefficiencies to trim.
Jessica Riedl is a senior fellow at the Manhattan Institute. Follow her on Twitter @JessicaBRiedl.