Hands Off Medicaid!


Paul Ryan’s jihad against ObamaCare, known as the “American Health Care Act” (AHCA), aims to cripple the Medicaid program.

Under Medicaid, the Federal government uses a matching grant to reimburse the states for medical expenses of the poor. The matching rates are higher for states with lower average personal incomes, but the rates are never lower than 50%. The match is “open-ended,” which means the Feds will match any level of spending chosen by the state, but the state share means it always has some “skin in the game.”

The Federal match encourages states to spend more than they would if there was no match and every dollar they spent over the Federal grant had to come out of their own pocket. It is important to note that the match accommodates national growth in health care costs.

Presently there are over 74 million Medicaid beneficiaries. Nearly half are children. In 2011, another 27% were able-bodied adults. The rest are elderly and/or disabled. Although the latter are a minority of beneficiaries in the program, they account for the bulk of expenditures.

The Henry J. Kaiser Foundation reports on the disconnect between the composition of enrollment and of spending.

The salience of this enrollment data is that work incentives are not a major issue for the program. Most of the money goes for the care of people not expected or able to work – the elderly, the disabled, and children. Of those who are able to work, many do already. The work requirement being kicked around in the Congress would not reduce costs by much.

The Affordable Care Act, otherwise known as ObamaCare, provided extra funds for states to expand eligibility for Medicaid, with a matching rate of 100% until 2020. After 2020, the rate would still be as high as 90%. (This means that if the state spends $1,000 on those who fall into the expanded eligibility group, they get $900 back from the Feds. Until 2020, they get $1,000.)

Republicans have been gunning for Medicaid for a long time. It is the third largest Federal non-defense program, running about $370 billion in 2016. They have deployed several different arguments, beyond the usual complaint that the government spends too much, the deficit, blah blah blah. The claims include:

• The program does not improve health outcomes;

• Medicaid regulations deny states the flexibility they need to assure the best use of funds and the best care;

• Medicaid forces states to divert money from other worthy purposes due to the lure of the Federal match;

• Medicaid discourages people from working, since if their earnings go up sufficiently, they can lose coverage.

The cure for these maladies is supposed to be eliminating the Federal match and turning the program into a “block grant.” A block grant is a fixed pot of money that is not affected by changes in the cost of health care. It is difficult to overstate the spuriousness and bad faith of these arguments. People making them should be horse-whipped.

The idea that provision of health care makes people who otherwise wouldn’t get it worse off defies understanding. No statistical analysis should persuade anyone otherwise. The primary source for the claim is a study whose results tend to be cherry-picked by enemies of humanity.

The state flexibility argument could have some weight, but it has nothing to do with whether the program is a matching grant or a block grant. The Republicans want to eliminate the match because they want to cut Federal spending on Medicaid, not to provide flexibility to the states. They could do the latter and keep the match.

We have already run the experiment of changing the financing of a program from matching to block grant under the guise of “welfare reform,” with the old Aid to Families with Dependent Children, now called Temporary Assistance to Needy Families. The result has been a dramatic reduction of cash assistance. (Hey, it helped Bill Clinton get reelected in 1996.)

The crocodile tears over diversion of state money from other purposes implies the force of some iron Federal mandate, but in fact state governments have no such compulsion.

The work disincentive argument is another canard. People who are able to increase their earnings may disqualify themselves for Medicaid, but they can transition into subsidized private insurance under ObamaCare. As long as we still have ObamaCare.

In general, there is no way to provide support for lower-income persons without, duh, taking it away when income increases. (Under Ryan’s AHCA, the phase-out of the tax credits for higher-income persons creates exactly the same effect.) Under a block grant, the states would face the same problem: if you provide support for the poor, you have to take it away when they become less poor. The extent to which this is a real problem is one of the oldest in labor economics, and there is plenty of evidence to discount it.

Converting the program into a block grant, combined with a locked-in slowdown in the rate of increase, will reduce Federal spending on Medicaid over the long term, and dramatically cut state spending and health care for the same clientele very quickly. Moreover, without the ObamaCare exchanges discussed previously, the transition out of Medicaid will be much rougher for many people. They will wind up with no affordable insurance options.

For Ryan and company, it’s all about the spending reduction, which frees up money for tax cuts and defense contracts. The block grant solves none of the problems they claim to care about in the existing program, other than the diversion of Federal funds to other purposes.

Max B. Sawicky is an economist and writer in Washington, D.C. He received a doctorate in economics from the University of Maryland, worked for 17 years at the Economic Policy Institute and is a co-founder of ThePopulist.buzz blog. See the linked version at <http://thepopulist.buzz/2017/03/12/hands-off-medicaid/>

From The Progressive Populist, April 15, 2017


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