House Republicans’ Medicaid Proposals Won’t Cut Spending Enough

Last week, House Republicans unveiled proposals to reform Medicaid, the fast-growing system of federal funding for states to deliver health care to low-income Americans. Their proposal creates the appearance of generating substantial savings by nudging states to restrict enrollment. But the approach is unlikely to slow the overall growth of Medicaid spending, because it does little to reduce states’ ability and incentive to claim ever more federal funding.

In reality, Republicans, who promised not to threaten care for those enrolled, have been unable to identify substantial savings by cutting funds that states rely on to deliver health care to Medicaid enrollees. They would do better to focus on the politically easier and fiscally more significant task of preventing states from further expanding the program’s commitments.

Liberals responded to the House’s modest proposals with predictable outrage. Matthew Yglesias has called it a “War on the poor,” arguing that “Medicaid cuts contained in the bill will cause 8.6 million people to lose their health insurance.” Massachusetts representative Lori Trahan has deemed it “federal overreach, plain and simple, with devastating consequences for the people we represent.”

Critics’ outrage is surely overdone. From 2003 to 2023, Medicaid’s annual cost to federal taxpayers surged from $161 billion to $616 billion. House Republicans’ proposals would merely slow the program’s further spending growth over the coming decade from 4.6 percent per year to 3.7 percent. Even that reduction in growth is likely to overestimate the savings that would occur.

To offset the cost of extending the 2017 tax cuts, the House GOP has attempted to maximize the Congressional Budget Office’s estimate of savings resulting from its proposed reforms to Medicaid. But CBO estimates don’t account for likely hurdles to implementation, such as states finding ways to evade intended cost controls.

When such hurdles are considered, the savings and coverage loss are both much less than they’re cracked up to be. This is by design—and it reflects the GOP’s tiny majorities in both houses of Congress, combined with political pressure from governors and health-care providers who stand to lose revenues.

Opponents of the bill point to major cuts in coverage, which the CBO suggests would generate reductions in spending. Loren Adler and Matthew Fiedler of the Brookings Institution, for example, argue that “House Republicans are cutting health coverage programs in two basic ways: (1) narrowing eligibility and making it harder to enroll and stay enrolled; and (2) shifting Medicaid costs from the federal government to the states.” But neither of these effects are likely to be that large.

Take the bill’s work requirements. Adler and Fielder concede that work requirements would not greatly narrow eligibility because the “overwhelming majority of affected enrollees are already working or otherwise complying.” But they suggest that the administrative burden of demonstrating compliance may lead many who are eligible to lose benefits.

That seems unlikely. The bill allows part-time “community engagement” activities to satisfy work requirements, and states have proven adept at using token employment arrangements to nullify similar mandates in the past. The bill would not even allow states to implement work requirements for several years.

States currently receive up to $9 in federal funds for every $1 they spend on Medicaid benefits for able-bodied adults—a return on investment that even most conservative states have found hard to resist. An important objective of work requirements appears to be giving the remaining holdouts political cover to claim their own portion of the federal bounty by expanding Medicaid. This would greatly increase, rather than reduce, federal spending and Medicaid enrollment—even if CBO does not account for such considerations.

Republicans argue that it’s absurd for the federal government to provide $9 in funding for every $1 states spend on Medicaid benefits for able-bodied adults, while only providing an average of $1.30 for every $1 spent on benefits for children, the disabled, and pregnant women. President Obama proposed replacing this arrangement with an intermediary rate for all beneficiaries, but Republicans plan simply to reduce the higher rate.

Democrats argue that the proposed reduction of funding for states would lead to major cuts in coverage. But the GOP bill would only trim the $9-to-$1 match to $8-to-$1 for blue states whose Medicaid providers also deliver care to illegal immigrants—leaving an enormously lucrative arrangement largely in place. The reduction is more an attempt to influence states’ policies on immigration than an effort to lessen substantially the burden on federal taxpayers.

The House GOP bill may nonetheless generate some modest genuine savings. It tightens enforcement of means tests and attempts to restrict states’ ability to inflate federal matching funds artificially by imposing state taxes on insurers, hospitals, and other medical providers. But similar restrictions on “provider taxes” have been enacted in the past and tend to proceed like a game of Whac-a-Mole: whenever Congress restricts one scheme to inflate Medicaid costs artificially, states construct another.

The only real way to stop states from driving up Medicaid costs is to limit the total amount of federal Medicaid funding each state may claim. This year’s House GOP proposal, unlike the 2017 version, doesn’t even try to do so. The GOP has previously stumbled in attempting to set precise dollar limits on Medicaid funding for states. (Set them too high, and they will do little to constrain the growth of expenditures; too low, and they will unduly disrupt existing care.)

A better approach would be to prohibit high-spending states from unilaterally expanding their Medicaid programs. States that claim more than $20,000 in federal Medicaid funds per poor resident should no longer be permitted to claim additional matching funds for further expansions of benefit packages or eligibility, or extraordinary increases in payments for services undertaken without express authorization by Congress.

The House GOP’s Medicaid reform proposals have failed to generate substantial genuine savings or improvements to the program. Their Republican Senate counterparts have an opportunity to do better.

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