What Larry Summers Gets Wrong About Medicaid Reform

Last week, former Treasury secretary Larry Summers published an article in the New York Times entitled “This Law Made Me Ashamed of My Country.” While he had previously covered the dangers of deficits in the One Big Beautiful Bill Act (OBBB), Summers wrote, he had only recently come to appreciate the “human brutality” of its Medicaid cuts.

Summers’s attacks on the OBBB’s Medicaid reforms are untethered from both the facts of the law and Medicaid’s recent history of rapid growth. Even by his own evidence, the proposed cuts are exceedingly mild. If Summers cannot tolerate these, it’s hard to see what he—or the ostensibly moderate Democratic faction he represents—would consider reasonable.

In 2000, when Summers was Treasury secretary, federal Medicaid spending ran slightly over $200 billion in today’s dollars, or around 1.1 percent of gross domestic product. By 2034, after the putatively brutal cuts in the OBBB, the Congressional Budget Office expects Medicaid spending to exceed $800 billion. Medicaid as a percentage of GDP will be slightly below 2 percent.

In real terms, then, Medicaid spending under the OBBB will be four times higher than it was when Summers was overseeing economic policy—and nearly twice as large relative to a much bigger economy. Yet Summers felt no shame in helping fund a far smaller Medicaid program back then.

When Summers was at Treasury, the president proposed per capita caps on Medicaid that would have significantly reduced the program, along with cuts to hospitals serving low-income patients. Neither of these proposals—again, from a much leaner health insurance system—seems to have made Summers ashamed of his country.

In reality, as with nearly every so-called spending cut in Washington, the OBBB’s Medicaid proposal would merely slow the rate of spending growth. After ten years, Medicaid would still be more than $100 billion larger than it is today.

Summers’s and others’ outrage over these supposedly brutal reductions looks even more absurd when one considers the creation and expansion of other federal health programs over the past three decades, such as the Children’s Health Insurance Program and Obamacare’s marketplace subsidies. By any reasonable measure, federal spending on health coverage for the poor will be vastly greater in the future than it was in the past—when, again, Summers voiced no shame over the nation’s spending levels.

Summers argues that the Medicaid cuts “would probably result in more than 100,000 deaths.” This would make the OBBB a greater national tragedy than the Korean War and Vietnam War combined.

In reality, the literature on mortality and Medicaid is conflicted. The best study, the Oregon Health Insurance Experiment, found no effects of Medicaid insurance on mortality. Further, most of the OBBB’s effect on coverage will come by removing from eligibility able-bodied adults who refuse to work, a group whose mortality risk is presumably low.

The claim that the bill is brutalizing the poor, moreover, ignores the fact that Medicaid does relatively little to help them. According to one study, Medicaid recipients value the program at only about 20 to 40 cents per government dollar spent. As the study’s authors put it, “these findings indicate that if (counterfactually) Medicaid recipients had to pay the government’s average cost of Medicaid, they would rather be uninsured.”

If one truly cared about the poor and what they valued, one would just give them cash—or, better yet, reduce their tax burden directly. Recent surveys found that about 20 percent of Medicaid recipients didn’t even know they were enrolled.

Later in the article, Summers reveals the real reason many oppose the bill: since many uninsured poor individuals will still receive care, the burden of Medicaid cuts “will instead be borne by hospitals.”

Indeed, the same study that estimated most Medicaid recipients viewed the program as worth pennies on the dollar also found that most of the benefits accrued to hospitals and medical providers. Like much of the modern welfare state, the real beneficiaries are intermediaries, not the poor themselves.

Summers is on stronger ground criticizing the OBBB’s fiscal impacts. A Republican Party that campaigned on controlling deficits just passed a bill that adds trillions of dollars in debt. The cuts to Medicaid and other programs offset only about a third of the cost of rest of the bill.

By failing to identify additional savings, the GOP has effectively conceded that it has no plan to address the current $2-trillion-a-year deficit—let alone the increases that were already projected before the OBBB, or those that will result from it.

To illustrate the bill’s supposed cruelty, Summers notes that it would cut Medicaid spending by 0.3 percent of GDP over 10 years. And many researchers think that’s an overestimate. Yet even this modest reduction was too much for moderate Democrats like Summers to accept. Meantime, Republicans no longer even pretend to be serious about constraining spending. The American public should not fret about the nation’s supposed “brutality” toward Medicaid recipients, but it is right to be concerned about the nation’s fiscal trajectory.

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