Yes, Medicaid Needs Overhaul — It’s Become Unmanageable

Democrats are criticizing the proposed House Republican budget, arguing that the plan to save $1.2 trillion would “gut” essential social services. They specifically highlight a proposal to cut $880 billion from Medicaid over the next decade.

However, these savings reforms don’t have to come at the expense of Medicaid. In fact, well-structured reforms could bring much-needed fiscal responsibility to the healthcare program.

Republicans should take ownership of this proposal and confidently maintain that Medicaid is rife with waste, fraud, and ineffective accounting practices, which indeed allow for savings without jeopardizing assistance for the most vulnerable populations.

Since 2013, the number of Americans living in poverty has decreased by 10 million. In contrast, Medicaid’s monthly enrollment has surged from 54 million to 79 million, and its adjusted federal cost has nearly doubled from $351 billion to $643 billion. There are clearly opportunities to trim costs.

A straightforward way to save up to $160 billion over the decade is by repealing a Biden administration rule that restricts how frequently states can verify the eligibility of Medicaid recipients.

This rule effectively mandated that states and the federal government continue benefits for families whose incomes have increased enough to move beyond this anti-poverty program.

Restricting benefits only to legally eligible individuals should be an obvious decision.

Medicaid could also potentially save up to $720 billion over the decade by curtailing or even banning the practice known as the Medicaid provider tax gimmick (MPTG).

States administer their own Medicaid programs and the federal government reimburses state governments between 50% (for wealthier states) and 83% (for poorer states) of those costs. The MPTG is a deceptive accounting strategy where states inflate their Medicaid expenditure claims to receive additional federal funds they don’t deserve.

This qualifies as fraud, and it is high time Washington implement a ban on it.

Additionally, Medicaid could realize savings of $650 billion over a 10-year span by standardizing reimbursement rates across similar demographic groups.

When the Affordable Care Act (ACA) expanded Medicaid to able-bodied, higher-earning, childless adults, it provided states a 100% (later reduced to 90%) federal reimbursement for this group—significantly more than the 50% to 83% reimbursement rate for the remaining populations, including children, seniors, disabled individuals, and lower-income adults.

There is no need for Congress to roll back the ACA’s expansion to this new demographic. However, there’s no justification for providing these able-bodied, higher-earning adults with more favorable funding compared to more vulnerable populations. Their Medicaid costs should receive the same reimbursement rate as that of other Medicaid recipients.

Lastly, government auditors estimate that improper payments within Medicaid—which encompass fraud and incorrect payments—cost the federal government around $50 billion each year, totaling $500 billion over a decade.

While eliminating these improper payments is challenging, it necessitates the implementation of new payment systems and fraud controls, alongside increased audits. Fortunately, existing recommendations from government auditors should be used to facilitate these saves.

These represent just a few of the numerous reforms that could achieve the necessary $880 billion in Medicaid savings.

Indeed, the abolition of Medicaid provider taxes and the standardization of reimbursement rates for able-bodied individuals who are less poor may create budget gaps that states will need to address with their resources. The funds that states save from re-verifying eligibility and reducing improper payments can be redirected to cover these costs. Ultimately, states can manage these reforms without compromising support for their most vulnerable residents.

Proclaiming “we must cut spending” is straightforward. However, crafting effective cuts can be challenging and politically sensitive. If Republican lawmakers wish to demonstrate genuine commitment to spending restraint, they must also address the inflated Medicaid system, which is fraught with waste and inefficiencies.

Jessica Riedl is a senior fellow at the Manhattan Institute. Follow her on Twitter @JessicaBRiedl.