What the White House gets wrong on Medicaid


(By Brendan Smialowski/Bloomberg)

When I asked various experts how much you could realistically save in Medicaid over the next 10 years without doing immense damage to beneficiaries, they offered sums ranging from $10 billion to $50 billion. The White House is promising savings of $100 billion. And there are two main policies that get them there: cutting payments to doctors and cutting taxes on providers. And both of those policies are likelier to shift costs than to control them.


The tax cuts for providers are a more complicated story. The way Medicaid works is that the federal government matches state contributions. So the more a state spends on Medicaid, the more the federal government will spend. Some states, such as Texas, have very stingy Medicaid programs, which is why fully a quarter of their population is uninsured. Other states are more generous. But a few states have figured out a way to work with providers to game this system.

By taxing providers on the state level, they increase the amount of money they can spend on Medicaid, and that money gets matched by the federal government. That’s good for the state, obviously. And it’s pretty good for the providers, as they get more patients. Ultimately, though, the people it’s really good for are individuals who are getting insurance coverage because of this scheme.

The federal government, however, doesn’t like it. It raises their costs. Providers often get a bit of a kickback. And so the Obama administration proposes to “clamp down on States’ use of provider taxes to lower their own spending while not providing additional health services through Medicaid.” Ultimately, this’ll either make Medicaid stingier or it won’t really cut costs. Since the administration is saying it will sharply cut costs, then beneficiaries are going to take a hit.

The administration argues that the Affordable Care Act is dramatically increasing the federal support that states get for their Medicaid populations. This just ratchets back a bit of that money to deal with the deficit. That may be true. But even post-Affordable Care Act, Medicaid is trying to do its job on the cheap. That, after all, is why the Affordable Care Act used Medicaid for half of the coverage expansion. It kept the policy’s price tag down.

In a world where we absolutely had to cut Medicaid’s spending right now, perhaps these policies would be more appealing. It’s easy to talk about the savings we might be able to get by delivering better care to the sickest patients, but if you need to cut the deficit right now, you need policies that are less speculative. But given how much less the administration is doing on taxes and defense cuts than even the bipartisan fiscal commission, it’s hard to argue that we need to lift this money out of Medicaid. The administration could add $200 billion to their tax increases and still be below the Simpson-Bowles report. Now, it’s true that the Republicans don’t want to raise taxes, even if that’s what we need to do. But that doesn’t mean the Obama administration should accept — much less be proposing — deep cuts in Medicaid when they’re not strictly necessary.

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