Medicaid: State cash cow, until it isn't

Medicaid began in 1965 as a safety-net health insurance entitlement for low-income families with children, the disabled, and some long-term care.

The program is financed by both federal and state governments in sort of a 50/50 arrangement. In reality, poorer states receive a higher percent of federal money than richer states.

Congress established the financial match program with the idea that state legislators would not increase the tax burden on their constituents. The entitlement would therefore stay small and be used for those people most needy and vulnerable.

The exact opposite has happened over the past 60 years.

Because of the matching funds from the federal government, state officials have irresponsibly enlarged the Medicaid entitlement in their quest to get “free” money from D.C. Medicaid is now one of the largest two or three budget items for every state in the union.

Obamacare made the financial situation worse by expanding Medicaid to all able-bodied, low-income people ages 18 to 64.

This seems to work during good financial times. However, with any type of recession and decrease in tax revenue, states are forced to cut back on Medicaid funding to financially cover the other important government activities like education, transportation, and law enforcement.

This is exactly what is now happening with the COVID-19 crisis.

So what are elected officials on the political left, and actually some on the right, now proposing?

Their answer is more federal financing.

The Medicaid match percentage, or so called FMAP, has changed down through the years. The new proposal would have the federal government picking up essentially all the expenses for Medicaid through 2020.

Medicaid now accounts for 65% of all federal money that goes to the states. This new proposal would increase that percent substantially, would further expand the federal government’s role in the states, and would ultimately drive the country closer to a single-payer health care system.

The solution is not more fungible Medicaid money from the federal government. The answer is for state governments to become responsible and live within their financial means.

Often lost in the discussion is the fact that federal taxpayers are state taxpayers. As Medicaid costs expand, all taxpayers see their tax burden increase.

Medicaid must be returned to a true safety-net entitlement for the most vulnerable.

— Dr. Roger Stark is the Washington Policy Center health care policy analyst. Email him at rstark@washingtonpolicy.org.