Different Views of Reforming Medicaid 

By Devon Herrick
Senior Fellow
National Center for Policy Analysis

Medicaid, the public health care program for the poor, is costly and in dire need of reform.  Panelists discussing possible Medicaid reforms during a session at the Policy Conference were senior fellows Devon Herrick of the National Center for Policy Analysis and Judy Solomon of the Center for Budget and Policy Priorities.  Robert Graboyes, NCPA senior fellow and University of Richmond visiting lecturer, was the moderator.

About 50 million people are enrolled in Medicaid or the State Children’s Health Insurance Program (SCHIP).  For instance, more than one-quarter of all children in the United States receive coverage through Medicaid or S-CHIP.  The cost of delivering half of all babies in the United States is paid for by Medicaid.  In addition, about half of all nursing home residents receive Medicaid benefits.  The proportion of state budgets spent on Medicaid is about equal to state spending on K-12 education.  In addition, annual Medicaid expenditure is nearly as large as Medicare.

Medicaid experiences fundamental delivery problems — including a limited choice of doctors, excess waiting, and rationing of services.  Another problem is a phenomenon known as crowd-out.  Past studies have from 50 cents to 75 cents of every dollar of new Medicaid spending actually goes for people who have dropped private coverage. Thus, it is (arguably) possible to expand public health coverage without a corresponding drop in the uninsured.

Commonsense Reforms Discussed

Conventional Medicaid reform proposals often recommend reducing optional services and reducing services to optional populations.  All told, two-thirds of Medicaid spending is considered optional. Yet cutting optional services does not work very well given that many of the optional populations, such as children, the disabled, and the elderly, have nowhere else to turn. 

However, there are some commonsense reforms. These include abolishing cost-plus reimbursement, using selective contracting, and substituting low-cost services for high-cost services.  Some commonsense reforms for long-term care include recapturing a portion of the cost of long-term care from estates and promoting lower-cost choices such as home care.  States should also establish partnership programs where individuals have an incentive to purchase private long-term care coverage.

A more radical reform proposal is for all states to request waivers from the federal government to block-grant all Medicaid funds.  A block grant would allow greater state flexibility in designing Medicaid plans — such as using federal funds to subsidize employer coverage and tailoring benefits to meet the diverse needs of Medicaid enrollees. However, public health advocates don’t support tailored Medicaid plans, since most reduce traditional benefits in favor of expanding coverage to more people.