Medicaid At 60: A Safety Net In Need Of Serious Repair

Forbes

6 days ago

"The One Big Beautiful Bill Act, signed into law earlier this month, will address some of Medicaid's ... More biggest flaws," writes health policy expert Sally Pipes. "But it's left many others in place."
Today, Medicaid turns 60. But this will be no diamond jubilee.
What began in 1965 as a modest safety-net program has ballooned into the largest health entitlement in the country, covering nearly 80 million Americans, costing close to $900 billion a year, and delivering poor value for both patients and taxpayers.
The One Big Beautiful Bill Act, signed into law earlier this month, will address some of Medicaid's biggest flaws. But it's left many others in place.
President Lyndon B. Johnson created Medicaid to provide health coverage for truly needy populations: the disabled, blind, low-income elderly, and destitute children. In the 1980s, Congress added coverage for low-income pregnant women and children. The federal government covers between 50% and 77% of the cost for this 'legacy' population.
In 2010, Obamacare expanded Medicaid eligibility further, to millions of able-bodied, working-age adults with incomes up to 138% of the federal poverty level. Tens of millions have enrolled under this provision. The federal government provides nine dollars in matching funds for every one dollar a state spends on this expansion population.
The result? Medicaid's price tag has soared. In 2023, the program cost taxpayers $870 billion—up 8% from the year before. At this pace, it will surpass $1 trillion annually before the end of this decade.
The millions of people enrolled in Medicaid do not receive quality care. One in three physicians refuses to accept new Medicaid patients, in part because the program pays them less than Medicare—and much less than commercial insurance. One review found that Medicaid enrollees were three times less likely to secure a specialist appointment compared to those with private insurance.
These access problems fall hardest on the most vulnerable Medicaid beneficiaries. A 2018 report from the Foundation for Government Accountability found that more than 650,000 disabled Americans were languishing on waiting lists for home and community-based services. Nearly half were in states that expanded Medicaid to able-bodied adults.
The program's design actively fuels that inequity. States receive more money from the federal government for expansion enrollees than 'legacy' enrollees. That discrepancy offers states a perverse incentive to prioritize enrolling healthy adults over those most in need.
Medicaid's funding formula also encourages states to expand their programs. After all, every dollar they spend attracts at least one more dollar from the federal government—and sometimes as many as nine.
And then there are the staggering levels of waste and abuse endemic to Medicaid. The government itself projects that Medicaid's improper payment rate in 2023 was nearly 5.1%—which equates to more than $31 billion in misspent funds.
Independent estimates suggest the scope of the problem is much larger. According to the Paragon Health Institute, the program's improper payments reached $1.1 trillion over the last decade—roughly double the government's estimate.
There's plenty the federal government can do to restore some sanity to Medicaid.
The One Big Beautiful Bill Act represents a start. It put curbs on 'provider taxes,' whereby states extract revenue from hospitals and other providers, send the money back to them in the form of higher reimbursements, and claim matching federal funds in the process.
The new law also directs states to perform more frequent eligibility checks. These routine redeterminations would ensure Medicaid benefits go only to those who still qualify—preserving access for the truly needy while reducing waste.
Further, OBBBA will require able-bodied adults to work or otherwise contribute to their communities as a condition of receiving Medicaid benefits. This change alone could deliver more than $300 billion in savings over 10 years—and help people transition from dependency to private coverage and greater opportunities.
Even with these significant changes, Medicaid spending is still projected to increase by 3% a year through 2034. That's not fiscally sustainable.
Consequently, Congress will have to take another run at Medicaid reform soon. Lawmakers should revisit the inequity in Medicaid's funding formula that prioritizes enrolling the able-bodied over the truly needy. Not only is that perverse—it's expensive. Equalizing the federal match rate for all enrollees would save billions.
Six decades in, it's time to stop treating Medicaid as untouchable. Through genuine reform, we can preserve the program for those actually in need—and ensure taxpayers are no longer forced to bankroll a failing system.