Medicaid Q&A

Repairing a Broken Medicaid System

The Path to Prosperity’s major proposals to save and strengthen Medicaid:

  • Secure the Medicaid benefit by converting the federal share of Medicaid spending into a block grant tailored to meet each state’s needs. This reform ends the misguided one-size-fits-all approach that has tied the hands of so many state governments. States will no longer be shackled by federally determined program requirements and enrollment criteria. Instead, they will have the freedom and flexibility to tailor a Medicaid program that fits the needs of their unique populations.

  • Improve the health-care safety net for low-income Americans by giving states the ability to offer their Medicaid populations more options and better access to care. Medicaid recipients, like all Americans, deserve to choose their own doctors and make their own health care decisions, instead of having Washington dictate those decisions for them.

  • Repeal the new health care law, stopping the law’s abuse of Medicaid and offering reforms to fix the program instead.

Q: Does the budget cut benefits for low-income individuals?

A: No. The Path to Prosperity modernizes the Medicaid benefit by converting the federal share of the Medicaid payment into a block grant – just like the government did with welfare in the late 1990s. The initial allotment would be exactly as much as the states are receiving to pay for Medicaid today, and it would grow every year to account for inflation and population. This would allow states to tailor their programs to their low-income populations, allowing states maximum flexibility to focus their benefits on the specific needs of the state.

Governors across the country are calling on Washington to deliver this kind of reform. A statement from the Republican Governors Association recently declared, “Medicaid reform is welcome and the Republican Governors overwhelmingly support the creation of a Medicaid block grant program. This well established approach will give states the freedom to innovate, share best practices, and create cost-effective ways to deliver quality health care to our most vulnerable populations.”[1]

Q: How will this budget affect the disabled and people in nursing homes?

A: Freeing states from one-size-fits-all federal mandates will allow them to focus Medicaid dollars on their most vulnerable populations. Rather than micromanage Medicaid from Washington, states will have the freedom to ensure the disabled and those in nursing homes receive the quality care they deserve.

Utah Governor Gary Herbert said it best: “The current Medicaid financing scheme is a study in micro-management and unfunded mandates. Block grants are a powerful vehicle to allow states to find innovative ways to provide better services at a lower cost.”[2]

Q: Why do we need to reform the Medicaid program?

A: Medicaid suffers from the same flawed financing structure that welfare used to suffer from. The federal government provides an open-ended match on what the states spend on Medicaid, which creates perverse incentives and encourages the program’s unsustainable growth.

Currently, the federal government pays an average of 57 cents of every dollar spent on Medicaid. Expanding Medicaid coverage during boom years is tempting and easy to do – state governments pay less than half the cost of such expansions. Yet to restrain Medicaid’s growth, states must take back a dollar’s worth of coverage to save only 43 cents.

This has caused Medicaid spending to grow at an unsustainable rate. From 2000 to 2009, total spending on Medicaid increased by 83 percent, growing from $206 billion to $378 billion. During this time, state spending doubled while federal spending increased by 111 percent.

Meanwhile, much of the federal government’s share of the spending is wasted because the bureaucracy cannot provide adequate oversight of this open-ended program: Medicaid’s improper payment rate is over 10 percent, more than three times the amount of waste that other federal agencies generate. This translates into $33 billion worth of waste each year.

State budgets are overwhelmed and the federal government is struggling to meet the growing fiscal needs required to keep the program running. This is just one of many reasons that so many governors called on the House Budget Committee to deliver reform. Wisconsin Governor Scott Walker specifically urged the Committee to “construct a framework that will allow for state freeform of the Medicaid program based on greater state flexibility. As governors, we have been making difficult decisions to curb the growth of Medicaid. In many cases, we would made different decisions if we had greater authority over the management of the program.”[3] 

Q: Why can’t the states solve this problem?

A: As things stand, states are unable to save money by tailoring the program to meet the unique needs of their own populations. Instead, they must obey one-size-fits-all federal mandates, meaning that the only way they can save any money at all is by cutting reimbursements to doctors and hospitals. That’s why so many doctors refuse to see Medicaid patients – the payment rates in many states are so low that doctors are losing money every time a Medicaid patient walks into their offices.[4]

Medicaid recipients, like all Americans, deserve more access and more choices when it comes to their health-care needs. From a financial perspective, from a health care quality perspective – Medicaid is failing those who need it most. Throwing more money at the program will not solve our problems. Freeing states to use their federal Medicaid funds more wisely will result in more patient-centered care.

Q: How would repealing the new health care law affect Medicaid?

A: The new health care law would force an additional 20 million Americans by 2019 into a Medicaid system that is fundamentally broken, exploding costs for the federal government and state governments alike.[5] The way forward in Medicaid is to follow the reforms included in The Path to Prosperity, not expand a broken program. As the Republican Governors stated in their statement of support, “We appreciate this effort because The Patient Protection and Affordable Care Act (PPACA) does not provide the flexibility states need for the challenges of today or tomorrow.”[6]

Repealing the new law and replacing it with true, patient-centered reforms will better serve Medicaid patients while contributing to solvency of federal and state budgets.

[1] Republican Governors Association. Letter to Congressman Paul D. Ryan. April 5, 2011 (accessed April 8, 2011). 

[2] Governor Gary R. Herbert. Statement on Chairman Ryan’s budget proposal. April 6, 2011

[3] Governor Scott K. Walker. Letter to Congressman Paul D. Ryan. April 5, 2011

[4] Sack, Kevin. “As Medicaid Payments Shrink, Patients Are Abandoned.” The New York Times, March 15, 2010 (accessed April 8, 2011).

[5] U.S. Department of Health and Human Services. Center for Medicare and Medicaid Services. 2010 Actuarial Report on the Financial Outlook for Medicaid. December 2010 (accessed April 8, 2011).

[6] Republican Governors Association. Letter to Congressman Paul D. Ryan.