Medicaid Is Bloated, Pricey, and Ineffective. Here’s a Simple Fix

O ver the past 60 years, Medicaid has morphed from a targeted safety net for America’s most vulnerable citizens into a bloated program plagued by fraud, inefficiency, and poor results — and a price tag of more than $800 billion per year. It’s not just that Medicaid’s spending levels are unsustainable. The deeper problem is that federal funding for Medicaid is distributed in a way that incentivizes excessive spending and undermines the program’s core mission.

For traditional Medicaid enrollees (children, people with disabilities, and the elderly), the proportion of a state’s Medicaid spending that is reimbursed by the federal government is largely determined by the federal medical-assistance percentage (FMAP). States with lower average incomes get more federal Medicaid assistance — higher FMAP rates — than do wealthier states. The typical state receives an FMAP rate of about 65 percent. However, Congress has imposed an artificial 50 percent floor on FMAP rates, meaning that all states, no matter how wealthy, have at least half of their Medicaid costs covered by the federal government. As a result, instead of narrowing the differences in the ability of different states to support their Medicaid programs, the federal government often amplifies those differences. In 2019, for example, Connecticut received about $15,000 in federal Medicaid funds per person in poverty; Mississippi got barely half as much.

Another flaw in how Medicaid functions: For working-age, able-bodied adults covered by the expansion of Medicaid under the Affordable Care Act, the federal government pays 90 percent of expenditures, regardless of the state’s level of wealth. In essence, the federal government provides more-generous support for less needy individuals and comparatively less support for those who are in greatest need of care.

None of this makes sense.

In a new report that I reviewed closely prior to its publication, the Paragon Health Institute urges policy-makers to correct both problems by phasing down the arbitrary FMAP rate floor for traditional enrollees from 50 to 40 percent and gradually reducing FMAP rate for expansion enrollees from 90 percent to each state’s regular FMAP rate. Ending the federal discrimination against the most vulnerable is the key aspect of Paragon’s proposal.

Joan Alker and Edwin Park, both professors at Georgetown University’s McCourt School of Public Policy, have criticized Paragon’s proposals, arguing that the reforms would somehow harm traditional Medicaid enrollees. Those attacks don’t stand up to scrutiny.

First, Alker and Park suggest that requiring wealthy states to cover a slightly larger share of their Medicaid costs would lead to deep cuts in services for traditional enrollees. It is true, of course, that, under Paragon’s plan, some states would shoulder more of the responsibility to support their Medicaid programs. That’s the point. Wealthy states can afford to contribute more toward their Medicaid programs. They should do that, rather than impose the costs on taxpayers in other states.

But there’s little reason to think that states would respond by slashing benefits or coverage for traditional enrollees. In part that’s because the shift in financing from the federal government to wealthy states would represent a very small fraction of their overall budgets. Take California, for example. In 2026, under Paragon’s plan, the state’s financing responsibility for Medicaid would increase by an estimated $60 million, about 0.02 percent of its total budget. Even by 2034, when Paragon assumes that its policies will be fully implemented, the increase in state costs to California would equal about 2.3 percent of what the state is likely to spend that year. The nearly decade-long phase-in period gives state policy-makers ample time to adjust their spending priorities.

Alker and Park also claim that Paragon’s plan to reduce the FMAP rate for expansion enrollees from 90 percent to the regular FMAP rate would lead some states to roll back the expansion and cause harm to traditional enrollees who have experienced positive spillover effects from the expansion. For example, they point out, expansion may have improved access to mental-health treatment for some parents, which could result in a healthier home environment for their children.

While expansion may have produced limited indirect benefits for some traditional enrollees, Alker and Park ignore the other side of the ledger. There is robust evidence that expansion led to a host of negative spillover effects that have harmed traditional enrollees, including children. In one study, my co-author and I found that per capita Medicaid spending on children grew less than one third as fast in expansion states as in states that opted not to expand, implying that the surge in new adults joining the program probably made it harder for children to receive care. Other scholars have found that Medicaid expansion led to longer waits for doctors’ appointments, slower ambulance response times, and greater delays in emergency rooms. Ending the federal government’s favoritism toward able-bodied, working-age Medicaid enrollees would help traditional enrollees, not hurt them.

Reforming entrenched government programs is never easy, but we shouldn’t let misinformed objections get in the way. Doing away with policies that disadvantage poor states and needy enrollees isn’t radical; it’s common sense.