As some of the last holdout states consider accepting the Obamacare-expansion deal, the risks of the program are becoming apparent.
As some of the last holdout states consider accepting the Obamacare-expansion deal, the risks of the program are becoming apparent.
S ince the Affordable Care Act (ACA) passed in 2010, Medicaid expansion has been portrayed as a lifeline for millions of Americans and the health-care industry. For many states, however, it has become an addictive source of federal dollars, which masks reality: Medicaid expansion is financially unsustainable, inefficient, and disproportionately benefits able-bodied adults over the truly vulnerable.
The ACA offered states a seemingly generous deal: The federal government would initially cover 100 percent, and later 90 percent, of the cost of states’ expanding Medicaid to cover adults who have incomes up to 138 percent of the federal poverty level. For state politicians, this “free money” was hard to resist, but the short-term windfall leaves states increasingly reliant on federal dollars and vulnerable to a long-term fiscal trap.
Kansas is a prime example of a state that risks falling into this dependency. Democratic governor Laura Kelly has pushed for expansion, saying, “There’s no good logical reason for not having expanded Medicaid.” She has emphasized the federal funding program’s immediate boost to the state’s health-care system and economy, which, however, has come at the expense of fiscal stability and has locked Kansas into unsustainable financial commitments.
Mississippi’s Republican governor Tate Reeves offers a contrary viewpoint, recognizing Medicaid expansion for what it is: “We must be prudent and cautious.” Reeves insists that individuals’ “money circulating in their towns will do more than any additional government program ever could.” He’s right. Medicaid expansion offers a temporary fix that deepens states’ reliance on federal support while stifling economic freedom. Besides, the program seems to suffer from its own structural problems.
A recent study by the Paragon Health Institute points out that a fundamental flaw with Medicaid expansion is its inequitable distribution of federal funds. As currently implemented, the program has the federal government covering 90 percent of the medical costs of able-bodied adults but only 50 to 75 percent of the costs of elderly, disabled, and child recipients — populations that tend to require the most expensive and intensive care. This creates a perverse incentive for states to prioritize the coverage of healthy adults, who are cheaper to care for, while the truly vulnerable are left underfunded. This imbalance isn’t just fiscally irresponsible — it’s morally wrong. The system effectively rewards many individuals who could seek insurance through other means, while it forces states to bear a heavier financial burden for those who genuinely depend on Medicaid for survival.
Medicaid has grown into the largest public-welfare program in the country, with more than 82 million recipients at a cost of more than $800 billion annually. What began as a safety net for the poor has evolved into a massive drain on hard-working families that harms those who most need government assistance. Expansion has only exacerbated this problem, pushing the program closer to collapse. To date, 41 states and Washington, D.C., have expanded Medicaid. Kansas, Alabama, and Mississippi are among the states still weighing their options. Expansion has also contributed to financial strain on rural hospitals, leading to closures because of lower reimbursement rates. For example, Ohio Valley Medical Center in West Virginia and East Ohio Regional Hospital in Ohio both closed in 2019, citing millions in losses partly attributed to the Medicaid payer shift following expansion. States that already expanded will soon find themselves facing tough decisions about cutting essential services or raising taxes to cover their ballooning health-care costs.
In addition to its growing financial burden, Medicaid is plagued by fraud, waste, and inefficiency. The program’s true fraud and error rate ranges between 15 and 25 percent, resulting in improper payments in excess of $100 billion annually. This money could be better used to help those in need, but it is instead siphoned through fraudulent claims and misallocated by bureaucratic failures. Such waste should be intolerable for a program of this size, yet little has been done to address it. Medicaid’s massive complexity makes it nearly impossible to manage well, allowing billions of taxpayer dollars to “disappear” into the pockets of well-connected insurers and hospitals.
Medicaid’s effectiveness, moreover, is increasingly in question. Research from economists at MIT, Harvard, and Dartmouth suggests that Medicaid recipients often value the care they receive at a much lower rate than the government’s cost. Further, in many cases, Medicaid recipients see little improvement in their health, as opposed to those insured through private means. Expansion advocates argue that Medicaid increases access to care, but access alone isn’t enough if it doesn’t lead to better health outcomes. Instead of a real solution, Medicaid has become a costly Band-Aid that masks the rot within the health-care system without addressing its causes.
Medicaid expansion is a trap. States such as Kansas, Alabama, and Mississippi should resist it. Instead of pouring more money into a broken system, states should pursue free-market reforms that reduce their reliance on federal programs, encourage personal responsibility, and prioritize government resources for those who genuinely need help. The future of Medicaid, and the financial health of the federal government and our states, depends on our ability to address these structural issues now.