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Key Findings

1. The Medicaid entitlement program has always been a partnership between state and federal taxpayers.
2. Federal lawmakers originally reasoned that if states paid for half of the Medicaid entitlement, state legislators would not want to burden state taxpayers with higher taxes and would therefore not expand Medicaid.
3. Instead, many state lawmakers look at Medicaid as a way to obtain “free” federal dollars and consequently, the program has dramatically expanded.
4. For this reason, Medicaid is not sustainable in its present form.
5. In anticipation of the repeal of Obamacare, state legislatures should plan for the best ways to reform their Medicaid programs.
6. Medicaid reform should include:

• Enrollment freeze
• Block grants
• Work requirement
• Co-pays
• Return the eligibility requirement to 133 percent of the federal poverty level
• Reform the health insurance industry
• Aggressively eliminate waste, fraud, and abuse in the program
• Resurrect the private insurance market for long-term care
• Encourage and support home health care

7. The new Republican bill to repeal and replace the ACA is a good starting point for meaningful Medicaid reform.

Introduction

The Medicaid entitlement began in 1965 as a safety-net health insurance program for children of low-income families. It was originally financed by federal and state taxpayers using a fifty-fifty match formula. Federal lawmakers reasoned that if states were forced to pay for half of the entitlement, state legislators would not want to burden state taxpayers with higher taxes and would therefore not expand Medicaid by keeping it focused on helping the poor.

The exact opposite has occurred over the past 50 years. State lawmakers see Medicaid as a way to obtain more “free” federal dollars. Consequently, the program has dramatically expanded and is now one of the top three budget items for every state.

The Affordable Care Act (ACA), or Obamacare, compounded this state desire for federal dollars. The ACA offered 100 percent federal dollars to every state that expanded Medicaid to all low-income, able-bodied people 18 to 64 years of age. The 100 percent funding drops to 90 percent in 2020, with states paying the other 10 percent.

 Republicans now control the U.S. Senate, House, and the presidency. Repeal of the ACA, including the Medicaid expansion, is one of their legislative priorities. Congressional Republicans recently released a bill to repeal and replace the ACA. The bill would block grant Medicaid on a per-capita basis, would eliminate the Medicaid expansion in 2020 but continue the enhanced federal match at 80 percent for current expansion enrollees, and would give more control of the Medicaid program to the states. The bill would provide more funds to those states that did not expand Medicaid for use in hospitals that treat a high number of low-income patients.

In anticipation of the passage of repeal legislation, this Policy Note presents the best ways states can adapt and reform their Medicaid programs to continue providing coverage for the neediest families.

 Download the full Policy Note.