NCPA - National Center for Policy Analysis


October 12, 2006

Many public health advocates are urging states to increase their spending on Medicaid, noting that average state revenue grew faster than spending on Medicaid.  "Not so fast," cautions Devon Herrick, a health economist with the National Center for Policy Analysis (NCPA), who counters states' priority should be Medicaid reform, not simply spending more money.

Herrick notes that Medicaid, the joint federal-state health care program for the poor and near poor, is the largest single expenditure by state governments today.  At the rate the program is growing, it is on a course to consume the entire budgets of state governments in just a few decades. 

Further, because there is no limit on the number of state dollars the federal government will match, states that spend more receive more federal dollars.  This has provided states with a perverse incentive to spend money wastefully.  For example:

  • In Colorado, Michigan and many other states, Medicaid has paid for services to dead beneficiaries.
  • Many states underpay physicians and overpay hospitals, encouraging more expensive hospital-based treatment.
  • Many states pay premium prices for brand-name drugs even though lower-cost generic and over-the-counter medications may be just as effective.
  • All too often Medicaid expansion encourages people to drop private health insurance and get their health care at taxpayer expense.

Herrick suggests that states should lobby Congress to distribute federal funds in block grants based on each state's poverty distribution and allow the states full discretion over their use, provided they are spent on indigent health care.

"States would have radically different incentives," says Herrick.  "They would realize the full benefit of every dollar saved and pay the full cost of every dollar wasted."

Source: "NCPA: Prosperous Times Shouldn't Lead to Wasteful Medicaid Spending," National Center for Policy Analysis, October 11, 2006.

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