NCPA - National Center for Policy Analysis


May 13, 2005

Medicaid is the largest single expenditure state governments face and is growing at a rate that is on a course to consume the entire budgets of state governments in just a few decades, say John Goodman and Devon Herrick of the National Center for Policy Analysis (NCPA).

The biggest problem with Medicaid is that each 40 cents spent by the states is matched by 60 cents of federal money. Thus states are tempted to go for the matching funds even when they know the spending is wasteful, say Goodman and Herrick.

The matching scheme is also a bad deal for federal taxpayers:

  • The average cost per Medicaid beneficiary nationwide is about $7,500, but because New York offers almost all optional benefits to all optional enrollees, it spends almost double the national average.
  • Mississippi, which has less generous benefit package and confines coverage mostly to the "mandatory" poor, spends just about half the national average.
  • The result is that New York receives about twice as much federal money per enrollee as Mississippi, where the need is much greater.

We need to end the practice of matching grants coupled with wasteful regulations. Instead states should request a block grant covering all Medicaid, State Children's Health Insurance Program and disproportionate share hospital funds. States should have complete discretion, provided they spend these funds on indigent care, say Goodman and Herrick.

Giving states both more flexibility and responsibility will go a long way in slowing the growth of Medicaid. Block granting Medicaid funds would let states deliver care in efficient ways, such as moving enrollees to private-sector managed care plans, premium subsidies for individual policies and employer-based plans, and Health Savings Accounts for self-management of chronic diseases, say Goodman and Herrick.

Source: John Goodman and Devon Herrick, "Reforming Medicaid: More Flexibility for the States," National Center for Policy Analysis, Brief Analysis No. 515, May 13, 2005.

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