NCPA - National Center for Policy Analysis


December 15, 2005

The federal-state Medicaid program has grown an average of 9.5 percent over the past four years. Although initially a small program created to provide health insurance for the poorest Americans, it is now the country's largest government-run health insurance program covering as many as 50 percent of the births in some areas. Consequently, it has become a monster that is draining state budgets, says the Institute for Policy Innovation (IPI).

The House, under the leadership of Energy and Commerce Committee Chairman Joe Barton (R-Texas), has proposed ways to make the program more efficient and slow its rate of growth. The Senate, under Finance Committee Chairman Chuck Grassley (R-Iowa) has decided to . . . well . . . feed the beast!

  • Under federal law, drug manufacturers pay states a 15.1 percent rebate on the brand name drugs they supply for Medicaid patients.
  • Sen. Grassley wants to increase that rebate to 18.1 percent.
  • Not surprisingly, governors are asking for an increase to 20 percent.

In addition to the federally mandated rebate, many states require drug companies to pay what's known as a "supplemental rebate" if they want their drugs placed on a preferred drug list, which is the list of state-approved drugs for Medicaid.

Sen. Grassley reasons that forcing the drug companies to pay higher rebates would provide more money for the states to spend on health care for the poor. But ironically, there is no federal requirement that rebate money (regular or supplemental) be used on health care. The state could use it for roads, buildings or to buy the governor an airplane.

In other words, more rebate dollars doesn't necessarily mean more money for health care, says IPI.

Source: "Feed the Beast?" Institute for Policy Innovation, Tax Bytes Number vol. 2, no. 50, December 13, 2005.


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