NCPA - National Center for Policy Analysis

Bush Medicaid Plan Challenges the States

April 1, 2003

States that sign up for a Bush plan that would temporarily increase federal funds for Medicaid could exacerbate their financial woes, says Laura D'Andrea Tyson.

Under the President's Medicaid plan:

  • States would have to finance all Medicaid spending in excess of a federal block grant that is capped at a certain funding level.
  • They would be required to cover the Medicaid costs of Medicare services for groups mandated by federal law, even if those costs grow faster than block grant funding.

In short, the states would be forced to honor ballooning federal entitlements for a rapidly growing elderly population without federal entitlement funding. How would the states respond? Most likely by slashing the State Children's Health Insurance Program (SCHIP), which Tyson says has been successful.

  • SCHIP dedicates $40 billion in federal funds to the states over 10 years to expand health-care coverage for children from families with incomes that are low, but not low enough to qualify for Medicaid.
  • Since SCHIP began in 1997, the number of uninsured children in low-income households has declined sharply.
  • Half of all the children in the United States live in families that meet the income eligibility requirements of either Medicaid or SCHIP.

An alternative to the President's plan is to temporarily increase Medicaid matching funds by $10 billion this fiscal year.

Some health economists say that many of the families who participate in SCHIP simply drop private insurance for the government program. They also point out that income eligibility for SCHIP in some states includes middle income families who could afford private insurance premiums.

Source: Laura D'Andrea Tyson, "Medicaid: Washington Rolls Out a Trojan Horse," March 24, 2003, BusinessWeek.


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