Medicaid is a federal and state welfare program that helps with medical costs for people with limited income and other resources. Medicaid also offers benefits not normally covered by Medicare, including nursing home care and personal care services. According to Wikipedia, “Medicaid is the largest source of funding for medical and health-related services for people with low income in the United States, providing free health insurance to 74 million low-income and disabled people (23% of Americans) as of 2017.”22
How do you transition out of a massive welfare program like this? Just as with Medicare, the number one step is creating a thriving health insurance and healthcare marketplace by deregulating the various health-related fields. This will set the stage for phasing out Medicaid because a well-functioning marketplace is critical for supporting people with affordable health insurance and healthcare as the Medicaid options gradually go away. In parallel, charitable alternatives will emerge for the few who are otherwise left without health insurance and healthcare.
The phase-out will take time but fortunately there is no shortage of solutions. Here’s one scenario for how it could be accomplished, assuming a 20-year timeframe:
1. Repeal all federal Medicaid rules and regulations.
Medicaid is riddled with rules and regulations aiming at controlling the exploding costs of the system: regulations reimbursing providers at or below cost, rules forcing hospitals to admit patients to the ER, regulation prohibiting copays and deductibles, etc. Removing federal rules and regulations will allow states the freedom to experiment with modifying eligibility, deductibles, copays, coverage, provider payments, fraud management, etc., and to learn from one another’s successes and mistakes.
2. Divide federal funding between the states based on population and current spending, and reduce the funding by 5% per year over 20 years.
Today’s Medicaid funding is a system of large federal grants matching what the states spend themselves. The individual states basically get a big federal subsidy, which removes much of the incentives to manage the costs. This should be replaced by so-called block grants that give the states full financial freedom and responsibility to manage the transition, no federal questions asked. Dividing the federal funding based on both population and current spending accounts for the fact that some states have a higher Medicaid spending per capita than others because of the population makeup. A risk with this scenario is that individual states may decide to expand the program. However, such an expansion would only hit the wallets of residents in those states, not all U.S. taxpayers, so state politicians would most likely hesitate to take this route. And potential court challenges questioning the constitutionality of state-side expansions may help keep the transition on track as well.
Think Right or Wrong, Not Left or Right 