Why Medicaid would be better off as a federal program, like Medicare

This is a perfect example of why Medicaid is not the same as Medicare:

Having counted on Washington for money that may not be delivered, at least 30 states will have to close larger-than-anticipated shortfalls in the coming fiscal year unless Congress passes a six-month extension of increased federal spending on Medicaid.

Governors and state lawmakers, already facing some of the toughest budgets since the Great Depression, said the repercussions would extend far beyond health care, forcing them to make deep cuts to education, social services and public safety.

Gov. Edward G. Rendell of Pennsylvania, for instance, penciled $850 million in federal Medicaid assistance into the revenue side of his state’s ledger, reducing its projected shortfall to $1.2 billion. The only way to compensate for the loss, he said in an interview, would be to lay off at least 20,000 government workers, including teachers and police officers, at a time when the state is starting to add jobs.

“It would actually kill everything the stimulus has done,” said Mr. Rendell, a Democrat. “It would be enormously destructive.”

The Medicaid provision, which would extend assistance first granted in last year’s stimulus package, was considered such a sure bet by many governors and legislative leaders that they prematurely included the money in their budgeting. But under pressure from conservative Democrats to rein in deficit spending, House leaders in late May eliminated $24 billion in aid to states from a tax and jobs bill that was approved and forwarded to the Senate.

Time for a refresher.  Medicare is a federal program.  The federal government is allowed to run a deficit.  Therefore, there is never any talk about running out of Medicare money before the end of the fiscal year.  The government just spends more than it brings in.  This is both bad and good.  Bad, because they, too often, run a deficit.  But it’s also good when it comes to health care.  A rational government would run a surplus budget in good times, but – in bad times – could run a deficit without decimating necessary programs like the health care system.

Medicaid, on the other hand, is a state based program.  States cannot run a deficit.  Therefore, in bad times, they cannot spend money they do not have.  They either have to cut health care spending, cut other parts of the budget, or raise money (taxes, bonds, etc).  Or, they can get money from the federal government to cover the shortfall.

This is especially a problem for Medicaid.  Federal law can sometimes set regulations for Medicaid, and then it’s up to the states to come up with the money.  You may remember the Affordable Care Act raised the Medicaid eligibility to 125% of the poverty line for all Americans.  This is a huge increase, which is why the federal government has promised to fund the vast majority of the expansion for a number of years.

If you didn’t notice, we’re in bad economic times.  The amount of money coming into the state treasuries is low.  Therefore, they have to cut their budgets.  This isn’t a Democratic or Republican thing, it just has to occur.  To help, the federal government passed a stimulus package which allocated extra money to states for Medicaid.  But then politics happened.  Panicky Representatives and Senators wanted to appear “fiscally conscious” and cut much of the money.

States can’t suddenly raise taxes for the next few months to amass the necessary billions.  So they either have to gut Medicaid or fire lots of people.  Honestly, what are they to do?

This is why I’ve argued before that Medicaid, like Medicare, may be better as a federal program.  If they are going to set the regulations, they need to come up with the money.  Moreover, Medicaid should not be subject to the swings of the economy; health sure isn’t.

This is not an argument to run deficit spending for Medicaid.  It’s an argument to run deficit spending in bad times.  I would welcome more cost-effective spending for both Medicaid and Medicare in the future.

Aaron E. Carroll is an associate professor of Pediatrics at Indiana University School of Medicine who blogs at Rational Arguments.

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  • Janet

    Great idea. And let’s do some changes to Medicaid along with the funding change. How about a tiered program: Children stay under a no copay, no deductible plan. The elderly and disabled have small copays to discourage overuse of the system. Working adults have “typical copays”… like $20 for an office visit, reasonable RX copays, maybe $100 for a hospital stay. Again to discourage overuse. Afterall, Medicaid recipients do not pay any premiums for the coverage. There needs to be some “buy-in” to the system.

  • http://fertilityfile.com IVF-MD

    Can the federal government really run at a deficit? Maybe that’s true in the strict sense that it’s PERMITTED to do so by their own rules. But it’s certainly not true in the sense of what happens if it continues to do so until the cumulative deficit results in multitudes of consequences, in other words when it hits a point where the continued debt becomes unsustainable. Then we will see a loss in the quality of life as jobs become scarce, prices go up and the quality of services declines.

    It’s like the difference between a family with a $0 credit line on their credit cards and another family with a $20 trillion credit line on their credit cards with 15% interest. Family A can’t run on a deficit, because they have no credit. Now technically, Family B can run on a deficit, but only up to a point. Once they start racking up the debt, they now have the added great burden of paying out interest on the debt. Well, we don’t really know what our federal government credit limit is, but we do know that we already owe about 13 trillion or so. Are we in the zone yet where the debt is so huge that bad things start to happen? I can’t say, but if all of you look around at what’s happened to your neighbors’ job situation and any changes in their quality of life or even any impact in your own lives, then you can certainly have your own opinion.

    So I would respectfully disagree with the idea of giving the federal government more control on healthcare just because they have a more lax approach to incurring debt.

    That’s just my opinion. I could be wrong. :)

  • http://nostrums.blogspot.com Doc D

    There’s a recession on, so the states try to play hardball to get the federal government to pony up. There’s nothing new about the politics of that. And bad on Rendell for being…uh…imprudent is the most diplomatic word I can use. Not every state did this. He thought to gain political capital by massaging the budget deficit to make it look better.

    Do we really expect the situation to change just by making Medicaid a federal program? Human nature will remain the same, and the battle over politcal largesse will pick up elsewhere.

  • Marc Gorayeb, MD

    Sure; let’s completely federalize Medicaid. While we’re at, why don’t we just federalize the whole health care thing. After all, health insurance in general should not be subject to the swings of the economy; health sure isn’t. Oh, and don’t forget Fanny and Freddy housing subsidies. Affordable shelter should not be subject to the swings of the economy; inclement weather sure isn’t. And food subsidies… Affordable groceries should not be subject to the swings of the economy; needing to eat sure isn’t. And what about transportation? We all need to get around…. And what about phone service… We all need to communicate…. Clothing, yeah, that too. …

  • jsmith

    My residency director, a very smart guy, told me 24 years ago that Medicaid was never meant to treat pts or doctors fairly, because it is for poor people, and America does not give a damn about poor people. Hence it is in the hands of the states.
    Old people are a different lot. They vote and have a good chunk of money and power. Thus the federal program.

  • Doc99

    The Ponzi Schemes are unraveling apace.

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