New Report: Restraining Medicaid’s Budget-Busting Waivers

Without caps on federal funding, taxpayers will continue to absorb surging costs of states’ Medicaid mission creep

NEW YORK, NY – Over the last two decades, Medicaid spending has exploded, from $205 billion in 2000 to $683 billion in 2019. As senior fellow Chris Pope notes in a new Manhattan Institute report, the surge in spending owes much to the growing use of waivers from the program’s standard rules; waiver spending now accounts for 75% of total Medicaid spending.

States understand that the federal government’s willingness to match funds makes expenditures on Medicaid far more lucrative than spending on any other policy priorities. Waivers have allowed states to broaden eligibility, inflate medical costs, and expand Medicaid to services that do not fall within the traditional scope of the program, like housing, food, or transportation. To prevent states from exploiting this allowance, waivers are not supposed to be approved if they increase costs for federal taxpayers. But states have found it easy to inflate federal aid by manipulating which expenditures are associated with waivers.

To curb the abuse of Medicaid waivers, Pope proposes, states adopting them should be subject to a single overall cap on federal Medicaid funding. Such caps should not just apply to expenditures that states opt to categorize under waivers, but to expenditures which states selectively leave out of them.

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