The federal government traditionally provided Medicaid funds for states to deliver covered healthcare benefits to eligible low-income beneficiaries. But the bulk of the program’s spending now occurs under a waiver from its standard terms – permitting states to evade constraints on the expenditures. States have used waivers to inflate the program’s costs, to expand eligibility for covered benefits, and to fund services from abortion, to housing, and gun violence prevention, which depart increasingly from the program’s defined purpose.
Medicaid is operated by states under broad federal rules. For every $1 that states spend on healthcare services for eligible beneficiaries, the federal government provides an average of $2.45 in matching funds, without upper limit. Because federal aid is distributed in proportion to state spending, all are eager to claim as much assistance as they can. From 2000 to 2022, Medicaid spending increased from $205 billion to $824 billion, and the program now covers 94 million beneficiaries.
The federal government can waive Medicaid’s standard terms of payment to allow states to procure healthcare services in innovative and cost-effective ways. But states tend to spend any savings generated, because the federal funding to which they are entitled would otherwise be reduced.
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Chris Pope is a senior fellow at the Manhattan Institute. Follow him on Twitter here. Based on a recent report.
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