Michael F. Cannon
Congressional Democrats are refusing to support a resumption of the few federal operations that the current “government shutdown” has paused. Among Democrats’ demands is that Congress rescind the meager Medicaid spending restraints in the recent Republican budget, and thus increase federal Medicaid grants to states.
Economists Martin B. Hackmann, Juan S. Rojas, and Nicolas R. Ziebarth offer a useful perspective. In a recent working paper, they find that Congress is already spending more on Medicaid than it told voters it would:
This paper studies the misallocation of Medicaid funds and its implications for patients and providers in the context of the nursing home industry. Combining comprehensive audit reports with survey data on nursing homes, we first document that many states use creative financing schemes. The schemes inflated nominal spending by about 30% while diverting at least $17 billion in Medicaid funds between 2000 and 2002. This diversion of funds increased the effective federal cost share (FMAP) by 16 percentage points, significantly more than previously documented.
One way to interpret these findings is that the federal government is spending too much on Medicaid. Congress enacted laws saying that the federal government will finance, for example, 50 percent of Medicaid spending in states like New York and California. Hackmann, Rojas, and Ziebarth find that state misbehavior and insufficient federal oversight have pushed that share to perhaps 66 percent, even though Congress told voters it was 50 percent.
The recent Republican budget didn’t even cut Medicaid. It merely (maybe) restrained the growth of federal Medicaid spending. Congress should not increase Medicaid spending. For reasons of transparency, fiscal responsibility, sustainability, democratic accountability, and better health care, Congress should cut Medicaid spending immediately and dramatically.