A Foot in the Door Toward Federalizing Medicaid

One encouraging element of the health care reform bill released today by three House committees is that it would finance expanded eligibility for Medicaid entirely with federal money. Since its inception in 1965, Medicaid’s financing has been shared jointly between the feds and state governments. That arrangement has much to do with Medicaid’s huge shortcomings: wide state-to-state variations in eligibility rules and benefit levels, chronic under-funding, and limited medical options for beneficiaries. Because the program primarily covers individuals with low incomes, along with nursing home residents, it has never benefited from broad political support.

The House bill would not require state contributions to pay for expanding Medicaid eligibility to 133 percent of the federal poverty level because, the committees correctly note, state budgets are already overwhelmed due to the recession. But a potential long-term payoff to this reform would be to open the door to federalizing the program entirely down the road. Federally run insurance programs like Social Security and Medicare are vastly more efficient and effective than federal-state counterparts like Medicaid and unemployment insurance. Economies of scale, uniform national rules, and the inability of 50 state governments to each do mischief to the programs have demonstrably led to far superior results for national social insurance.

If some new Medicaid beneficiaries have their benefits entirely paid for by the feds, it’s conceivable that other categories -- such as those eligible for both Medicare and Medicaid -- could be similarly shifted entirely to federal funding in later reforms. That would create opportunities for the federal government to exert greater control over the largely dysfunctional program, perhaps ultimately folding it into the proposed public health plan. In the process, step by step, the fragmentation that contributes so much to the flaws in our health care system would begin to wither away.