The Senate Republicans, in their healthcare bill, follow the lead of their counterparts in the House, and slash Medicaid spending to enable the repeal of the Affordable Care Act’s taxes on high investment income. Achieving that level of savings requires converting the program from an open-ended entitlement to a capped benefit, under either a per-capita cap or a block grant. The Congressional Budget Office forecasts that the House bill would result in some 14 million of the poorest, most vulnerable people in America, currently covered by Medicaid, becoming uninsured. In the Senate bill, the cuts to Medicaid are even harsher. 

As they consider their vote on a bill that slashes Medicaid, Senate Republicans would do well to mind a quotation from the satirist Fran Lebowitz, “If you are the very first to have thought of adding fresh lime juice to scalloped potatoes try to understand that there must be a reason for this.” Medicaid doesn’t need an infusion of lime juice. For 50 years under its current structure, it has provided effective coverage to tens of millions of people at much lower cost than any alternative.

It has fostered innovations, such as primary care medical homes; it has extended coverage in the face of new illness challenges, such as the HIV epidemic; it has buffered the cost of treatment breakthroughs, such as hepatitis C drugs; and it has shielded low income people, providers, and state budgets from the effects of bad economic times.


Currently, the federal government matches state Medicaid expenditures for eligible populations. States have real skin in the game — for most states, the state share of Medicaid is second only to education spending in their budgets. They have aggressively pursued cost control initiatives and have held payment levels to providers to bare minimums. The design gives States considerable flexibility: to cover optional services and to incorporate managed care, alternative delivery systems, and health savings accounts. With Federal oversight, the design also mitigates important dangers that could lead some states to game the system at the expense of their own poorest, least healthy residents, and those in other states.

Health care policy is so complicated because some people can be expected to be much sicker than others. Each year, 1 in 100 people account for nearly a quarter of all health expenditures. A person with a substance use disorder costs over three times ($11,000 versus $3,300) as much to treat as the average beneficiary. The easiest way to constrain spending is to seek out healthier patients and dump sicker ones – no cost control strategy works as well as manipulating who enrolls in the program. That’s exactly the incentive created for states by moving Medicaid to a per capita cap or block grant.

Shifting enrollment is woefully easy to do. Covering the most challenging patients — such as those with first episode psychosis or new opiate addictions — requires outreach strategies. States will be tempted to forego those activities and enroll these patients only when they deteriorate enough to be hospitalized. Instead, states can actively enroll young, healthy people. That way, they can collect the per capita federal payment, but avoid the costs of treating those who are truly ill.

Another strategy for avoiding high-cost patients could be even more dangerous. States have considerable leeway in choosing to cover specific treatments or medications. For example, when Sovaldi, a new, very effective treatment for Hepatitis C entered the market in 2014, state Medicaid programs spent an unexpected additional $1.3 billion on these drugs; many cash-strapped states sought to restrict access to the drug. The federal government, using the power of its purse strings, clarified that states were required to provide access to “medically necessary treatments.”

Under a block or per capita grant program, the federal government would lose that leverage. Most states would undoubtedly wish to continue providing effective care for their vulnerable populations, but a few might not. In the early days of organ transplantation and of the HIV/AIDS epidemic, states considered limiting access to these treatments in Medicaid.

In turn, poor patients with these devastating, life-threatening illnesses were more likely to migrate to those states that offered better access. Under the federal matching design, federal cash and pressure quickly undid that race to the bottom. But without federal matching, migration could make it prohibitive for even generous states to offer access to new costly treatments for their Medicaid populations.

One solution to these perverse incentives would be to implement a risk-sharing system and shift the burden of costly cases from states to a central, federal pool. That would mute the incentive to select only the healthiest cases and to limit coverage of costly drugs and treatments.

But there’s no need for lime juice here — the current matching formula performs exactly that risk-sharing function. There hasn’t been any effort to provide a health policy justification for moving from the current well-functioning Medicaid design to a capped program. But such a move poses clear and tangible risks to our ability to care for our sickest and poorest neighbors.

Sherry Glied, Ph.D., is Dean of the Wagner School of Public Service at NYU, and Richard G. Frank, Ph.D., is the Margaret T. Morris Professor of Health Economics in the Department of Health Care Policy at Harvard Medical School.

The views expressed by contributors are their own and are not the views of The Hill.

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Capping Medicaid threatens our ability to care for poorest, sickest patients