Category Archives: Medicaid block-grants

The National Debt and Medicare Spending

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I am a candidate in the May 15 Nebraska Republican Primary for U.S. Senate, against the incumbent Deb Fischer because she is totally ignoring our enormous and out-of-control national debt. In fact she has just recently voted twice to make it worse than it already is.
The major driver of our debt is the entitlement programs, Social Security, Medicare and Medicaid.  Social Security is self-funded from the payroll tax and can be shored up long term with some relatively simple adjustments such as raising the income cap on which the payroll tax is levied and/or SLOWLY raising the eligibility age for full benefits.  Medicaid costs can be controlled by block-granting it to the states with a fixed contribution from the federal government.


But Medicare will be much harder to reform because it is the most expensive entitlement program of all.  The above chart shows that a couple with average wages reaching age 65 in 2015 can expect to receive Medicare benefits that exceed what they put in by $357,000.  This subsidy will only increase in the years ahead.
The American Enterprise Institute’s James Capretta has recently described one possible way to get Medicare costs under control.  In outline:

  • Combine hospitalization (Part A), outpatient services (Part B) and drugs (Part D) into a single combined insurance product.
  • Offer community-rated premiums for beneficiaries, meaning that premiums would not depend on age or health status.
  • A small, universal entitlement benefit would be paid to all enrollees set to cover about 20% of today’s benefit and equal to about $2600. The Medicare payroll tax of 2.9% would pay for this universal benefit.
  • Additional financial support would be based on lifetime earnings, with the lowest quartile receiving substantial additional support which would be phased out for middle- and upper-middle class retirees.
  • Retirees would purchase private insurance plans which could be in the form of high-deductible catastrophic insurance combined with health savings accounts.

Conclusion.  “The reform of Medicare outlined above is a plan to substitute higher premiums from the middle and upper classes for the large general-fund subsidies taxpayers now provide to Medicare to finance the majority of Part B and Part D costs.  The end goal is a self-financing Medicare program.”

The Necessity of Fixing Medicaid

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As I have discussed in previous posts, here and here, the American Health Care Act, the GOP replacement for the Affordable Care Act, is a step in the right direction.


One of the best features of the GOP bill is its provisions to revamp the Medicaid program.  The problems of Medicaid are well described by the healthcare expert, Avik Roy, here and here:

  • Medicaid was established in 1965 and now provides healthcare benefits for individuals and families with incomes up to 133% of the federal poverty level.
  • The states pay 40% of the costs on average while only controlling 5% of how the program is operated.
  • The federal Medicaid law mandates a laundry list of benefits which the states must provide. States cannot charge premiums and copays and deductibles are minimal.
  • Medicaid is the largest or second largest line item in nearly every state budget. The only tool states have in controlling costs is to pay doctors and hospitals less than private insurers pay for the same care. This means that fewer and fewer doctors are accepting Medicaid patients.
  • Thus Medicaid enrollees have poor access to healthcare. In fact, their health outcomes are typically no better than for those with no insurance at all.
  • An able-bodied adult on Medicaid receives about $6000 a year in government health-insurance benefits. Yet CBO estimates that five million Americans won’t sign up for Medicaid if the ACA individual mandate is repealed as proposed by the AHCA.
  • AHCA block grants will give states more flexibility to manage Medicaid’s costs in ways which increase access to doctors and other providers. It would also decrease federal outlays for Medicaid by $880 billion in its first decade.
  • AHCA’s goal is to ultimately merge Medicaid for able-bodied low-income adults into the system of tax credits which the AHCA proposes for those above the poverty line.

Conclusion. The AHCA will make Medicaid into a much more efficient, flexible and effective program for serving low-income individuals and families. This represents a first step in the entitlement reform which the U.S. so badly needs.

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Progress on Medicaid Reform

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It is widely understood that the rapid increase in spending for entitlements (Social Security, Medicare and Medicaid) is the main driver of our debt problem.  Anything that can be done to get spending for these programs under control is of great value.
The problem with Medicaid is that a fixed percentage of each state’s costs is paid for by the federal government.  The more a state spends, the more that is contributed by the federal government which is a disincentive for states to control their own spending.  From 1989 to 2013, the share of state budgets devoted to Medicaid rose from 9% to 19%.  This upward trend is a problem for both state and federal government and is clearly unsustainable.
One way to change the spending incentive is to turn Medicaid into a block-grant program whereby the federal government contributes a specific amount of money to each state each year and gives states more leeway in designing their own programs.  States would then have a much bigger incentive to hold down costs and the flexibility to be able to do it.
CaptureProgress is being made in this direction with the use of waivers:

  • Rhode Island received a waiver in 2009 to try out various cost-saving measures such as wellness programs, co-payments, etc. It has been quite successful and very well received.
  • Last year Pennsylvania agreed to expand Medicaid to an additional 500,000 people along with a waiver allowing people above the poverty line to be charged premiums of up to 2% of their household income as well as being charged an $8 copayment for use of emergency rooms.
  • Now Indiana (http://www.wsj.com/articles/indiana-governor-to-expand-medicaid-coverage-1422371729) has agreed to an expansion with a waiver under which beneficiaries above the poverty level would be charged premiums of 2% of income and would be locked out of benefits for six months if they fall behind in their payments.
  • Additional states such as Idaho, Wyoming, Utah, Tennessee, Alabama and Florida are also considering Medicaid expansions and likely will be influenced by the possibility of receiving similar waivers.

Waivers are not as cost effective as block-grant funding but they are an improvement over the existing one-size-fits-all federal rules.  If more individual states are able to show that waivers really do work to reduce costs, this will increase the likelihood of implementing a block-grant system.