Why Medicaid Needs to Be Reformed


One of the very most serious problems facing our nation is our massive federal debt, now over $13 trillion (the public debt on which we pay interest), or 75% of GDP, the highest since right after WWII, and predicted by the CBO to keep getting worse unless major policy changes are made.
The main contributors to this rising debt are the big three entitlement programs of Social Security, Medicare and Medicaid. All three need substantial reforms in order to rein in spending.
Today I will discuss Medicaid, based on an excellent analysis performed by the Manhattan Institute’s Oren Cass, “Over-Medicaid-Ed: how Medicaid distorts and dilutes America’s Safety net.”
capture41Consider these pertinent points:

  • Badly designed incentives for Medicaid expansion. Each state sets the size of its Medicaid program and receives matching federal dollars, from $1 to $4, for every dollar spent. States thus have a strong incentive to overinvest in Medicaid, expanding their programs far beyond the point where a marginal dollar of their own spending produces a dollar of value.
  • Health care dominates safety-net spending. During 1975 – 2015, government social spending per person in poverty more than doubled (in constant 2015 dollars) from $11,600 to $23,400. Rising health care expenditures accounted for more than 90% of that increase.


  • Medicaid spending in 2012 was 39% higher than if it had remained a constant share of state budgets since 2000. State spending on education and welfare was 9% and 54% lower, respectively.
  • This allocation is an ineffective poverty-fighting strategy. While the majority of government social spending goes to health care, low-income households not enrolled in Medicaid allocate less than 10% of their spending to health care. Studies consistently show little or no positive impact on health outcomes from Medicaid enrollment.
  • How to strengthen America’s safety net. The federal government should consolidate all antipoverty funding streams, including Medicaid, and allow states to design programs and allocate funding to such programs as states see fit.

Conclusion. The above program outlines a way to both improve the effectiveness of social welfare spending and curtail its costs to both states and the federal government. Let’s do it!

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Social Inequality vs Income Inequality


There is today in the U.S. much concern about income inequality and I have devoted many posts to this topic recently such as “Are economics and Social Progress Related to Each Other?”,How to Expand Economic Mobility”, and “Richer and Poorer.”
CaptureThe above CBO chart shows that income inequality has not changed much in the last 30 years once government transfers and federal taxes are taken into account. Along the same line, the Manhattan Institute’s Oren Cass makes a strong case in, “The Inequality Cycle,” that Americans should be paying at least as much attention to the social aspects of inequality as to the economic aspects.
For example:

  • As Charles Murray shows in “Coming Apart,” (http://www.amazon.com/Coming-Apart-State-America-1960-2010/dp/030745343X) the upper class has remained stable with respect to marriage rates (94% in 1960, 84% in 2010), civic involvement, and trust in society while for the lower class marriage rates (84% in 1960, 48% in 2010 and dropping), civic involvement and public trust have all declined significantly.
  • Children in the lower classes are five times more likely to face abuse, violence, addiction and the death or imprisonment of a parent.
  • By the time they reach kindergarten, 72% of middle class children know the alphabet compared with only 19% of poor children.
  • The fraction of children with a single parent is the best predictor of upward economic mobility in a particular region, whereas the level of income inequality is not a significant predictor.

Mr. Cass suggests that public policy should focus on these social problems at least as much as on income inequality. For example:

  • Education reform should be focused on both ends of the K-12 spectrum: early childhood education to ensure that all children are ready to learn when they get to school and better vocational education in high school so that graduates can find a good job if they’re not going to college.
  • Remove onerous regulations on the workplace so that employers are not pushed unnecessarily into independent contractor arrangements.
  • The federal government should be more supportive of marriage (e.g. with tax policy), and the participation of religious organizations in the delivery of public social services (to improve their quality).

Conclusion: Being poorly raised does more to cut off opportunity than being raised poor.