This story originally was published by Real Clear Wire.
By Bautista Vivanco
Real Clear Wire
Democrats bemoaning the loss of Medicaid coverage are glossing over a critical fact: States could fund the program themselves if they wanted to. The truth is, Medicaid is not nearly as popular as the taxes needed to keep it afloat.
There is a lot to complain about Trump’s One Big Beautiful Bill (BBB), signed into law last week. For example, it will add trillions to the deficit while allocating billions to be used for deporting hard-working immigrants and even American citizens. Yet Democrats are denouncing it not for its lack of fiscal responsibility, but rather for one of its only positive provisions: its reforms to Medicaid.
Original versions of the bill included various reforms to Medicaid, like work requirements for some able-bodied adults and provisions limiting funds for undocumented immigrants and gender transition procedures. To this, Democrats responded with instant outrage: “Medicaid is a lifeline for millions of kids, seniors, veterans, and people with disabilities in our states and nationwide. Republicans’ proposed cuts would be disastrous.”
The final version of the bill eliminated some of the more thorny cost-saving provisions while keeping the work requirements in place. Yet Democrats are still dissatisfied with the bill, with California Gov. Newsom claiming that “the President and his MAGA enablers are ripping care from cancer patients, meals from children, and money from working families.”
You can tell this is nothing more than political posturing because there are no cuts to Medicaid to begin with. The OBBB only reduces the rate of growth of Medicaid spending, but the overall cost of the program to taxpayers will continue to increase. Cutting means getting rid of something, not reducing the rate at which you add stuff.
Maybe we should not be too hard on the semantics. After all, Americans have very little experience with Medicaid cuts. Throughout its 60-year history, the only time Medicaid spending was truly cut was in 2006, by a mere 0.25%. This should come as no surprise since Medicaid promotes excessive spending by design.
Medicaid is structured in such a way that for every $1 that states spend on Medicaid, the Federal government matches it by up to $9. This design allows state politicians to grant their constituents $10 in political goodies (Medicaid) while only incurring $1 of political cost (higher taxes). Where does the rest of that money come from? Federal taxes and debt.
Now that Washington is cutting back its match rate, this windfall of benefits without costs to states will slow down. States must choose between filling the funding gap themselves (by raising taxes) or reducing coverage. State officials (many of whom will be facing reelection in the next few years) would rather do neither and keep this party going.
Why not increase taxes and keep current coverage levels? Medicaid is an incredibly expensive program. States are already spending around a third of their budgets on it, and with healthcare costs outpacing inflation, this figure is expected to increase. With tax rates already among the nation’s highest, blue states have little room to fill the gap.
In a free market, consumers only purchase a product if they perceive its value to be greater than its price. The reason voters in blue states would reject higher taxes to pay for Medicaid is simply because they value their incomes more than they value the program. Even if you offered the average Medicaid enrollee 20 to 50 cents on the dollar for the benefits they receive, they would rather take the cash.
The biggest winners from Medicaid might not be those receiving care, but rather those providing it. Research suggests that up to 60% of all Medicaid spending acts as a direct transfer to medical providers, like hospitals. With the health sector dominating the lobbying expenditures of the last 27 years, this outburst of outrage from Democrats might be fueled by more than good intentions.
The BBB falls short on almost every front, but reducing the growth rate of a wasteful and distortive government program like Medicaid is a step in the right direction. If it pulls blue states (kicking and screaming) into being more fiscally responsible with all of our tax dollars, all the better.
Bautista Vivanco is a contributor for Young Voices and a health policy researcher. Originally from Argentina, he obtained his BA in Political Science and Economics from Winthrop University.
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