Op-Ed: Chris Pope: How to thread the needle to reform Medicaid

Congressional Republicans have suggested that Medicaid could make up much of the savings needed to offset the cost of renewing Trump’s tax cut. The GOP has only a slender House majority, and many of its members are reluctant to cut benefits for existing enrollees. But the growth rate of Medicaid spending is so rapid, that merely slowing the ability of states to unilaterally expand the program would generate enormous savings.

The highest priority for the newly-elected Republican Congress is to renew major provisions from the 2017 Tax Cuts and Jobs Act, which are soon to expire. House Republicans have proposed $4.5 trillion of tax cuts in a budget blueprint, towards which they have set a target of $2 trillion in spending cuts over 10 years. The House Energy and Commerce Committee has been tasked with finding $800 billion of the reduction in spending. House Democratic leader Hakeem Jeffries suggested this would mean “slashing and burning things like Medicaid to the ground.”

But even if such a “cut” were entirely concentrated on Medicaid, it would only partially diminish the increase in the program’s spending over a 10-year period. Instead of rising from $656 billion in 2025 to $1,025 billion in 2035, the annual cost of Medicaid to federal taxpayers would increase only to $845 billion. That is to say, the program’s growth rate would be reduced from roughly 4.5 percent per year to 2.2 percent — just above the target rate of inflation.

Medicaid has been expanded more than any other federal program over recent years. As recently as 2013, it cost only $265 billion. The cuts proposed would not roll back the expansion of the program by the 2010 Affordable Care Act. They would not even undo the program’s Covid-era growth. In fact, it would still leave 2032 Medicaid spending higher than the Congressional Budget Office projected as recently as 2022.

The growth in Medicaid spending has been concentrated in Democratic states. New York’s per capita spending on Medicaid increased by more from 2019 to 2023 ($1,698) than the entire cost of Florida’s program ($1,521). Its program now costs three times as much.

And yet, it is very difficult for the GOP Congress to reform the program. Republicans have a majority of only 3 in the House, and 39 of those represent states that voted for Kamala Harris in 2024. In the past, Republicans have struggled to substantially trim Medicaid spending — even when they had larger majorities and planned hard in advance to do so.

Most House Republicans were not even in Congress in 2017, the last time the GOP attempted Medicaid reform, and know little about the program. Medicaid is a complex system of federal grants to finance medical services for low-income Americans, which differs greatly from state to state. Even House members who support Medicaid cuts in principle will likely feel differently when they hear from hospitals, nursing homes, doctors, and patient groups about the specific effects on their districts.

Rep. Rob Bresnahan (R., Pa.) has already declared: “If a bill is put in front of me that guts the benefits my neighbors rely on, I will not vote for it.” President Donald Trump has played down the prospect of Medicaid cuts — “unless we can find some abuse or waste.”

Although allowing states to impose work requirements on able-bodied beneficiaries seems to command unified Republican support, it is not certain that this would save federal taxpayers any money. As the level of federal Medicaid spending is determined by the willingness of states to spend their own resources on the program, giving states more control over the distribution of Medicaid funds might actually encourage them to spend more.

The experience of work requirements in the Temporary Assistance for Needy Families program is instructive: conservative states used them to redirect federal funds to other beneficiaries, while liberal states were easily able to use loopholes in requirements to keep their benefits structured largely as before.

Medicaid “provider taxes” are the clearest case of abuse in the program: states impose taxes on hospitals or nursing homes, and then claim more federal Medicaid funding to cover the supposedly increased cost of care. The CBO has estimated that eliminating provider taxes would save the federal government $612 billion over 10 years. But this abuse is so widespread that it may be hard to rein in: in 2025, 49 out of 50 states used provider taxes.

States are quick to employ the defense pioneered by former Georgia Governor Gene Talmadge: “Sure, I stole, but I stole it for you.” Federal funds obtained inappropriately are typically used to finance health care and other services — with Republican states often just as guilty as Democratic ones.

Congress has already capped the Medicaid payments to medical providers for which states can claim reimbursement from the federal government. But the Biden administration recently opened a massive loophole in this cap — exempting Medicaid payments to hospitals made indirectly through managed care, which covers three quarters of enrollees.

Over recent years, states have increasingly used payments to managed care insurers to evade restrictions on direct payments for medical services. The Government Accountability Office (GAO) has flagged these supplemental payments, which amounted to $110 billion in 2024, as lacking “transparency” and “fiscal guardrails.” Insurers’ profit margins on Medicaid are now double those they obtain from privately financed insurance.

The best fiscal conservatives can hope for may simply be to stop things getting worse. But even this would be an important and valuable achievement.

Gov. Kathy Hochul’s (D., N.Y.) recent budget proposed a single year 17 percent increase in Medicaid spending. As policy analyst Bill Hammond notes, the state would “spend 60 percent more than what she inherited in 2021 — which even then was the costliest Medicaid program in the United States.”

The federal government could save $600 billion over the next 10 years by eliminating the ability of high-spending states to unilaterally expand their Medicaid benefits. This would preclude the most serious abuse of the program’s structure, without disrupting benefits for existing enrollees — just as the Beltway’s timid Republicans claim to want to do.

Chris Pope is a senior fellow at the Manhattan Institute.