Should the feds take over Medicaid?

How to fix health policy.
Jan. 11 2010 5:36 PM

Cornhusks for All?

Why Medicaid should be federalized, and why it shouldn't.

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Sen. Ben Nelson. Click image to expand.
Sen. Ben Nelson, D-Neb.

When Sen. Ben Nelson, D-Neb., became the 60th vote for health care reform, thereby allowing its Senate passage, his reward was a provision exempting his home state from any requirement to pay for the bill's ambitious Medicaid expansion, which would boost the program's current 60 million enrollment by about 25 percent. The GOP promptly labeled Nelson's deal the "cornhusker kickback," and though this sweetheart deal (see Page 2,929 of the Senate-passed bill) was, in fact, perfectly legal, it brought Nelson sufficient grief that he ended up sputtering that it was a mere "placeholder" for a more sweeping provision he was urging on House and Senate leaders that would free all 50 states from paying for the Medicaid expansion. Mi kickback es su kickback.

Although no one would accuse Nelson of acting on principle in this instance, letting Uncle Sam pick up the entire tab for the Medicaid expansion would, in fact, be good policy. Indeed, it would in almost all respects be preferable for the federal government to assume full control of the Medicaid program, which since its inception in 1965 has been the shared responsibility of the federal and state governments.

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Medicaid was created by the same legislation that created Medicare, to which it was largely an afterthought. Medicare, a program for the elderly, was funded entirely by the federal government. That was sufficiently controversial that Congress never seriously considered doing the same for Medicaid, a program for the poor. States could choose to participate or not; although half the states signed up for Medicaid within two years of the bill's passage, it wasn't till 1982, when Arizona finally decided to join, that all 50 states were represented. The feds currently pay 57 percent of the program's $354 billion cost, with the states picking up the rest.

In retrospect, it's clear that the nation's poor would have been much better off had they not been segregated from the elderly. Partly because Medicaid is only partially funded by the federal government, and partly because any program to benefit low-income people inevitably carries a stigma—the elderly can't help being elderly, but the poor, many Americans believe, are responsible for their lowly condition—Medicaid doctor and hospital fees have always been lower than those for Medicare. Today Medicaid pays primary physicians 66 percent of what Medicare does. This makes no logical sense. Once the government has made the threshold decision to fund health care for both the elderly and the indigent, why should it pay doctors more to treat old people than to treat poor people?

The House bill would correct this imbalance by raising Medicaid fees to Medicare levels, a change that would cost $57 billion over 10 years. The Senate bill would leave the disparity in place. As Jonathan Cohn wrote in Kaiser Health News, the same Senate fiscal conservatives (Nelson included) who are desperate to keep health reform's cost down torpedoed the public option in part because "they feared it wouldn't pay providers well enough." Here's their chance to correct a similar disparity. Of course, they won't take it.

But Nelson's suggestion that Congress foot the bill for Medicaid expansion might at least help the program maintain a steadier cash flow, given the vicissitudes of funding by state governments, which (unlike the federal government) may not run budget deficits when tax revenues are short, as they are now. Congress is already funding most of the expansion (91 percent in the House bill, 82 percent to 95 percent in the Senate's). Picking up the rest of the tab would reportedly cost $25 billion to $30 billion. That's a small price to pay to capitalize on Nelson's position. A conservative Democrat, Nelson has backed himself into an ideological corner from which he is rooting for the federal government to usurp state prerogatives. (To be fair, complaints about Medicaid from state capitals have typically focused not on states' rights but on unfunded mandates.) The New York Times' editorial page (which, incidentally, deserves a Pulitzer for its detailed-but-lucid series of editorials on health reform) would appear to agree with me.

The more Medicaid's funding flows from the federal government, the more likely the feds would exert other forms of control over the program—for instance, by finally bringing Medicaid fees in line with Medicare fees. For efficiency's sake, the feds might even merge the two programs, as they should have done 45 years ago. A Medicare-Medicaid merger might even create sufficient envy among the nonpoor that Medicaraid could become the starting point for a public option or—shhhhh!—a single-payer system.

But before liberals embrace this scenario, they should find some way to defeat the Hyde amendment, which prohibits federal funding for abortions. Seventeen states have gotten around the Hyde restrictions by segregating state Medicaid funds, which may be used to pay for abortions, from federal Medicaid funds, which may not. This, of course, is the rough template for the abortion compromise reached in the Senate (though that provision is seriously hobbled by another permitting the states to opt out of abortion coverage altogether; start reading on Page 2,069). Federalize Medicaid too soon, and the poor will no longer receive abortion coverage in any of the 50 states. Which, come to think of it, would delight Sen. Nelson no end. Hmm. Maybe that cornhusker is smarter than I thought.

E-mail Timothy Noah at chatterbox@slate.com.

Timothy Noah is a former Slate staffer. His  book about income inequality is The Great Divergence.

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