The Political Economy of Medicaid: Evidence from Five Reforming States

from NCPA

As the country faces increasing fiscal challenges, it has become imperative to revisit allocations made to the three largest entitlement programs: Medicaid, Medicare and Social Security. Medicaid is an especially important target for cost reduction because it has grown the most rapidly in recent years, say Scott Beaulier and Brandon Pizzola of the Mercatus Center.

• In 2010, the most recent fiscal year for which data is available, annual Medicaid spending totaled nearly $375 billion, constituting more than 15 percent of national health expenditures, and covered more than 51 million people.
• Though information for 2011 is not yet available, it is estimated that average monthly enrollment exceeded 55 million, with 70 million people having receiving benefits at some time.
• Combined federal and state Medicaid expenditures have grown from 2.0 percent of gross domestic product in 2000 to 2.7 percent in 2007.

Reforms to entitlement programs are exceedingly difficult to implement, as there are strong interests that support the continuance of the status quo. Recent reforms by five states can be instructional in demonstrating effective ways to reorganize the program. Rhode Island, Washington, Tennessee, Florida and Idaho each have attempted efforts to change the system, and their experiences may prove insightful:

• Attempts at reform cannot be rushed, and instead must be vetted of issues before they are put to a vote or implemented.
• All interested parties, including those in opposition, should be included in negotiations -- this allows for movement in the right direction and reduces the risk of having reform killed entirely.
• Radical terminology must be avoided in such a crucial issue; activists in favor of reform must avoid an in-your-face approach to the opposition and instead mitigate their militant tendencies.

Following these principles, reform efforts in Rhode Island and Washington were largely successful while attempts in the other three states floundered. Given these differing outcomes, federal reform-activists should take note.

Source: Scott Beaulier and Brandon Pizzola, "The Political Economy of Medicaid: Evidence from Five Reforming States," Mercatus Center, February 2012.