Coming Medicaid Changes Show Why Reform Is Badly Needed

The COVID-19 pandemic led to drastic changes for hundreds of millions of households. For example, lawmakers and bureaucrats reworked large swaths of the federal bureaucracy, expanding means-tested programs such as Medicaid and keeping eligibility checks to a minimum. Since 2020, low-income households receiving insurance through Medicaid were able to keep their coverage even if their income surged above the maximum threshold.

However, this “no questions asked” approach will soon come to an end. The government is reinstating eligibility checks in April, and roughly 15 million Medicaid enrollees will be kicked out of the program.

This dramatic change offers a rare opportunity for federal policymakers to rethink a $700 billion program known for high administrative costs and stingy reimbursement rates. Rethinking and revamping Medicaid could mean better healthcare for millions of Americans.

Medicaid certainly doesn’t come cheap. Even before the surge in pandemic spending, federal and state governments were spending more than $6,500 to cover each enrollee per year. That’s significantly more than what private insurers typically spend insuring their patients, which averages out to about $5,000. This spending gap persists even after taking into account average out-of-pocket spending, which is more likely to impact private plan beneficiaries.

Medicaid patients are getting less bang for more taxpayer buck. According to a 2021 analysis by the Medicaid and CHIP Payment and Access Commission, “physicians were significantly less likely to accept new patients insured by Medicaid (74.3%) than those with Medicare (87.8%) or private insurance (96.1%).”

Only about 63% of doctors practicing internal medicine accept Medicaid, compared to 99% acceptance of private plans. This large discrepancy is not just because Medicaid reimbursement rates are lower. About 20% of Medicaid claims are not paid in full, compared to just 5% of private claims. 

As Vox healthcare correspondent Dylan Scott explains, “The health care providers then must invest time and money to sort out any rejected or disputed claims . . . And when you consider the disparity in the initial claims, with Medicaid already paying much less than Medicare or private insurance, these costs of incomplete payments eat up 16% of the value of a Medicaid visit for doctors, significantly more than the 7% for Medicare and 4% for private coverage.”

Higher administrative costs aren’t limited to doctors’ offices. Overall, per-enrollee administrative spending on government plans is at least 12% higher than for private plans, though the figures are less clear for Medicaid versus Medicare.

Private insurance simply offers a far better deal for patients and taxpayers than the Medicaid program. Most of the 15 million Medicaid beneficiaries slated to “graduate” from the program in April will likely find this out when they become eligible for the special enrollment period on individual health insurance markets. But those remaining in the Medicaid program will be stuck with subpar coverage and taxpayers will be left paying the bill.

The federal government can work with states to end this lousy status-quo by offering Medicaid beneficiaries means-tested subsidies to access the private marketplace. While some states have used Medicaid expansion waivers to encourage cost-sharing and even introduce Health Savings Accounts into their Medicaid programs, a robust off-ramp from Medicaid can result in far more choices for the program’s remaining 70 million enrollees. It’s time for a different approach to healthcare for millions of struggling households.

Ross Marchand is a non-resident fellow for the Taxpayers Protection Alliance.