Thinking Right or Wrong, Not Left or Right About Medicaid

Phasing out Medicaid is morally right but requires health insurance and healthcare freedom.

Congress is in the process of trying to pass the BBB (Big Beautiful Bill), or as it should be labeled, the BUB (Big Ugly Bill). Medicaid, the government welfare program providing vast numbers of Americans with health insurance and health care coverage, is one of the hotly debated line items. According to Wikipedia

Medicaid is the largest source of funding for medical and health-related services for people with low income in the United States, providing free health insurance to 85 million low-income and disabled people as of 2022.

Estimates are notoriously hard to come by, and often tainted by partisanship, but an AI search returning Congressional Budget Office (CBO) projections estimates the following growth in federal Medicaid spending over the next decade

The individual states currently spend an additional $250-326 billions per year accounting for 31-36% of total Medicaid spending. In total, this Leviathan of welfare programs is in no small part contributing to pushing the country towards the fiscal cliff.

Radical change is no doubt required, but currently the political class doesn’t have the incentives to act. The pressure from voters—many of whom are on Medicaid—is not there. With an eye towards reelection, few representatives and senators are willing to step up to the plate, meaning that Medicaid will continue to add to both the ballooning budget deficit and the national debt.

Thinking in terms of morally Right or Wrong, not politically left or right, what should be done? By the moral standard of respecting and protecting individual rights, Medicaid is a massive rights violation that should be phased out. The program does not only redistribute wealth from the haves to the have nots; as federal tax receipts are not high enough to cover federal spending—hence the budget deficit—the government makes up the shortfall by printing money, causing inflation. Inflation doesn’t spare anyone, rich or poor, but hits low-income households the hardest; they spend a greater proportion of their income on food, rent and other inflation-prone necessities leaving even less money for healthcare, which further increases their reliance on Medicaid. The result is an immoral cycle of spiraling government dependency.

How do you phase out a massive welfare program like Medicaid? Limiting fraud and waste, and implementing minimum work requirements are worthwhile, but will not be morally or practically sufficient. Abolishing Medicaid is the only solution that meets the criteria of respecting and protecting individual rights. Only by removing government force in the form of taxes and inflation to pay for the program will morality be restored.

But abolition can’t be done overnight as millions upon millions are dependent on the program. No, the first step must be to create alternatives to Medicaid: a deregulated, thriving, marketplace for health insurance and healthcare, and pharmaceuticals, diagnostics and medical devices without government involvement. Here’s a taste of what’s needed.

Health Insurance:

• Repeal federal and state level mandated coverage of conditions, treatments, and procedures

• Repeal restrictions on selling health insurance across state lines.

• Decouple health insurance from employment.

Healthcare:

• Repeal regulations prohibiting healthcare providers from competing on price.

• Repeal regulations at all levels of government pertaining to the permitting, building, and managing hospitals and other medical facilities.

• Repeal state and local government licensing requirements for healthcare providers.

• Repeal privacy and medical records regulations.

Pharmaceuticals, Diagnostics and Medical Devices:

• Repeal FDA (Food & Drug Administration) and USDA (U.S. Department of Agriculture) regulations and let voluntary safety standards develop in the respective industries.

• Expand patent protection for pharmaceuticals, diagnostics, and medical devices.

(See the book and here for details.)

This will jumpstart innovation and create more competition on both price and quality, resulting in a plethora of affordable health insurance and healthcare options for all income levels paving the way for phasing out Medicaid. In parallel, philanthropic alternatives will emerge for the few who are otherwise left without health insurance and healthcare.

The phase-out will take time but fortunately there is no shortage of solutions. Here’s one scenario for how it could be accomplished, assuming a 20-year timeframe:

1. Repeal all federal Medicaid rules and regulations.

Medicaid is riddled with rules and regulations aiming at controlling the exploding costs of the system: regulations reimbursing providers at or below cost, rules forcing hospitals to admit patients to the ER, regulation prohibiting copays and deductibles, etc. Removing federal rules and regulations will allow states the freedom to experiment with modifying eligibility, deductibles, copays, coverage, provider payments, fraud management, etc., and to learn from one another’s successes and mistakes.

2. Divide federal funding between the states based on population and current spending, and reduce the funding by 1/20 (5%) per year over 20 years.

Today’s Medicaid funding is a system of large federal grants matching or exceeding what the states spend themselves. The individual states basically get a big, fat federal subsidy, which removes much of the incentives to manage the costs. This should be replaced by so-called block grants that give the states full financial freedom and responsibility to manage the transition, no federal questions asked. Dividing the federal funding based on both population and current spending accounts for the fact that some states have a higher Medicaid spending per capita than others because of the population makeup. Gradually reducing federal funding will incentivize the states to phase out the program.

By gradually removing the federal government from the equation, the states will become laboratories for change. Some will transition out of Medicaid faster than others and use the (gradually decreasing) federal block grants for other purposes. Some will decrease the size of the program as federal funds run out, while others may perhaps even expand Medicaid. However, such a phase-out-delay or expansion would only hit the wallets of residents in those states, not all U.S. taxpayers, so state politicians would most likely hesitate to take this route. And potential court challenges questioning the constitutionality of state-side expansions may help keep the transition on track as well. Finally, people dependent on Medicaid may move to states with more generous benefits, which will put further pressure on those states to get on the phasing-out bandwagon or face a fiscal cliff of their own.

Obviously, the current appetite for a moral solution is low. Absent a moral groundswell among U.S. voters to right the massive wrong that is Medicaid, the costs will only go up. I suspect the situation will have to get much worse before it gets better; ask yourself if you will push your elected representatives to take action before it really hurts your pocketbook in the form of higher taxes and/or inflation. And even if it gets much worse, there is no guarantee the American people will choose the path to health insurance and healthcare freedom; it is as likely, if not more, that the gut reaction will be to ask for more, not less, government involvement. Hence the importance for freedom fighters of all stripes to focus on the moral travesty of today’s welfare system with Medicaid serving as the prime example.