The Senate Health Care Bill Could Save America Billions

The Senate Health Care Bill Could Save America Billions

As much as $772 billion could be saved over ten years.

Thinking about enacting the Medicaid reforms in the Senate health bill? You might as well push the button on the Doomsday Machine. At least, that’s what the near hysterical rhetoric from the Left would have you believe.

To hear them tell it, millions of the poor and indigent, including disabled children, would be thrown off Medicaid rolls and left to fend for themselves. “Thousands” will die.


Rolling back Obamacare’s massive Medicaid expansion is not a death sentence. That’s because expansion is not a life-saver.

Moreover, the Senate bill doesn’t change requirements for mandatory coverage of traditional Medicaid populations: the blind, elderly, disabled, children and women in poverty. Nor does it “cut” federal funding for Medicaid—at least not in the ordinary sense of that word.

The Senate bill would cut only the rate of spending growth. Federal taxpayers would still be pouring more and more money into the program each year. But for the next seven years, the rate of increase would be slightly smaller than current law for some Medicaid populations and somewhat higher for others.

As Washington’s budget mavens know well, even a little annual decrease in the growth of a very large program can secure very big savings over time. In this case, according to the Congressional Budget Office (CBO), the Senate bill’s projected Medicaid savings would amount to a hefty $772 billion over ten years.

Proposals for per capita caps on the growth of entitlement spending have a bipartisan pedigree. For example, starting next year, Obamacare requires growth in Medicare per capita spending to be set at the growth of the economy (measured by GDP) plus 1 percent.

Back in the Clinton administration, heated budget debates in 1995, 1996 and 1997 produced broadly similar proposals to reduce Medicaid spending growth. In a brilliant paper for the Mercatus Center at George Mason University, Doug Badger shows that the Clinton proposal, like the Senate bill, would have slowed the growth of program spending with per capita caps for the diverse Medicaid populations. Moreover, like the Senate bill, the Clinton proposal would have indexed the per capita caps for inflation.

Like the Clinton proposal of the 1990s, the Senate bill today would replace the open-ended entitlement to cover state Medicaid costs with a per capita formula. For the different populations of Medicaid recipients, federal funding increases would also be different. The per capita funding would be based on the average spending and number of enrollees in each of these categories. The Senate bill would then adjust annual federal spending by indices of inflation for these different categories of Medicaid recipients. For example:

The elderly and the disabled

From 2017 to 2024, federal payment for these recipients would increase in line with medical inflation plus 1 percent. Historically, of course, medical inflation rises much faster than general inflation. Under the Senate bill, as CBO reports, this means that the payment increases targeted to the elderly and disabled will be more generous (4.7 percent) than under current law (3.3 percent) over the seven-year period.

The per capita funding formula would not affect people eligible for both Medicare and Medicaid—the “dual eligible” Medicare beneficiaries. Likewise, the CBO reports, “Disabled children would be excluded from the per capita caps and covered as under current law.”

Nondisabled adults and children

The CBO projects that that federal payments under the Senate bill would grow at medical inflation (3.7 percent) over the 2017-2024 period, rather than the 4.9 percent growth rate projected under current law. A 1.2 percent difference (over this period) is hardly a traumatic event.

As the Clinton administration recognized more than twenty years ago, a per capita payment system, combined with enhanced state flexibility, would give state officials ample room to make program improvements. State officials should better manage Medicaid’s troubled finances, which are marred by tens of billions of dollars in fraud and other “improper payments.”

State officials can also improve upon their Medicaid’s care delivery by securing better value for the taxpayers’ money. If the Senate bill’s proposed slower rate of federal spending growth should create a problem, state officials can simply provide the additional funding they think necessary for the proper care of their own citizens.

Eight years from now, the Senate bill would index federal Medicaid payments to the general rate of inflation (CPI-U), which CBO estimates at 2.4 percent. At that time, Congress can always revisit the indexing issue. Congress could fine-tune funding formulas based on the different patterns of health-care spending for the very diverse categories of Medicaid beneficiaries.

Meanwhile, the Senate bill, as noted, refocuses and prioritizes Medicaid coverage for those who need it most: the elderly, the disabled, and women and children in poverty. For these populations, the states currently receive between 50 and 75 percent of their Medicaid funding from federal taxpayers.

Under Obamacare, however, federal taxpayers today pay more for those who need help the least. Taxpayers today pay 95 percent of Medicaid costs for able-bodied beneficiaries in thirty-one states and the District of Columbia. These recipients are mostly childless adults who can work. The Senate bill would change that, phasing down the super-generous federal spending in these “expansion” states. Of course, if the taxpayers in these states wish to continue funding at the higher Obamacare levels, they would be free to pick up the tab.

The Senate bill rightly prioritizes federal Medicaid spending, providing more for the poorest and most vulnerable members of society. Its per capita payment system for different Medicaid populations is a rational and responsible approach to entitlement spending—one previously embraced by liberals and conservatives, Democrats and Republicans alike.

No need for hysteria.

Robert E. Moffit is a senior fellow in The Heritage Foundation’s Center for Health Policy Studies.

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