As Congress works to extend President Donald Trump’s 2017 tax cuts, there is some debate over how the House Republican Conference will approach Medicaid in the reconciliation bill. The media and special interests are predicting doomsday for enrollees in the government-run health care program, but their scare tactics don’t align with reality. All provisions within the tax code and every government-funded program should be periodically reviewed for improvement or targeted changes.
Without recurring oversight, government inevitably balloons in size, inefficiencies grow, and taxpayers ultimately pay the price. That’s exactly what the House Energy and Commerce Committee (E&C) seeks to address with its tax reconciliation package. E&C is instructed to come up with $880 billion in savings over a decade, or about $90 billion annually. This means finding savings across government programs affecting a number of industries in our economy—energy, telecommunications, and health care—and ultimately striking a balance between bringing in new revenues and identifying government savings.
This has raised concerns about the impact on major federal programs, especially Medicaid, which falls under E&C’s jurisdiction. But finding $880 billion in savings does not mean gutting Medicaid. In fact, that would violate President Trump’s red line, “We’re not going to do anything with that, unless we can find some abuse or waste. It will only be more effective and better.”
Making the program “more effective and better” is a noble goal and one that is sorely needed. When Medicaid was started in the 1960s, it was intended to cover families and individuals who fell on tough times and needed short-term assistance or could not physically work. Today, it has become a bloated entitlement program that covers almost 80 million Americans between Medicaid and the Children’s Health Insurance Program. That equates to more than 20% of the population.
Insuring this many Americans comes with substantial cost to taxpayers. In 2024, the federal share of Medicaid cost $618 billion, with an additional $19 billion spent on CHIP. That’s a significant increase from 2010, when the federal share of Medicaid cost $272.8 billion and CHIP cost about $8 billion.
Without reform, these costs will continue to skyrocket. The Congressional Budget Office projects that Medicaid outlays will reach $1.025 trillion by 2035—a 66% increase over just a decade. Total Medicaid spending from 2026 through 2035 is projected to hit $8.6 trillion, plus another $195 billion for CHIP. That makes these programs among the largest and fastest-growing drivers of federal spending, second only to Social Security and Medicare.
Over the years, structural inequities have been built into the program. As the Wall Street Journal editorial board recently put it, “Here is the core dysfunction. The feds pick up roughly 50% to 77% of the tab (depending on the state) for pregnant women, the disabled and other low-income populations. But the feds pay 90% for prime-age adults eligible under the Affordable Care Act’s Medicaid expansion. The enhanced funding was a Democratic bribe to bait states into expanding their programs under ObamaCare. It also contradicted the founding purpose of Medicaid, which was to help the poor.”
Our friends at the American Enterprise Institute estimate there were 19.6 million Medicaid recipients between the ages of 18 and 64 who were not disabled and did not have children in 2022.
In short, the status quo is not sustainable. When a program has nearly 80 million enrollees and is approaching an annual cost of $1 trillion, some added scrutiny is warranted. It is a complete dereliction of fiscal responsibility to turn a blind eye to the disturbing morphing of this entitlement. At the very least, Congress should look to identify improper payments and implement some level of work requirements to improve the programs.
From a structural reform perspective, the Paragon Health Institute highlights significant cost savings possibilities from able-bodied adults that enrolled in the program. From a recent paper they write:
“The ACA created a new eligibility category for Medicaid—able-bodied, working-age adults—with a much higher federal reimbursement percentage for these enrollees. This has led to a host of problems, including: 1) a diversion of resources away from traditional Medicaid enrollees, particularly low-income children and people with disabilities, that has reduced their access to health care services; 2) a near quadrupling of Medicaid’s improper payments; and 3) a surge of spending that has significantly contributed to large and growing federal deficits.”
Worse yet, the Biden Administration allowed states to use Medicaid dollars for services beyond health coverage, further degrading the program’s intended purpose. The Washington Post has previously highlighted some of the state waivers where Medicaid dollars are used for “health-related social needs.” As a result, Medicaid has funded a litany of items including moving expenses, rental security deposits, meals, short-term rental assistance, music lessons, and sports club fees. The federal government already offers generous transfer payments under the Supplemental Nutrition Assistance Program or the Section 8 Voucher Program. KFF actively tracks these specific Medicaid waivers, but no total dollar amount for these waivers is readily available.
It’s reasonable to demand that a federal program work efficiently for the people that genuinely need it, like low-income children, pregnant women, seniors, people with disabilities, and those fallen on hard times.
There is a unique opportunity for Republicans to fairly reform Medicaid to save taxpayer dollars and improve the program for enrollees. ObamaCare broke the program and Republicans have a chance to fix it despite the “sky is falling” attacks from the other side.
This isn’t about cutting benefits, it’s about ending the federal largesse that has gone unchecked for far too long. These reasonable changes represent a strong deal for the American taxpayer, and one that should be supported.