August 3, 2026
Dear Chairman Johnson, Ranking Member Merkley, and Members of the Committee,
On behalf of National Taxpayers Union, the nation’s oldest taxpayer advocacy organization, we commend you for holding a hearing entitled “Medicaid: The Reality.” This important safety net is in dire need of reform to ensure it remains focused on serving society’s most vulnerable while protecting taxpayers from waste, fraud, and abuse. We urge lawmakers to address the perverse incentives at the heart of Medicaid that drive higher spending and undermine program integrity.
Medicaid has become one of the fastest growing federal programs in recent years. Between 2014 and 2024, Medicaid expenditures grew by nearly 88%, and today federal and state spending on the entitlement program approaches $1 trillion annually. This is largely the result of Obamacare’s reckless expansion of Medicaid, which transformed a targeted safety net for society’s most vulnerable into an open-ended entitlement that makes able-bodied adults with incomes at or below 138% of the federal poverty level eligible for government-sponsored health insurance.
By offering states a significantly higher federal matching rate for the expansion population than for traditional beneficiaries, Obamacare created a strong incentive for state Medicaid agencies to expand enrollment among able-bodied adults. This process has fueled higher federal spending while shifting resources away from truly vulnerable beneficiaries, such as low-income children.
Medicaid’s financing structure also increases the program’s susceptibility to fraud and payment mistakes. As an open-ended entitlement, state spending automatically triggers matching federal funds. Yet, because states are not bearing the full cost of their Medicaid programs, they have weaker incentives to aggressively police fraud and verify eligibility. It’s no coincidence that Medicaid ranks among the top five government programs for improper payments. In fiscal year 2025 alone, the federal government reckons improper payments in Medicaid totaled just over $37 billion, which represents a nearly $6 billion increase from the previous year.
One of the most galling illustrations of how Medicaid’s perverse incentives burden taxpayers is the widespread use of provider taxes by state governments. States have figured out they can game the system by taxing providers such as hospitals and then immediately recycling those funds back to the same providers to artificially inflate their reported Medicaid spending. This increased spending on paper, in turn, allows state governments to trigger higher federal matching funds without making meaningful contributions of their own.
Before state governments learned to use the provider tax loophole to pad their budgets in the 1980s, Medicaid was a more balanced collaboration, with states footing just under half of total spending. Today, thanks to the uncontrolled growth of the provider tax scheme and new mandates enacted by Obamacare, the federal government shoulders nearly two-thirds of total Medicaid spending.
Amid record federal debt and deficits, this spending trajectory is simply unsustainable. Thankfully, the Working Families Tax Cuts begins to address some of Medicaid’s perverse incentives by enacting restrictions on provider taxes, capping state-directed payments, and imposing modest work requirements on able-bodied adults. These reforms bolster the sustainability of a critical safety net by ensuring that limited tax dollars remain focused on the beneficiaries for whom the program was originally intended, such as low-income seniors, disabled individuals, and pregnant women.
Congress needs to build on these reforms. As Medicaid’s fiscal challenges largely stem from financing structures that reward excessive spending, we urge the Committee to explore solutions that give states a greater stake in funding their Medicaid programs. Reducing the moral hazard created by excessive federal matching funds would encourage states to crack down more forcefully on waste, fraud, and abuse. We appreciate the Committee’s leadership on this issue and stand ready to assist in developing solutions that strengthen Medicaid’s long-term viability.
Sincerely,
Alexander Ciccone
Policy and Government Affairs Manager
National Taxpayers Union