Medicaid Takes From Poor States And Gives To The Rich

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NCPA Study Suggests Block Grants Would Allow State Reforms

DALLAS (September 28, 2006) – Medicaid takes money from poor states and gives them to rich ones, according to new study by the National Center for Policy Analysis (NCPA).  The study notes that some relatively well-off states get significantly more from the federal government than they should and other states notably less.

"Medicaid often acts like Robin Hood in reverse," said Michael Bond, NCPA senior fellow and co-author of the study.  "All too often it takes from the poor and gives to the rich." 

Using the percentage of the nation's poor that live in each state as an indication of need, many states receive far more Medicaid dollars than they need; others get far less.  For example:

  • New York has 8 percent of the nation's poverty population, but gets 12.9 percent of all federal Medicaid dollars.
  • By contrast, Texas has 10.3 percent of the nation's poor, but receives only 6 percent of federal Medicaid dollars.
  • In 2004, New York received more than twice as much funding per poverty person as Alabama — $8,248 compared to $3,550.

Since there is no limit on the number of state dollars the federal government will match, states that spend more receive more federal dollars.  This has provided states with a perverse incentive to spend money wastefully.  For example:

  • In Colorado, Michigan and many other states Medicaid has paid for services to dead beneficiaries.
  • Many states underpay physicians and overpay hospitals, encouraging more expensive hospital-based treatment.
  • Many states pay premium prices for brand-name drugs even though lower-cost generic and over-the-counter medications may be just as effective.
  • All too often Medicaid expansion encourages people to drop private health insurance and get their health care at taxpayer expense.

The study says Congress should distribute federal funds in block grants based on each state's poverty distribution and allow the states full discretion over their use, provided they are spent on indigent health care. 

"States would have radically different incentives," said Devon Herrick, NCPA senior fellow and co-author of the study.  "They would realize the full benefit of every dollar saved and pay the full cost of every dollar wasted."