Levy: Unsustainable growth will collapse Medicaid

By: Steve Levy

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Since the passage of the 2025 Reconciliation Bill, much debate has ensued as to whether the provisions of the act will result in significant damage to the Medicaid system. However, as our Center for Cost Effective Government study concludes, the case could be made that these reforms are a necessary component of actually saving the Medicaid system.

The trajectory of Medicaid growth is simply unsustainable. What started in 1965 as a safety net for those living in poverty has since expanded dramatically to the point where in some cities, such as New York, over half of all residents are on the Medicaid rolls.

Eligibility for Medicaid increased exponentially over the years. While one had to have an income at or under the poverty line in the early years, some states now allow eligibility for those making 200% above the poverty limit.

Medicaid was turned into something for which it was never intended when in the Obama administration, eligibility was significantly increased in order to drive down the uninsured throughout the nation. The effort proved successful in meeting that goal, but at a tremendous cost.

It was not so much the Affordable Care Act itself that led to more Americans being insured as it was the fact that more were being covered by allowing them on Medicaid via relaxed eligibility standards. The ACA even opened eligibility to single adults.

Private, employer-based insurance was still available, but government sponsored or subsidized insurance was rising significantly. Further easing of eligibility transpired during the pandemic of 2020 and the political shift that allowed undocumented individuals to join the Medicaid rolls through state funds, even where federal law prohibited federal monies going toward this coverage.

The reclassification of “illegal” immigrants” to “legal” as a result of asylum claims and parole under the Biden administration, as well as covering illegal immigrants for “Medicaid emergency” led to even more individuals stressing the system. Spending on emergency Medicaid has roughly tripled, from $207 million in fiscal 2013-14 to $639 million in fiscal 2023-24.

Coinciding with the influx of 5.8 million asylum seekers and immigration parolees, was the huge expansion of the Bad Debt and Charity pool that covers hospitals for the cost of  no-pays. These costs, in large part covering illegal immigrants, have soared by 32% since 2022.

Moreover, the work requirements for Welfare that came into being with the Clinton administration were dramatically relaxed in the Obama and Biden administrations, especially after COVID.

Many Americans were finding it easier to just stay home and stop looking for work since they were being given free medical care anyway. This has aided in the unfortunate statistic of there being 7 million able-bodied men with no dependents no longer looking for work. In December of 2022, 56% of able-bodied, working-age Medicaid beneficiaries without dependents worked less than 80 hours in that month.

Transfers from the government accounted for 8% of an individual’s income in 1970. It is 18% today.

Meanwhile, Medicaid funds have been paid out to residents simply staying at home with their elderly relatives. While this program cost New York State $300 million in 2016, it rose to $9.1 billion in 2023.

All of these changes dramatically increased the eligibility and cost related to Medicaid. The program expanded as follows:

1960s: Medicaid was enacted in 1965, with approximately 4 million enrolled, and costing under $1 billion by 1966.

1970s: It was then expanded to cover women and children on welfare, raising the cost to $13.1 billion.

1980s: States covered more people regardless of welfare status, $23 billion spent in 1980 rises to $52.5 billion by 1989.

1990s: Coverage is expanded through the CHIPs program, raising costs from $73 billion in 1990  to $190 billion by 1999.

2000s: Some states begin covering childless adults, $206.2 billion in 2000 grows to $373.9 billion in 2009, with 33 million people enrolled.

2010s: ACA dramatically increases eligibility, skyrocketing costs from $400.6 billion in 2010 to $613.5 billion in 2019.

2020s: COVID measures increase enrollment to 72 million people, increasing costs from $672.4 billion in 2020 to approximately $900 billion in 2024. Today’s figure represents an 87,000% increase, compared to a rise in inflation of 892% during that same time period.

A flurry of acts in the 1980s increased eligibility from 100% of the Federal Poverty Level (FPL) to 133%. The level rose further through the ACA and COVID, where now some states cover individuals earning over 200% of the FPL.

Under the ACA, the federal government incentivized states to grow their Medicaid rolls by promising to pick up 100% of the healthcare costs associated with the new enrollees in the first few years of the program.

The federal share dipped gradually to 90% by 2020 but has remained constant since. But with no skin in the game, states welcomed the burgeoning rolls with little incentive to eliminate fraud and inefficiencies.

One can try to place a spin on the recent Medicaid reforms as being an attack on the underprivileged, but it is clear from the statistics above that Medicaid is an ever-growing behemoth that must be reformed if we are to save it for those for whom it was originally intended.