Why Many Republicans Think Shrinking Medicaid Will Make it Better

Note: This transcript has been created with a combination of machine ears and human eyes. There may be small differences between this document and the audio version, which is one of many reasons we encourage you to listen to the episode above!

Dan Gorenstein (DG): A new era in Washington has begun.

Clip: I Donlad John Trump do solemnly swear
Clip: The Republicans on the Hill with a united front on the first days of President Trump’s second term…
Clip: Everybody looking at each other saying, “We’re all heading in the right direction,” and then, it’s go!

DG: With Republicans holding slim majorities in Congress and Donald Trump entering office, the race is on for Republicans to move on their list of policy priorities, including Medicaid reform. 

Michael Cannon (MC): There has never been a time when the Medicaid program has worked well.

DG: Many conservatives believe the way to fix the public health insurance program that covers 80 million low-income and disabled Americans is to spend less and to have Medicaid cover fewer people.

Josh Archambault (JA): Every member of Congress should be asking questions on both sides of the aisle about, hey, we’re spending hundreds of billions of dollars. What are we getting for it?

DG: Today, as Republicans officially take control in Washington, we take a closer look at why conservatives think less Medicaid will mean better Medicaid.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein, this is Tradeoffs.

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DG: Republicans want to cut federal spending to fund their policy goals. And they’ve singled out Medicaid as a place to find a big chunk of money. We’re talking potentially cutting hundreds of billions of dollars over the next decade, and millions of Americans losing their Medicaid coverage. The stakes for this program right now are big.

To understand why many Republicans think the U.S. should cut Medicaid spending and cover fewer people, we’ve asked Tradeoffs producer Ryan Levi to talk with some of the country’s leading conservative experts on Medicaid. Hey, Ryan.

Ryan Levi (RL): Hey there, Dan.

DG: How many people did you end up talking with for this story, Ryan? 

RL: 13, Dan. Some of them are at think tanks, others worked on Medicaid in Congress or the White House, and several have run state Medicaid programs. Now, they certainly didn’t agree about everything.

DG: Of course not.

RL: But they did generally agree that a smaller Medicaid would be a better Medicaid. People talked about three big problems with the program over and over again, and that gave me at least a sense of why many conservatives want to take action here.

DG: Great. Where should we start? 

RL: First thing I heard a lot of skepticism that Medicaid coverage — basic insurance coverage — even helps people that much. 

JA: I’m not sure who with a straight face can look at the current status quo and say it’s working for everybody on Medicaid. It’s simply not.

RL: This is Josh Archambault. He’s a senior fellow at the conservative Cicero Institute. And the big idea here, Dan, from Josh and some of the other folks I talked to is that if Medicaid is supposed to help people be healthier it’s falling short. To make that point Josh brought up the Oregon Medicaid Experiment. 

Real quick background for folks who need it: In 2008, Oregon expanded its Medicaid program. And the state used a lottery to decide who was able to join, so researchers could follow the people who got on Medicaid and the people who didn’t to see what the difference was.

DG: Right and this is a big deal in the research world because this type of study is what’s called a randomized controlled trial, which is considered the most rigorous type of study around.

RL: Right, and this is so far the only randomized study of Medicaid and its impacts. And the researchers found that people on Medicaid were more likely to get preventive care, less likely to be depressed, less likely to get hit with big medical bills and reported being in better health.

DG: That is all very important stuff. 

RL: It is. But researchers also found no differences when it came to physical health. 

JA: The Oregon study found that those that were on Medicaid were no different in their health outcomes than if you were uninsured.

RL: Specifically we are talking about no improvement in cholesterol levels, blood pressure or regulating diabetes.

JA: I think that should raise some very big questions in our mind about the effectiveness of Medicaid.

RL: And again the context for all this is that taxpayers spent nearly $1 trillion on Medicaid in 2023. Just about everyone I talked to told me straight up — that’s too much money for insurance that’s not moving the needle on a person’s health. 

DG: Of course, different people draw different conclusions on what the Oregon study shows. Other experts say it demonstrates Medicaid works at least as an insurance product that protects people from financial harm. But beyond that, Ryan, as you know, there are many studies that show the benefits of Medicaid, including that it literally saves lives. What did folks like Josh make of that evidence?

RL: They said those studies were less rigorous than the Oregon experiment, so they put less weight in their findings.

JA: Almost all of the other studies that you see put out are self-reported, are not the same gold standard. And so the literature on this, I would say, is not strong. Now, to be fair, there are studies showing that private health insurance coverage doesn’t seem to always lead to better health outcomes. So this isn’t just an indictment on the Medicaid program. It’s an indictment on many parts of our health system, and that we are spending $4.5 trillion a year and not really focusing on the really meaningful health outcomes.

RL: Obviously, we’ve both talked to researchers and experts, Dan, who would disagree with this view. And some Republicans I talked to for this story — especially the folks who ran state Medicaid programs — think Medicaid absolutely helps people. But this was a common theme in my conversations, this deep skepticism that Medicaid is doing much to actually make people healthier.

RL: The second problem with Medicaid is probably the one I heard the most, and it’s about money. Specifically, many conservatives think the way that states get their Medicaid money is a disaster.

DG: Say more. 

RL: Well as you know, Dan, states and the federal government share the cost of Medicaid.

DG: Sure. For every dollar states pay for Medicaid, the feds cover something like anywhere from 50 to 90 cents of that dollar. 

RL: Right and poor states generally get more. And Tom Scully — who ran Medicaid for President George W. Bush — says with the feds picking up such a big part of the tab, states can go wild. 

Tom Scully (TS): It’s not your money. You’re spending federal tax dollars. So why not expand.

RL: Tom compared it to a kid with an allowance: If you give them $20 a week, they’re going to be a lot more thoughtful about how they spend it than if you just give them your credit card. Tom told me the basic issue here, Dan, is that states get more money by spending more money. So the incentive is for them to spend and even run what Tom and others called “money laundering schemes.”

DG: Wait, Ryan, did you just say money laundering schemes?

RL: Those are their words, not mine. But yes, and the prime example that folks pointed to are something called “provider taxes.”

Here’s how they work. Let’s say Massachusetts wants to increase Medicaid spending.

DG: By $1 million.

RL: Sure, by $1 million, why not. To come up with its share — $500,000 — the state of Massachusetts increases taxes on hospitals and nursing homes.

DG: And the other $500,000 comes from the feds because Washington must match half or more of what states put up.

RL: Bingo. Now, the reason why people like Tom Scully call it money laundering is because states often return those tax dollars right back to the hospitals and nursing homes in the form of higher reimbursement rates.

DG: I see. So the providers don’t really take a hit or maybe they even make some money. The state spends no “new” money out of its own budget but does get this infusion of cash from D.C.

RL: Right. Now to be clear, this is all completely legal, and it can be particularly useful during tough economic times when other state funds are harder to come by. But from Tom’s perspective, this is a clear example of how states are encouraged to spend more and more and more.

TS: This is the problem in Medicaid and everything else pales.

RL: Tom has been trying to get at these provider taxes since the ‘80s when he was working for the first President Bush. He told me this great story, Dan, about giving a speech to a bunch of Republican governors about how terrible and fiscally irresponsible provider taxes were.

TS: I sit down next to the governor of Nebraska, and she says, “This is wild. I’m going to fire my Medicaid director.” And I said, “Great, I’m glad you feel it’s outrageous.” She said, “No, I think it’s outrageous I’m not doing this. We’re not doing any of this. I’m not I’m not getting my share. I’m going to fire my Medicaid director. I want my piece.”

DG: That’s an incredible story. But the flip side of this of course is that if states lose that federal support, they’d have to find other ways to get the money. Or more likely shrink their programs — cover fewer services and fewer people.

RL: Absolutely. The bottom line on this point, Dan, is that many conservatives think it’s too easy for states to drive Medicaid spending up and up and up and that a lot of that money is not actually leading to better care.

DG: Okay, just let’s just review here: Problem 1 for conservatives is they feel Medicaid coverage absent more clear physical health benefits offers individuals on the program and taxpayers low-value. And problem 2 is that the federal government is handing states a kind of blank check, uncapped benefits … plus states have incentives to grow their programs leading to a lot of bloat.

So what’s the third problem, Ryan?

RL: Problem number 3 is that many conservatives believe that a bunch of people on Medicaid can get health insurance somewhere else. 

MC: Medicaid is forcing taxpayers to pay for things that people could provide for themselves. 

RL: Michael Cannon is the health policy director for the libertarian Cato Institute. And health economists generally agree, Dan, that some people on Medicaid could get coverage through work or the Obamacare exchanges. But exactly how many is less clear. Some studies say as little as 1 to 2 percent, while another study I found suggested nearly half of people covered by the Obamacare Medicaid expansion, some 6.5 million people in its first few years, had other coverage options.

DG: So when Michael thinks about cutting Medicaid and people losing their coverage, he’s like, well, at least some of them will likely get health insurance on their own and taxpayers importantly would be on the hook for less.

RL: Exactly. And several people told me having fewer people on Medicaid would make it easier for people who have no other option to get in to see their doctors. Now, many studies show expanding Medicaid actually improved access to care for low-income people. The folks I talked to pointed to a handful of other papers showing people on Medicaid had to wait longer to get appointments, that ambulances took longer to respond to medical emergencies, and that spending on kids and seniors grew more slowly than they did in non-expansion states. And that’s what worries them.

DG: When we come back, Ryan walks us through some of the plans Republicans have proposed to shrink Medicaid and why they could fail even with full GOP control in Washington.

Midroll

DG: Welcome back. 

With Republicans taking control in Washington this week, we asked Tradeoffs producer Ryan Levi to help explain the GOP’s views on Medicaid reform — namely why they believe that cutting Medicaid will improve the program. Ryan talked with 13 conservative Medicaid experts, and a quick review of the problems they outlined. First, critics point to one of the most important health policy papers this century that finds Medicaid does not improve people’s physical health. Second, states are incentivized to spend more, not less. And, finally, there are people on Medicaid who could afford health insurance on their own.

Okay, Ryan, let’s go to solutions. What does a smaller Medicaid look like and how is that a better Medicaid in the minds of the people you talked to?

RL: Well, there are lots of different ideas out there, Dan. And what I want to do is walk you through at a high level a few of the most common ones I heard about. 

DG: Sounds good, let’s do it.

RL: Excellent. So as we talked about earlier, many Republicans want to limit how much states can get from the federal government. So most plans involve changing the current system where Washington covers 50-90 percent of every dollar states spend. One option would be to lower the top end of that range. Right now, the federal government pays 90 cents on the dollar only for people on Medicaid thanks to the Obamacare expansion.

DG: And that’s again mostly low-income adults — people who make up to $45,000 in a family of 4 — as opposed to people who have always been eligible: low-income kids, pregnant moms, people with disabilities and seniors.

RL: Exactly. So under this plan or versions of it, the federal share for that low-income adult group would get smaller and smaller over about a decade until the feds were sending states the same percentage for everyone on Medicaid.

DG: And I’m sorry I keep interrupting, but I want to make sure I’m tracking. So Washington would be spending less, and I’m guessing many states would respond by restricting eligibility, forcing many of these low-income adults out of the program.

RL: That’s what a lot of people assume. In fact, at least 9 states, Dan, have so-called trigger laws that would quickly get rid of their Medicaid expansions if something like this plan passed … though states could obviously change those laws.

Another common Republican idea is what’s known as a per enrollee or per capita cap. For these, the federal government would set a cap or a ceiling on how much they send states for each person on Medicaid. 

DG: Instead of what they do now, which is match however much the state spends on that person.

RL: Correct. Or some Republicans favor what’s known as a block grant.

DG: Yes, block grants. This is an idea that’s been kicking around for decades. The federal government would give states a lump sum of money each year for their entire Medicaid programs, and it would be up to the states to figure out the best way to spend it.

RL: You’ve heard this one before I take it.

DG: I have, oh yes.

RL: The last idea I heard about a lot in my conversations, Dan, was limiting or banning those provider taxes I told you about.

DG: Right, no more “money laundering.”

RL: Again, not my words, just quoting people. But yeah, making it harder for states to fund their programs by taxing providers. All of these ideas would drastically reduce federal spending on Medicaid, and they could cause millions of people to become uninsured.

DG: So that’s how Republicans could make Medicaid smaller: stopping states from using provider taxes, cutting how much Washington pays for Medicaid expansion, or setting caps on how much the feds will send states for each person or the program as a whole.

I want to go back to the question we started the show with: Why do they think that is a good idea? What are the upsides to making these kinds of cuts?

RL: I think it’s two things, Dan, based on what folks told me. One is about money. The less money we spend on Medicaid, the less we’re adding to our national debt, and the more states have to spend on other things like schools, roads and public safety.

The second thing that people told me was that this “belt-tightening” will force states to make their Medicaid programs better.

DG: Look, Ryan, I understand the “spending less so you can spend more on another” thing. That’s a common refrain out there. But I think for a lot of people, it’s hard to get your head around this “shrinking the program would actually make it better.” How do these folks think that would go?

RL: Everyone I talked to, Dan, said the goal of Medicaid should be to make people healthier, but — and this is important — only the people who have no other way to get health insurance. Many of these conservatives said the best way to do that is to put states on a budget. They think giving states a smaller, fixed amount of money will motivate them to figure out the best way to help the people who they believe need it the most.

Obviously there are plenty of folks who would disagree with that philosophy, but that’s the argument for why a smaller Medicaid would be a better Medicaid.

DG: We’ve heard a lot from Washington and think tank types, so far. But, Ryan, you also talked to some former Republican state Medicaid directors. Are they on board that less federal funding will lead to better outcomes?

RL: Yes and no. One person I talked to was Liz Matney. She ran Iowa’s Medicaid program from 2021 to 2024.

Liz Matney (LM): I think Medicaid certainly is spending money in the wrong way in some places. I believe that it’s overspending in others. That said, I think that there are other spaces where Medicaid is under spending.

RL: One of the things state leaders like Liz like is that proposals to cap federal funding often come with the promise that states can have more flexibility in how they run their programs. So they could test different approaches like requiring some people to work or volunteer in order to be on Medicaid or trying out innovative treatments.

But Barbara Sears Roshon, who ran Ohio’s Medicaid program from 2016 to 2018, says there would be real consequences if Washington is just focused on cutting costs.

Barbara Sears Roshon (BSR): There are states that will just absolutely crumble under the weight of their Medicaid programs if that happens. 100% crumble.

RL: Barbara says states are incredibly reliant on federal funding to make their Medicaid programs work. And if a bunch of that goes away all of a sudden, they’d have to cut back. She worries especially about older Americans and those with disabilities who account for most of Medicaid spending.

BSR: Those are the populations that get hit. If I run out of block grant dollars, I’m not going to cut back on my smallest program. I’m going to cut back on my biggest program. 

DG: I mean that’s the tradeoff at the center of all this, right? If the federal government sends states less money for Medicaid, fewer people will be on Medicaid. We talked about the upsides to these proposals a minute ago. This is the downside. What did the folks you talked to say about the people who could lose their coverage under these proposals?

RL: A few like Barbara said there are clear risks here: people losing access to care, people getting hit with big medical bills if they get sick. But honestly, Dan, a lot of folks I talked to told me at least they are okay with millions of people losing Medicaid. 

As I’ve said, they think some of those people will find other coverage. For the people who end up uninsured, they say Medicaid does little to improve people’s physical health, pointing again to studies like the Oregon Medicaid Experiment.

Brian Blase told me if states disagree, they can pay to keep people covered. 

Brian Blase (BB): States will have to make decisions. States will have to engage in tradeoffs. 

RL: Brian worked as a top health policy advisor during the first Trump administration and now leads the conservative Paragon Health Institute.

BB: We want states to have programs that provide value.

RL: The bottom line for people like Brian is that Medicaid has gotten too big, they don’t think it’s delivering value, and they say it’s policymakers’ job to make tough choices about the best way to spend limited tax dollars.

DG: It’s still too early to know which of these ideas or others might gain traction in Congress or the administration. How confident, Ryan, are people that there will be some kind of Medicaid cuts in 2025?

RL: Not confident at all, Dan. The politics around this are just really tough. Democrats are unlikely to support any Medicaid cuts. Hospitals hate them because Medicaid payments help keep the lights on. And as we’ve talked about, many Republicans have problems with these proposals too. 

TS: It’s very easy to propose these fixes. It is very hard to get them passed.

RL: Again, this is Tom Scully.

TS: Something should have been done to fix this 40 years ago when I started trying. And 30 years ago and 20 years ago and 10 years ago. But it’s never happened because the local state politics are too brutal and it’s too complicated and people back off and surrender. It’s just not going to happen.

RL: Now, the Trump administration could make changes without Congress. They could encourage states to apply for waivers to turn their programs into block grants or add work requirements. But that will have far less impact than Congress changing the fundamental shape of Medicaid.

DG: Tradeoffs producer Ryan Levi, I know you will continue to follow this closely as the year goes on. Thanks for your reporting on this.

RL: Thank you, Dan.

DG: I’m Dan Gorenstein, this is Tradeoffs.