Medicaid is under the spotlight now as Congress considers legislation to lower the cost of this entitlement program. I’ve written a lot about Medicaid recently, so if you’re a regular follower of this blog you’re familiar with the problem. The problem is out of control Medicaid spending.

My television is regularly showing advertisements calling on people to tell Congress not to cut Medicaid. President Trump and House Speaker Mike Johnson have repeatedly said they have no plans to cut Medicaid benefits to anyone who is eligible. They only intend to curb the excessive waste, fraud, and abuse that has driven the cost of Medicaid beyond Defense spending to $894 Billion a year in 2024.The following graphic shows how Medicaid spending has skyrocketed in the last 10 years:

How much waste, fraud, and abuse happens in Medicaid?

Lawrence Wilson, writing in The Epoch Times, tells us The Government Accountability Office has estimated that the federal government may lose between $233 billion and $521 billion annually to fraud. Based on data provided by that office, it appears that less than 3 percent of the estimated total of fraudulent payments are proven by a judicial verdict. Much of it appears to go undetected.

Yet fraud does exist in the Medicaid system. One state lost an estimated $2 billion to Medicaid fraud over the past five years, a staff member in that state’s attorney general’s office told The Epoch Times. The Department of Health and Human Services reported that more than $31 billion in Medicaid payments were made improperly in 2024 alone.

Of those, nearly $5 billion was paid for medical services for patients who were not eligible for Medicaid, and more than $10 billion was paid for claims for which no eligibility information was provided. Medicaid Fraud Control Units recovered $1.2 billion in 2023, which was more than three times the amount spent on fraud enforcement efforts, according to the Office of Inspector General. Investigators said they could eliminate more fraud if more funding for enforcement activities were available.

How do we eliminate the waste, fraud, and abuse?

Dr. Mehmet Oz, administrator of the Centers for Medicare and Medicaid Services, told senators during his confirmation hearing that he would improve Medicaid’s efficiency. Oz referred to ideas for using artificial intelligence to make prior authorization decisions for medical procedures more quickly and with less physician interaction and for using communications technology to allow nurses to provide remote support to rural nursing home staff members.

A frequently raised suggestion for reducing federal Medicaid spending involves lowering or eliminating the taxes some states levy on medical providers. These provider taxes, used by every state but Alaska, help fund states’ Medicaid expenses. The taxes are generally returned to the providers through increased payments for Medicaid services.

However, the increased payments to Medicaid providers then increased the federal reimbursement received by the state. The arrangement effectively shifts more of the financial burden of Medicaid to the federal government.

The Congressional Budget Office, which provides nonpartisan financial assessments to Congress, estimated that eliminating the provider tax would reduce the federal deficit by $612 billion over 10 years, and limiting the tax rate to 5 percent would reduce the deficit by as much as $241 billion. Others have suggested that setting a per capita cap on the amount the federal government would reimburse states for Medicaid. Altering the provider tax or setting a per capita cap on reimbursement would save federal dollars but would almost certainly increase the cost of Medicaid to the states.

There are also a significant number of people who are receiving Medicaid benefits who are ineligible, according to the expanded eligibility regulations stipulated in the original ObamaCare legislation. The upper limit of eligibility was set at 133% of the Federal Poverty Level (FPL), which amounts to about $22,000 a year for an individual and about $42,000 for a family of four. Forty states and the District of Columbia have chosen to provide this expanded coverage.

But many people who do not qualify for Medicaid based on these regulations are nevertheless on the Medicaid rolls due to the emergency provisions of the Covid pandemic extended several times since by the Biden administration. As a result Medicaid enrollment grew to a high of 94.6 million in April 2023, when states were required to maintain the “continuous enrollment” of nearly all Medicaid beneficiaries regardless of their eligibility status. Under the Families First Coronavirus Response Act of 2020, Medicaid coverage could not be discontinued unless the enrollee requested it, moved out of state, or died.

That provision expired in March 2023, but because of the large backlog of eligibility recertifications to be processed, states have had some flexibility in winding down their continuous enrollment. The deadline for all states to comply with Medicaid and CHIP eligibility requirements is Dec. 31, 2026.

Cleaning up this backlog of ineligible enrollees should go a long way toward reducing the extreme cost of Medicaid.

President Biden instituted drug price controls in 2022 as a part of the Inflation Reduction Act. This legislation required pharmaceutical companies to accept fixed prices on ten drugs named by the federal government that are covered by government healthcare programs such as Medicare and Medicaid. If the drug companies didn’t accept the prices, they couldn’t sell the drugs to these programs.

This legislation by Biden has been referred to as the “Biden Pill Penalty” because its unintended consequence is to inhibit new drug research and innovation. I wrote about this in an earlier post called Biden’s Pill Penalty.

Now, President Trump is addressing concerns about rising drug prices with an executive order of his own. This order establishes a “most-favored nation” policy which stipulates that the federal government will only pay the same price here in the U.S. as charged by pharmaceutical companies in other “favored nations” for drugs covered by Medicare and Medicaid. In other words, he wants America to start paying the same price for drugs as other countries in Europe.

For decades, America has carried the burden of paying higher prices for drugs here than pharmaceutical companies charge in other countries. Price controls are common in Europe so drug companies make up the loss by charging Americans more.  As the economic leader in the world, America has been expected to pay more while others pay less. This means America has been subsidizing the cost of drugs in other countries.

How is this different from Biden’s Pill Penalty?

Trump is not arbitrarily setting the price of the drugs. His order simply forces the drug companies to level the playing field; charging the U.S. no more than they are charging the most expensive prices of other similar economic nations. That means the drug companies will probably have to raise prices on the other nations to avoid losing money. If they do that without a significant impact on their profits, then new drug innovation should not suffer. However, if raising prices in other nations leads to lower profits, then new drug innovation will be impacted.

Some say this is just price controls by a different method. Tevi Troy, writing in The Wall Street Journal, believes the impact of Trump’s order will be as bad as Biden’s Pill Penalty. Troy says, “Americans are understandably frustrated about high prices. But the alternative to expensive new products is a slowdown in biomedical innovation. At a time when artificial intelligence, informatics and the unlocking of the human genome could generate tremendous advances in life-changing pharmaceutical products, it’s a dangerous time to alienate the industry that brings those products to fruition.”

Perhaps he is right. Trump is understandably outraged at the way Americans have been treated by the drug companies. He said the U.S. is being “ripped off compared to the rest of the world.” This is consistent with his views of tariffs being charged by other countries for products made in America.

The question is how much more will other countries be willing to pay to purchase their drugs and will that be enough to sustain new drug research? It looks like we’re going to find out soon.

Medicaid has become the latest political football to be kicked around. The liberal media is complicit in promulgating the lie that Republicans are out to take Medicaid away from poor people with starving babies. These scare tactics obfuscate the truth, which is exactly what Democrats want to achieve.

They are responsible for expanding Medicaid far beyond its original intention and even farther beyond what Congress approved when the Democrats passed the Affordable Care Act (ObamaCare) in 2010. I have written about this in recent posts including Medicaid Costs Out of Control – Parts I, II, and III.

It’s time to reform Medicaid to rein in the spending which has driven the cost of Medicaid to nearly $900 Billion, outpacing even defense spending. But reforming Medicaid will not be for the timid. It will require determination and a willingness to fight back against the lies that will be told and the fake atrocities that will be prophesied.

Paul Winfree and Brian Blasé, writing in The Wall Street Journal, tell us there’s a lot at stake. They say, “Congress has an opportunity to reform Medicaid, the nation’s third-largest, and most flawed, entitlement program. Done right, reform could protect the vulnerable, promote private coverage and save hundreds of billions of dollars. Done wrong, it won’t reduce federal spending and will hurt Republicans at the ballot box by making more voters dependent on government welfare.”

They tell us Medicaid’s financing is fundamentally broken. Because of ObamaCare, the federal government pays $9 for every $1 of state spending on able-bodied working-age adults, compared with roughly $1.33 for pregnant women and disabled children. That incentive pushes states to favor healthy adults over the vulnerable in enrollment and access to providers and better services.

States also use mechanisms such as the Medicaid provider tax to distort federal-state fiscal responsibility. States tax hospitals and insurers, then use that revenue to increase Medicaid payments back to the same entities. These inflated payments trigger higher federal matching funds. The result: States recycle money through the system and extract substantial federal money with little real state contribution.

Medicaid isn’t merely a federal health program. It’s also a political machine. Studies show Medicaid enrollment boosts voter turnout, especially in Democratic areas. Enrolling in Medicaid traps recipients in a welfare program, links them to nonprofits offering voter registration, and places them squarely in the sights of campaigns’ get-out-the-vote efforts. Leftists are so reliant on welfare spending for electoral success that they oppose policies that lift people out of poverty. Expanding Medicaid using federal funds—even to noncitizens through creative financing—can have significant political consequences that Republicans shouldn’t underestimate.

The authors say Congressional Republicans should tackle the core reasons for Medicaid’s growth. They should start by eliminating Medicaid’s discrimination against the most vulnerable and lowering ObamaCare’s 90% reimbursement rate for able-bodied adults. Then they should follow Joe Biden’s advice and eliminate the Medicaid provider-tax scam. These reforms would generate significant savings that could be redirected to vulnerable patients or rural providers.

They say if Congress doesn’t enact these structural reforms, the Medicaid-industrial complex will collude with the states for richer payments funded through higher debt, inflation and taxes. In some states, Medicaid payments to hospitals now approach or exceed twice the Medicare rate, which could threaten seniors’ care. And without reform, states will continue to prioritize healthy working-age adults ahead of children and the disabled. Meanwhile, Republicans will have missed an opportunity to restore Medicaid’s core mission: providing a safety net for the vulnerable, not corporate welfare for the healthcare industry.

The authors say, “Republicans who ran on reining in Washington’s excesses and defending the needy shouldn’t preserve Medicaid’s financing inequities and money-laundering schemes. Fix the incentives now or watch federal spending—and Democratic turnout—soar on the back of a program conservatives failed to reform when they had the chance.”

This explains why Democrats are howling so much about any proposed cuts to Medicaid spending. They’re not worried about the poor needing healthcare as much as they are worried about the impact on Democratic voter turnout.