Medicaid & the Free-Market Movement

This weekend, something pretty important happened, at least with regard to how the free-market movement approaches Medicaid and medical care for the needy. 

Saturday was the final day of the State Policy Network’s 14th annual meeting in Milwaukee. The State Policy Network provides guidance to 48 state-focused free-market think tanks in 42 states. Part of the annual meeting was a panel on Medicaid, the joint federal-state program originally created to provide medical care to the truly needy. 

Of course, Medicaid has swelled well beyond that goal. The program now covers 52 million people even though there are only 36 million U.S. residents below the poverty line. Medicaid also destroys private markets for health insurance and medical care, and induces low-income Americans to become dependent on government. For example, policymakers universally acknowledge that a welfare check induces dependence on government. Yet average Medicaid benefits for the program’s least expensive enrollees (the non-elderly) are worth twice as much as the average welfare check. Moreover, there are 10 times as many people who receive Medicaid benefits.

For years, several market-oriented groups have advanced Medicaid reforms that, in the name of empowering Medicaid enrollees or improving their quality of care, would expand enrollment and make Medicaid’s problems even worse. Principally, the reforms involve introducing health savings accounts and vouchers into Medicaid. Those groups have fed the rest of the free-market movement a steady diet of those bad ideas, often with some success. A few states have even experimented with those reforms.

On Saturday, I sat on a panel with one of the leading advocates of those proposals. We each presented our side to an audience comprised of the leaders of dozens of state-focused think tanks. I think one audience member probably spoke for many in the room when he said he felt conflicted. My paraphrase: “Part of me wants to improve Medicaid, but that would increase enrollment. And part of me wants to blow it up, but that’s a tough sell politically.” 

He’s right. That is a tough political sell. But it would be substantially easier were the free-market movement to abandon the fool’s errand of trying to improve the program and instead educate the public about the full range of harms Medicaid causes:

  • A per-capita tax burden that is currently over $1,100 and growing
  • An annual deadweight economic loss of some $70 billion
  • Crowd-out of private efforts to provide medical care for the poor, including private insurance, private charity, and self-help
  • Increased dependence on government
  • Higher prices for private health coverage and medical care, which makes Medicaid dependence more likely
  • Lower-quality care than is provided through private markets
  • The indignity of states having to beg Washington for permission to spend their own money as they wish

(For what it’s worth, free-market think tanks should acknowledge that Medicaid does a lot of good: it provides medical care to many who desperately need it. Yet that fact will hardly carry the day, considering that researchers have difficulty finding where Medicaid has any positive overall effect on health.)

Only after we prepare the ground will we be able to achieve serious reform, which should emphasize three things: block grants, block grants, and block grants. Replacing Medicaid with a system of block grants was a component of the 1996 welfare reform law until President Clinton insisted on its removal. Nowadays, no politicians are talking about block-granting Medicaid, largely because free-market groups have abandoned the field. (Until we get block grants, state-level reforms will not make much difference, though free-market groups should oppose those that make Medicaid more attractive and support those that make it less attractive.)

In short, this emperor has no clothes. If the free-market movement does not carry that banner, no one will. 

This weekend’s SPN meeting should be the start of a debate within the movement over how to approach Medicaid. (More details on my approach can be found here.) Thanks to Tracie Sharp of SPN and Mary Katherine Stout of the Texas Public Policy Foundation for getting the ball rolling.