Commentary

Katrina’s Medicaid Boondoggle

The aftermath of Hurricane Katrina seems to be providing Congress with an all-purpose excuse to increase federal spending. The latest example is a $9 billion Medicaid expansion proposed by Sens. Charles Grassley (R-IA) and Max Baucus (D-MT), purportedly to help states pay for the costs associated with uninsured evacuees in the wake of the disaster.

Congress has already authorized some $62 billion in hurricane-related aid to the affected states. That money could be used for health care costs if necessary. Yet the Grassley/Baucus bill would expand federal largess to some 29 states, including $78 million for Alaska, which seems a long way from the hurricane zone.

Many states are undoubtedly salivating at the prospect of more federal money. But, as with most federal money, there’s a catch. The new money would last for only about 5 months, after which states would be left holding the bag for thousands of new Medicaid recipients—that is, unless they convince Washington to keep the money flowing.

The real purpose of the Grassley/Baucus bill is not just to help states pay for health care, but to expand the Medicaid program dramatically. Indeed, many of the bill’s cheerleaders outside Congress, from former Clinton Health and Human Services Secretary Donna Shalala to New York Times columnist Paul Krugman, see this as a step toward national health insurance. The Left is still focused on that goal despite overwhelming evidence from other nations—and from within Medicaid itself—that government involvement leads to poor-quality medical care.

Medicaid is the last, best hope for these advocates of socialized medicine. Indeed, the program is designed to ensure that it will cover more and more of the American people over time. The federal government matches every dollar a state spends on Medicaid with as many as five additional dollars. That has encouraged state officials to keep expanding eligibility, because those officials only bear a small portion of the cost.

As Medicaid grows, it makes private medical care more expensive and even “crowds out” private health insurance. Employers of low-income workers often drop their coverage and push those workers onto the backs of taxpayers. Low-income workers frequently decline private insurance, opting instead for essentially free Medicaid coverage. Medicaid eligibility has expanded so much that there are many enrollees who could obtain private coverage on their own, but who now receive lower-quality care than they would have received with private coverage. Moreover, Medicaid creates a serious disincentive to work, save, and escape poverty.

Yet Grassley/Baucus would force states to expand eligibility even further. The new enrollees would be entitled to the full Medicaid benefits package, including services now considered optional, as well as additional new benefits such as broad mental health benefits. Under the bill, states would have to ask whether a would-be recipient has private coverage, but would not be required to do anything to help that worker retain it. Moreover, having private coverage would not disqualify a person from enrolling in Medicaid. In fact, Medicaid would become the default option for low-income workers.

In the type of back-room deal typical of Congress these days, the bill was drafted in secret without committee hearings and brought to the floor under procedures that would have prevented debate. Fortunately, this underhanded move was blocked by a small group of senators, including John McCain (R-AZ), John Ensign (R-NV), Tom Coburn (R-OK), and John Sununu (R-NH). The bill will now have to proceed through regular debate, but its sponsors—the chairman and ranking member of the powerful Senate Finance Committee—remain determined.

When it comes to high-quality, affordable medical care, Medicaid is the problem, not the solution. Republicans understood this 10 years ago when they tried to reform Medicaid the same way they (successfully) reformed welfare.

The picture is different today. Before Hurricane Katrina, Congress had planned to debate minor restraints on Medicaid’s spending growth. Now even those feeble attempts at fiscal responsibility have been abandoned.

Republicans are supposedly the party of limited government. If so, they need to rediscover their roots.

Michael Tanner and Michael F. Cannon are coauthors of Healthy Competition: What’s Holding Back Health Care and How to Free It (Cato Institute, 2005).