A body of
Introduction
and more flexible program for such children.
Each state receives federal funds in propor-
literature
tion to what it spends. The more a state
There is only one difference between a bad
supports the view
spends on its Medicaid program, the more it
economist and a good one: the bad economist
that Medicaid
receives from the federal government. The
confines himself to the visible effect; the good
ratio of federal to state contributions, or
economist takes into account both the effect
actually
"match," changes from state to state and is
that can be seen and those effects that must be
exacerbates the
determined according to a state's relative
foreseen.
wealth. Relatively high-income states receive a
problems of
dollar-for-dollar federal match. Some poorer
Frédéric Bastiat
poverty and the
states receive as many as three federal dollars
That Which Is Seen, and That Which Is Not
lack of affordable
for each dollar they put forward.2 On average,
Seen (1850)
57 percent of Medicaid funding comes
medical care.
Medicaid is the largest means-tested govern-
through the federal government, and 43 per-
ment program in the United States. Enacted in
cent comes through states.
1965, it provides medical care to tens of mil-
For beneficiaries, Medicaid is an entitle-
lions of low-income Americans. Supporters
ment. As long as an individual meets the eli-
praise the program for making essential care
gibility criteria, he or she has a legally
available to those who otherwise could not
enforceable right to benefits. Medicaid typi-
afford it. Many argue that millions more
cally offers services to beneficiaries free of
charge.3 The program primarily serves four
Americans find health insurance unaffordable
and therefore should be brought under
low-income groups: mothers and their chil-
Medicaid's umbrella. However, a body of litera-
dren, the disabled, the elderly, and those
ture supports the opposite view: that Medicaid
needing long-term care. In 2004 Medicaid
actually exacerbates the problems of poverty
subsidized health care for more than 50 mil-
and the lack of affordable medical care. Current
lion Americans. They included some 38 mil-
public policy debates lack a robust examination
lion low-income children and their parents
of the unseen costs of Medicaid.
and 12 million elderly and disabled benefi-
ciaries. In addition to benefits provided to
those enrolled in the program, Medicaid's
Program Features
disproportionate share hospital (DSH) pro-
gram provides added federal funding to hos-
pitals that treat a disproportionate share of
Medicaid subsidizes health care for low-
uninsured patients.
income Americans. The federal government
Although the vast majority of Medicaid
and state and territorial governments jointly
beneficiaries are low-income children and their
administer Medicaid--or more precisely, 56
separate Medicaid programs.1 Although par-
families, the vast majority of Medicaid spending
goes for the elderly and disabled, who use far
ticipation is ostensibly voluntary for states,
more care than their younger counterparts. In
all states participate.
2002 Medicaid spent $1,475 per covered child,
Each state's Medicaid program must pro-
compared to an average of $11,468 per dis-
vide a federally defined set of benefits to a fed-
abled beneficiary and $12,764 per elderly ben-
erally defined population of eligible individu-
eficiary. The elderly and disabled account for
als. States can expand eligibility and benefits
about 70 percent of Medicaid spending.
beyond the minimum federal requirements. In
Medicaid provides supplemental subsidies for
1997 the federal government created the State
approximately six million Medicare beneficia-
Children's Health Insurance Program, which
ries, who account for 40 percent of Medicaid
allows states either to expand their Medicaid
spending. Medicaid finances nearly half of all
programs to include children in families with
nursing home care in the United States.4
slightly higher incomes or to enact a parallel
2