April 4, 2011

Medicaid Needs Structural Surgery, Economist Says

Matthew D. Mitchell

Affiliated Senior Scholar

With states such as Arizona already grappling to fund Medicaid, it seems like the wrong time to put Medicaid cuts on the budget table. But many of Medicaid’s problems are structural and will not be solved even with more money, says Matt Mitchell, a research fellow at the Mercatus Center at George Mason University.

“Medicaid’s lack of flexibility is an enormous problem for the states,” Mitchell said. “The Federal dollars come with strings attached, such as not allowing states to cut back on eligibility. States can’t offer different types of plans for different types of circumstances and people. This drives up costs.”

The effect of these “strings” can be seen in Arizona’s current situation.

“Like all other states, Arizona has to maintain eligibility for everyone despite being financially in a crunch. This results in lower quality service, for example not covering organ transplants,” Mitchell said.

But such service is not popular, forcing states to find other ways to fill in the financial gaps. In Arizona’s case, the Governor has proposed charging annual fees to smokers, diabetics and obese people. 

“The Federal government shouldn’t hamstring the states because it forces them into perverse policies, such as cutting coverage of organ transplants. If Arizona were able to adjust its eligibility, the most needy people would be better taken care of,” Mitchell said.

Another enormous structural problem is the state and federal matching program, which encourages states to spend more than is sustainable, Mitchell said.

"Rather than matching what a state spends and encouraging them to support non cost-effective programs, the Federal government should give block grants. That would remove the incentive to spend more," Mitchell said.