February 13, 2012

The Political Economy of Medicaid Reform

Evidence from Five Reforming States
  • Scott Beaulier

    Academic Dean, College of Business at North Dakota State University
  • Brandon Pizzola

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In this paper, we look at the recent growth in Medicaid spending and attempt to explain Medicaid reform successes and failures by focusing on five reform experiences. Careful case study analysis will advance our understanding of best practices in Medicaid reform. Even though many states have introduced reforms over the last 10 years, combined federal and state Medicaid expenditures have grown from 2.0 percent of gross domestic product (GDP) in 2000 to 2.7 percent of GDP in 2007.

When we look past the rhetoric of cost savings and the so-called introduction of market principles into state Medicaid plans, the reality is that few reforms have succeeded at simultaneously (1) reducing costs, (2) maintaining or increasing access to health care, and (3) surviving the politics of reform. Some reforms that promise to reduce costs are dead ideas politically; others that are politically popular simply drive up costs. Successful reforms that provide a combination of cost reduction and maintained or increased access are hard to find, and as a result, the easier path has been to increase Medicaid expenditures over time.