Medicaid deserves to be 'cherished and loved' --- and reformed

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President Donald Trump recently said that his administration will "cherish and love" Medicaid. He's right. Medicaid provides critical health care services to millions of low-income Americans.

But when such a program has nearly 80 million enrollees and costs taxpayers nearly $1 trillion, some scrutiny is warranted.

The Health and Human Services Office of the Inspector General and the Government Accountability Office have repeatedly warned that Medicaid needs greater oversight, accountability, and transparency.

Just because it serves low-income individuals doesn't mean that it shouldn't have proper oversight and regular review. If anything, Medicaid merits additional review to improve its integrity and ensure it serves those who need it most. Medicaid advocates should applaud efforts to bring greater oversight, accountability and transparency to the program.

To this end, several reforms should be considered.

First, the federal government needs to end state financing gimmicks and loopholes.

Medicaid is a jointly financed program — both federal government and state governments share in funding it. To meet their share of the costs, states have developed clever financing arrangements to maximize the federal Medicaid contribution while minimizing state financial exposure.

For example, some states raise their share of the costs by imposing a special tax on Medicaid providers. The state then pays back those providers through reimbursements via Medicaid.

Similar tactics to manipulate federal financing arrangements also appear elsewhere in the program. These should come to an end.

Second, eligibility rules should be enforced and strengthened.

During COVID, states received additional federal funding to help offset the costs of new enrollees who lost their jobs and incomes. However, this funding was conditioned on the agreement that states wouldn't remove enrollees even if they no longer qualified for benefits. As a result, Medicaid enrollment reached 95 million in 2023.

While the enhanced federal funding has ended and normal state eligibility determinations have been restored, there are still almost 10 million more individuals on Medicaid than there were before COVID — and spending continues to rise.

There should be stronger requirements in place to ensure that ineligible individuals aren't enrolled.

Third, federal funding should be amended so that it doesn't advantage one enrollee group over another.

The Affordable Care Act radically increased the federal match rate to entice states to expand eligibility to a new category of individuals: able-bodied, childless adults. This created a perverse incentive for the states to prioritize the new population over traditional populations like pregnant women, children, the elderly, and disabled individuals.

Between 2013 and 2021, almost 20 million newly eligible able-bodied adults were added to Medicaid. During that same period, the number of children increased by 2.5 million, the number of elderly enrollees increased by 1.2 million, and the number of disabled enrollees declined by 400,000.

This disproportionate increase in able-bodied adults suggests a serious misalignment of financial incentives —one that requires immediate correction. It's time to level the playing field and align the match rate for the new group with that for traditional groups.

Fourth, as with other welfare programs, states should be able to condition enrollment of able-bodied people on whether they're working or looking for work.

Work is key to financial security, upward mobility, prosperity and overall well-being. Recognizing that, the first Trump administration launched an initiative to engage able-bodied Medicaid enrollees in work. This model had been (and was being) adopted by numerous states —that is, until the Biden administration took the unprecedented action of repealing those agreements.

The second Trump administration should revive and expand these agreements to further incentivize work.

Fifth, the federal government should offer states new partnership opportunities to test alternative financing reforms.

Too often, the mere mention of change to the financing of the program elicits panic and confusion. Yet, today's unlimited, open-ended financing of Medicaid does not create fiscal certainty for the state or federal budgets. To help inform potential remedies, a new initiative should be launched to solicit states to work in conjunction with the federal government to develop and test new financing arrangements.

Finally, Medicaid should be altered to allow enrollees to choose the care that is best for them and their families.

Unfortunately, the program has fallen short when it comes to performance and quality. But that shouldn't prevent enrollees from obtaining the best care possible for themselves and their loved ones.

The government should adapt Medicaid to allow families the option of using program funds to purchase coverage, care and services outside the traditional Medicaid-run regime (similar to options given to parents under school choice).

The Trump administration recognizes that Medicaid offers critical care and services to millions of low-income Americans. The suggested reforms shouldn't lead to panic and consternation. Rather, they should be seen as a way to make the program stronger and better equipped to serve the communities that need it most.

Nina Owcharenko Schaefer is the Director of The Heritage Foundation's Center for Health and Welfare Policy.