Trump's Medicaid 'Cuts' Actually Increase Federal Spending

Under Trump's budget, Medicaid spending would reach the highest level in U.S. history.

Last week, President Trump proposed massive spending increases for Medicaid.

Of course, most of the media didn't report it that way. They reported that the president's proposal "slashes spending." That he wants to cut "at least $610 billion" from Medicaid. That "Trump's Budget Cuts Deeply Into Medicaid." And so on.

That might be vaguely true in the Washington sense. It's not at all true in the real-world sense.

Here's the difference.

If you look at the actual White House budget proposal, you'll note that it includes tables for "baseline" spending and "proposed" spending. Baseline spending is spending that would occur if nothing changes—if Congress doesn't order any new aircraft carriers, and America doesn't start any new wars. If entitlement eligibility rules remain the same, and expected benefits for each recipient neither shrink nor grow. Things like that. Make some minor adjustments for inflation and population growth and, barring some unforeseen windfall or cataclysm, you can project how much a program will cost in future years.

The baseline spending curve for Medicaid points upward. In 2017, the program is expected to cost roughly $378 billion. A decade from now, the baseline spending for Medicaid rises to $688 billion—an 82 percent increase in nominal dollars.

Trump's proposed spending for Medicaid points upward, too—just not as sharply.

Under his budget proposal, Medicaid spending would rise from $378 billion this year to $524 billion in 2027. That's a 38 percent nominal increase.

True, inflation will reduce the effective size of either increase to some extent. And population growth could increase demand for Medicaid and other social programs, although population growth in the U.S. is the slowest it's been in nearly a century.

Either way, the Medicaid budget is going to grow. But under Trump's proposal, it would grow more slowly. This is how Democrats and the media can scream about supposedly savage "cuts" to the program.

The same goes for Medicare. Under the current baseline, Medicare would grow from $593 billion to $1.19 trillion. Under the Trump budget, it would grow to only (!) $1.16 trillion.

Or take non-defense discretionary programs. Those are the expenditures for just about everything else the federal government does, from environmental protection to bridge construction. Unlike entitlement programs, whose spending is formula-driven (until Congress changes the formulas, anyway) spending on discretionary programs is set each year by the appropriations process.

The growth of entitlement spending has squeezed discretionary spending mercilessly. In 1965, so-called mandatory spending consumed just under 27 percent of the federal budget. Discretionary spending got 65.8 percent, and interest on the debt made up the rest. Today, the spending figures have almost reversed. Mandatory spending makes up almost two-thirds of the federal budget and discretionary spending less than 32 percent.

If current trends continue, by 2044 Medicare, Medicaid, Social Security, and interest on the debt will consume 100 percent of federal revenue. Everything else will be financed with debt—and debt will reach 150 percent of GDP. That's roughly where Greece stood five years ago.

Discretionary spending falls into two buckets: defense and non-defense. In 1965, defense made up 43 percent of the federal budget. Now it makes up only about 16 percent. Don't let that fool you into thinking defense spending has shrunk, though. In 1980, Pentagon spending stood at $143 billion. Adjusted for inflation, that's $446 billion in today's dollars. Baseline defense spending for next year is $600 billion.

Under the current baseline, non-defense discretionary spending is going to grow, too. Over the next decade, it is slated to rise from $624 billion to $739 billion. Under Trump's proposed budget, though, it would shrink to $429 billion. Now that's an actual, honest-to-God budget cut.

So far we have been talking about what will happen, or what might happen. We still haven't reached the question of what should happen.

For instance: Should we want more people going on Medicaid? As Shikha Dalmia laid out in brutal detail back in February, Medicaid is "arguably the civilized world's worst health insurance program." It costs roughly $7,000 per recipient, and people with Medicaid often have health outcomes no better than people who have no health coverage at all. One third of doctors no longer will accept new Medicaid patients—and the system's costs continue to soar.

Yet even if we assume, contrary to evidence, that Medicaid is a wonderful program, we still might question whether we want enrollment to rise. Once upon a time, people generally thought relying for support on the government—on the sweat and earnings of your fellow citizens—was, to put it gently, a less than optimal way to live. Presumably it still is. Thus the goal should be to get people off Medicaid, not onto it.

True, some people always will need public assistance, and a compassionate society must provide it. But public assistance should be a last resort, not the default option. Ideally, social-welfare programs should shrink over time, not grow.

But that's a normative debate for another time. The current one concerns simple math. It's true that in the Washington sense, Donald Trump could be said to be "cutting" Medicaid. But it's also true that under Trump, Medicaid spending would reach the highest level in U.S. history.

This column originally appeared at the Richmond Times-Dispatch.