America's Medicaid Problem


Medicaid spending as a percentage of GDP

Medicaid's advocates like to argue that when it comes to publicly funded health programs, Medicaid is not only the cheapest, but the best at holding down costs. But the reality is that for decades the program has eaten up an ever-larger share of America's total economic output. That's not sustainable. 

The other thing to note from this graph is that the federal commitment relative to GDP has increased faster than the state commitment. Indeed, over the last few years, the combined state commitment has actually decreased slightly as a percentage of GDP (although it's worth noting that if you look at the actual spending figures the total dollar commitment of state and local governments has continued to rise). There are any number of possible explanations for this, but here's one worth considering: States have become better at gaming the system controlling federal matching funds. This also suggests why federal block grants are so appealing from a federal perspective. As it stands, states have an incentive to extract ever-more federal funds during economic good times. Dropping the matching-funds system for a federally allocated block grant would go a long way toward holding the federal commitment in check.  

Much more on Medicaid here, here, and here