On a per-beneficiary basis, Medicaid is cheaper than Medicare. But that doesn't mean it's not part of the spending problem: Since its inception in 1966, total spending on the program has continued to eat up a larger share of GDP.
One obvious reform would be to turn the program into a system of federal block grants. Currently, Medicaid is a joint federal-state operation that matches every dollar that states spend with additional federal money. The exact amount of the match varies by state, but on average the federal government pays a little more than half of total. At the same time, that money allows the federal government to exert a lot of heavy-handed influence over the management of the state programs: Take Utah, for example, which had to wait eight months to get a response from the federal government about whether it was allowed to contact Medicaid recipients over email. The answer state officials finally got? No. The federal government's response was delivered via email.
The incentive, then, is for states to spend ever-larger amounts in order to extract as much money as possible from the federal government, but not to innovate or experiment.
It's not obvious to Senate Democrats, however. As Politico reports, they've made it clear they aren't willing to sign on to the block-grant approach. In a letter to President Obama, Sen. Jay Rockefeller and 36 other Democrats warn that block grants would "undermine" the "federal commitment" to the program. (As far as I'm concerned, the federal government's essentially unlimited commitment is a big part part of the problem.) "We are unwilling to allow the federal government to walk away from Medicaid's 68 million beneficiaries, the providers that serve them and the urban and rural communities in which they live," the letter says.
Under a block grant system, the federal government wouldn't be "walking away" or anything like it. Indeed, it would still pay out hundreds of billions of dollars each years. Instead, federal officials in Washington would be putting state Medicaid programs on defined budgets and allowing them to manage the programs as they see fit.
ObamaCare, naturally, makes the Medicaid problem worse for states.