The Great Medicaid Unwinding

The ongoing rollback of Medicaid is a rare step to reverse the “ratcheting growth” of our social safety net.

A "great unwinding" is very much underway in Medicaid programs nationwide, representing the most notable reversal of a government expansion since the welfare reforms of the 1990s. 

From March 2020 to March 2023, Medicaid enrollment soared by more than 22 million people, a surge even larger than the Medicaid expansions brought on by the Affordable Care Act (ACA). This was primarily due to "continuous coverage" provisions in the coronavirus response that prevented states from conducting routine eligibility reviews—what bureaucrats call the redetermination process—which would ordinarily remove recipients who no longer qualify based on the objective, pre-established standards of need. At its recent peak, Medicaid covered almost 95 million Americans, a far cry from the original intent of protecting the most vulnerable. 

This expansion of Medicaid was never meant to be permanent. Yet, in the context of a growing acceptance among Americans of broader welfare coverage and the popularity of prior Medicaid expansions—since 2014, 40 states and the District of Columbia have expanded under ACA provisions—it seemed like a plausible scenario, especially if you're familiar with the work of economist Robert Higgs.

In 1987's "Crisis and Leviathan," Higgs showed how government expands during crises but often fails to retract fully once the crisis passes, leading to an ever larger state. The pandemic-era growth of Medicaid risked becoming a textbook case of this "ratchet effect," potentially transforming temporary relief measures into permanent entitlements. 

A few months have passed since most states restarted redeterminations in June and July. While it's still early—the unwinding is expected to take 12 to 14 months—the data that's come in already defies the Higgsian prediction: 10.6 million people have been removed from Medicaid, an unprecedented number and orders of magnitude greater than any previous episode in its history. Barring major policy changes, we can expect most, if not all, of the pandemic-era growth in our largest safety-net program to be rolled back in the coming months. 

Although this might be the first you're hearing of it, and some mainstream reports frame the process as "chaos," this development is, broadly speaking, worth celebrating. First, many of the estimated 18 million ineligible recipients already have employer-sponsored insurance or are eligible for alternate sources of health insurance. While states will inevitably make mistakes in carrying out tens of millions of redeterminations, safeguards are in place to re-enroll and retroactively cover eligible recipients who fall through the cracks. 

Second, the cost of having those 18 million ineligible people on Medicaid is around $80 billion per year. It's an end to a subsidy that primarily benefits insurance companies who currently receive monthly membership fees for ineligible recipients who incur little or no health care costs, or who use employer-sponsored insurance when they do. 

Third and more importantly, we should celebrate the economic progress of millions of Americans who are no longer eligible for Medicaid because they earn more than their state's eligibility limit. The unwinding, therefore, is not just about cost savings. It represents the preservation of our long-held commitment to a safety net designed for those in genuine need, rather than a blanket provision that benefits politically connected industries.

As my colleagues Kofi Ampaabeng, Liam Sigaud, and I found, expanding Medicaid to more people crowds out the care available to those already enrolled. There is good reason to believe the unwinding will improve access to care for the most vulnerable enrollees, especially in areas where Medicaid providers are in chronically short supply.

It's easy to dismiss the great unwinding as merely an end to temporary policies in response to a crisis that's long passed. Yet, as you remove your shoes in an airport this holiday season, you'll be vividly reminded of how "temporary" policies can permanently shape our society. Thus, the great unwinding of Medicaid is something to be thankful for, even a few years overdue.