Oral Testimony
Chairman Johnson, Ranking Member Merkley, and Members of the Committee, thank you for the opportunity to testify.
Medicaid is an important welfare program.
But too often, it fails the truly vulnerable—children, pregnant women, the elderly, and people with disabilities.
The federal-state Medicaid partnership is broken.
Over the past dozen years, states have shifted hundreds of billions of Medicaid costs to the federal government.
Washington now pays more than 70 percent of Medicaid spending—up from the historic 60 percent.
I will focus my remarks on two major problems: the Affordable Care Act’s expansion of Medicaid to able-bodied, working-age adults and the legalized money-laundering apparatus that results in massive corporate welfare through Medicaid.
The ACA created a powerful financial incentive for states to prioritize expansion enrollees over traditional enrollees.
On average, when a state spends one dollar of its own money on a traditional Medicaid enrollee—the federal government contributes about $1.33.
But for one dollar of state spending on expansion enrollees, the federal government contributes $9.
Thus, Washington pays states seven times more for each state dollar on expansion adults than for the people Medicaid was created to serve.
Multiple studies show that Medicaid expansion has made it harder for traditional enrollees to obtain physician appointments. It increased wait times and forced more patients to rely on emergency rooms for routine care.
Medicaid should prioritize the most vulnerable. Instead, its financing formula discriminates against them.
These same misguided incentives also explain the surge in improper Medicaid enrollment.
Yesterday, Paragon released a study by Liam Sigaud estimating that nearly half of the 20 million Medicaid expansion enrollees were likely ineligible in 2024. This imposed roughly $33 billion in improper federal costs—with a major cost shift from states to the federal government.
A few states like California and New York have exceptionally high improper enrollment, but the problem exists in virtually all expansion states.
Congress should end the discrimination against the most vulnerable and equalize federal reimbursement rates for all enrollees within each state.
President Obama proposed equalizing reimbursement rates after the ACA became law.
A second major problem is Medicaid money laundering.
The clearest example is provider taxes. Former Oregon State Representative Mitch Greenlick called these dream taxes for states. “We collect the tax from the hospitals, we put it up as a match for federal money, and then we give it back to the hospitals.”
To be clear—this is not a tax. It is a legalized money laundering mechanism for shifting costs from states to Washington, while generating windfalls for politically powerful providers.
In 2011, then-Vice President Joe Biden called provider taxes “a scam” and said that they should be eliminated. Senator Dick Durbin called them “a charade.” The Simpson-Bowles commission, set up by President Obama, recommended ending them.
President Obama proposed limiting provider taxes, and the One Big Beautiful Bill basically adopted his proposal.
Broken Medicaid incentives have led to a new form of corporate welfare: state-directed payments.
Under the Biden administration, CMS allowed Medicaid insurers to pay hospitals up to average commercial rates, or more than two-and-a-half times Medicare.
Medicaid should not pay hospitals more than Medicare. Such excessive Medicaid payments distort the program’s purpose and threaten seniors’ access to care. In the One Big Beautiful Bill, Congress was right to limit Medicaid payments through insurers to Medicare rates.
Most Medicaid spending now runs through health insurance companies, generating enormous revenues for them. Yet, there is remarkably little evidence that Medicaid managed care has improved access, health outcomes, or reduced costs. Increasingly, Medicaid managed care functions as a financing intermediary for corporate welfare.
Medicaid’s perverse incentives have also created a lucrative consulting industry devoted to helping states maximize federal reimbursement by gaming Medicaid’s financing formula rather than improving care.
Medicaid is an essential program. But Congress must improve the core incentives.
Reward states for serving the most vulnerable—not for maximizing federal reimbursement.
End the financial discrimination against the most vulnerable.
Eliminate the money-laundering schemes.
Root out the corporate welfare.
Those reforms will help return balance to the federal-state Medicaid partnership and improve Medicaid for America’s most vulnerable.
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