Medicaid Funding Challenges and Reform Opportunities Amid Expansion and Rising Costs
Medicaid serves as a crucial health care safety net in the United States, but its structure and funding mechanisms have led to significant inefficiencies and financial challenges. The program is divided into two main populations: the traditional group, which includes pregnant women, seniors, low-income children, and disabled individuals, and the expansion population established under the Affordable Care Act (ACA), primarily comprising healthy, non-disabled adults aged 18 to 64. In Pennsylvania, approximately 2.2 million people belong to the traditional group, while 833,000 healthy adults fall under the expansion population.
A notable aspect affecting Medicaid’s fiscal dynamics is that the federal government covers a larger share of costs for the expansion group (90%) compared to the traditional population (56% in Pennsylvania). This has inadvertently incentivized states to prioritize enrolling healthier adults over more vulnerable disabled individuals, who often remain on waiting lists for essential services. This funding imbalance impacts resource allocation and raises questions about program efficiency.
Financial management and regulatory challenges further complicate Medicaid's sustainability. An estimated $1 trillion in improper payments occurred over the past decade, highlighting significant fraud, waste, and abuse concerns. Additionally, many states cover high-cost treatments through Medicaid, such as weight-loss medications like Ozempic, with Pennsylvania spending over $1 billion in 2024 alone. These expenditures contribute to the rising costs of the program despite ongoing efforts to control spending.
Public opinion favors reforms targeting program integrity and efficiency. Surveys indicate strong support for work requirements for healthy adults receiving Medicaid benefits, with 84% of Pennsylvania voters endorsing such policies and 91% nationally supporting measures to eliminate waste and fraud. These views underscore growing demand for policy adjustments to improve Medicaid's fiscal health.
States have employed strategies such as "provider tax" schemes to increase federal reimbursement rates. These tactics involve imposing taxes on healthcare providers to boost Medicaid expenditures artificially, thereby increasing federal matching funds, which states then partly return to providers. This practice has shifted the federal government’s typical 60% contribution to covering about 75% of all Medicaid costs, resulting in an additional $100 billion in annual federal spending.
Even with congressional efforts projected to save $880 billion on Medicaid, overall program spending is expected to rise by more than $1 trillion over the next decade. This outlook makes clear the need for strategic reforms addressing funding structures, eligibility, and program management while balancing support for vulnerable populations with fiscal responsibility.