Medicaid Reform

Medicaid’s open-ended financing rewards overspending and favors wealthy states, while crowding out care for the most vulnerable. The ACA worsened the problem by giving higher reimbursements for able-bodied adults. Reform is needed to restore fairness, improve efficiency, and refocus Medicaid on truly low-income patients.

Medicaid Reform

The GOP can make the strong and accurate argument that fixing this bias in federal payments is shoring up the program to better serve the vulnerable. Paragon Health Institute, a think tank, has done the intellectual leg work for the GOP and rolled out proposals to rationalize the payment treatment over time.
–The Wall Street Journal Editorial Board

Americans Want Common Sense Medicaid Reforms

Paragon Health Policy Survey 2025

The results of our survey indicate that voters do not see a conflict between Medicaid reform and protecting the most vulnerable. Across party lines, Americans overwhelmingly support policies that prioritize children, pregnant women, seniors, and the disabled and that root out waste, fraud, and abuse.

Stopping Medicaid Money Laundering

Addressing Medicaid Money Laundering: The Lack of Integrity with Medicaid Financing and the Need for Reform

Congress created Medicaid to help finance health care services for the most vulnerable—not to serve as a slush fund for states and politically connected providers. These reforms would end or reduce the financing schemes that have ripped off taxpayers and diverted health care funds away from those who need them most.

Stopping Medicaid Money Laundering

Ending the Discrimination Against the Most Vulnerable

Medicaid Financing Reform: Stopping Discrimination Against the Most Vulnerable and Reducing Bias Favoring Wealthy States

Medicaid policy should not discriminate against the most vulnerable and should not disadvantage poorer states relative to richer states. In Medicaid expansion states, resources have been diverted from traditional Medicaid enrollees—low-income children, pregnant women, seniors, and individuals with disabilities—to the able-bodied, working-age expansion population.

Eliminating Schemes that Put Illegal Immigrants on Medicaid

California’s Insurance-Tax Shuffle: How Federal Money Ends Up Paying for Medicaid for Illegal Immigrants

California uses Medicaid money laundering tactics to get around restrictions that prohibit Medicaid benefits for illegal immigrants, resulting in $10 + billion in federal funds going to non-Americans while the elderly and disabled are left behind.

Paragon Pics

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August 18, 2026

Prescription Drug Prices Drop Even Faster Than in First Trump Administration—Hospital Price Inflation Still Hot

The media described the Consumer Price Index (CPI) report for July as showing inflation cooling for the second month in a row. One major exception is hospital prices, which continue to rise rapidly. Hospitals account for 31 percent of health spending, and prices for inpatient and outpatient services rose 5.2 percent and 5.9 percent respectively over the past year, nearly on par with what we found in last year’s Paragon PIC discussing inflation for the twelve months through July 2025. Prices for physician services grew about one and a half percentage points slower than prices for all items less medical care.

Most remarkable is the significant decline in prescription drug prices, a drop of 3.1 percent over the last twelve months—the largest decline in over six decades.¹ Although retail prescription drugs only account for 9 percent of health spending, this is a welcome trend. It’s also reminiscent of the first Trump term. In the March 2019 Economic Report of the President, the Council of Economic Advisers (CEA) explained that “For the first time in 46 years, the Consumer Price Index for prescription drugs fell in both nominal and real terms during a calendar year” (p. 198). The CEA showed that prescription drug prices had been increasing about five percentage points faster than Personal Consumption Expenditures (PCE) from 2013 to the end of 2016. Beginning in 2017, they grew by only one percentage point faster than PCE (p. 236, fig. 4.7).²

The figure shows that the fall in drug prices started in February 2026. One notable development that month was the launch of TrumpRx, the Administration’s direct-to-consumer (DTC) website where patients can buy discounted medicines. TrumpRx launched with 43 branded medicines available and has since added many more drugs, so that it now offers over 800 medicines.

TrumpRx is a storefront that operates through vendors like GoodRx, Mark Cuban’s Cost Plus Pharmacy, and manufacturers’ own discount programs. These cash-pay channels bypass many of the “middlemen” that drive up drug prices and have gradually increased their own market share, up to about 9 percent of transactions in 2022. Even patients who have insurance coverage for outpatient drugs often find it less expensive to pay cash.

According to one market expert, “As cash-pay prices appear on a federally promoted platform, a new layer of public transparency sets in. Patient expectations around what a drug should cost could begin to anchor around those figures, creating internal pressure on manufacturers to rationalize the relationships between list price, net price, and DTC price.” Another industry insider credits a clarification from the U.S. Department of Health and Human Services Inspector General that manufacturers can sell directly to Medicare and Medicaid enrollees without triggering the Anti-Kickback Statute.

The benefit of DTC is most apparent with GLP-1s, the anti-obesity medications that have become very widely used. GLP-1s were among the first drugs available on TrumpRx in February, and the Administration also launched a demonstration called BRIDGE that allows Medicare beneficiaries to access them for a $50 copay. However, Medicare Part D insurers cover GLP-1s for diabetes or some other conditions but not obesity alone. Only 36 percent of employer-sponsored plans cover GLP-1 drugs for obesity—usually only with prior authorization—and that share is falling. The result is that the market for GLP-1 drugs is a consumer-driven market.

It is too early to estimate how much of the recent drug price reduction can be attributed to DTC platforms like TrumpRx. Since generics account for more than 90 percent of prescriptions, the steady approval of generic applications (particularly first generics) is an important driver of lower prices. Others are attributing a portion of the decline to the Inflation Reduction Act (IRA). Medicare implemented negotiated prices for the first ten drugs subject to the IRA in January 2026. However, the timing and persistence of the decline make it difficult to attribute much of the trend to the IRA. The first negotiated prices took effect at a single point in January and applied to only ten drugs, but there was no significant price reduction that month, and the negotiated prices would not have kept trending down.

The precise causes of the historic decline in prescription drug prices will take time to disentangle, but consumers are clearly benefiting from greater competition and new ways to purchase medicines. The contrast with hospital care is striking: while drug prices are falling at their fastest rate in decades, hospital prices continue their relentless rise.

Footnotes

1↑ The accuracy of the CPI for prescription drugs is limited by a two-year lag in the basket of drugs used to estimate prices. Prices for 2026 are based on a basket of drugs available in 2024, and many new drugs are introduced every year. Prices represent transaction prices between the pharmacy, patient, and third-party payer, if applicable. The index excludes prices for prescriptions with no patient payment, such as hospital inpatient services or outpatient infusions or injections.

2↑ PCE and CPI are different measures of inflation produced by different federal agencies, the Bureau of Economic Analysis (BEA) in the Department of Commerce (PCE) and the Bureau of Labor Statistics (BLS) in the Department of Labor (CPI). The PCE is mostly compiled from business surveys and the CPI from consumer surveys. The PCE responds more quickly to substitution because it uses a chain-weighted index. So, when consumers switch to less expensive goods, it is reflected in the next month. The BLS updates the basket of goods and services in the CPI annually, with a two-year lag. (The 2026 CPI uses 2024 weights.)

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August 12, 2026

Health Care Spending Continues to Outpace the Economy

Earlier this summer, the Centers for Medicare and Medicaid Services (CMS) released its latest National Health Expenditures projections, and the outlook is alarming. National health spending is growing at more than 7 percent annually—about two percentage points faster than GDP. When health care consistently grows faster than the economy, it consumes an ever-larger share of national income. CMS projects that health care spending will exceed one-fifth of the U.S. economy early in the next decade.

Much of this growth reflects expanding federal involvement in health care. During the Biden administration, Medicaid enrollment increased dramatically because of pandemic-era continuous eligibility requirements, ACA subsidy expansions, and widespread improper enrollment in both Medicaid and the ACA exchanges. At the same time, states increasingly exploited financing arrangements such as Medicaid state-directed payments to draw down additional federal matching funds, largely to fund corporate welfare for large, politically powerful hospital systems.

Hospital services are the largest driver of spending growth. Hospital expenditures increased 8.9 percent in 2024 and are projected to rise another 8.2 percent in 2025—both well above overall health care spending. As John R. Graham documented in recent Paragon research, hospitals remain the least efficient major sector of American health care, yet they continue to command an ever-larger share of national health spending through market consolidation, government payment policies, and regulatory advantages. These trends reinforce the urgent need for reforms that promote competition, transparency, and more efficient delivery of care.

The implications extend well beyond health policy. Despite historically high federal revenues, annual budget deficits continue to approach $2 trillion because federal spending continues to rise even faster. In a 2023 Paragon research paper, Paul Winfree—now an advisor to Federal Reserve Chairman Kevin Warsh—explained how rapidly growing federal health care programs, together with rising interest costs on the national debt, are steadily consuming America’s fiscal space and limiting policymakers’ ability to respond to future economic, fiscal, and national security challenges. The latest National Health Expenditures projections reinforce that warning.

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July 2, 2026

Medicaid Managed Care Now Accounts for the Majority of Medicaid Spending

This PIC shows the growth in Medicaid managed care over a 25-year period from 1999 through 2024. By 2021, Medicaid managed care accounted for more than half of all Medicaid spending. In 1999, payments to managed care organizations (MCOs) represented just 12 percent of Medicaid spending. By 2024, that share had climbed to 54 percent, roughly $490 billion of the program’s $909 billion in total outlays. The figure traces this transformation, with managed care spending (dark blue) steadily displacing traditional fee-for-service and other Medicaid spending (light blue). The trajectory steepens notably after the passage of the Affordable Care Act in 2010, with a further steepening after the ACA Medicaid expansion took effect in 2014. As we have previously shown, the ACA has been very profitable for health insurance companies.

This dramatic shift raises an important question: Has Medicaid managed care actually worked? When states began moving enrollees into MCOs, advocates argued that private insurers would coordinate care better, curb unnecessary spending, and improve quality. Yet after three decades of expansion, the evidence remains remarkably weak. The Congressional Budget Office found no consistent evidence that managed care improves outcomes, and a recent paper by Chris Pope of the Manhattan Institute concludes the case for managed care is thin.

Oversight has also failed to keep pace. Nearly half of MCO filings are incomplete, and medical loss ratio rules meant to keep spending on care rather than profit go largely unenforced. Meanwhile, state-directed payments, which are large payments that states make to hospitals through MCOs, ballooned from two states in 2016 to a projected $124 billion across 39 states by 2025. State-directed payments increasingly functioning as corporate welfare to politically powerful providers. The One Big Beautiful Bill capped these payments at Medicare rates. While those reforms are important, there are additional reforms needed to bring greater transparency and accountability to Medicaid MCOs.

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June 9, 2026

Child Medicaid and CHIP Enrollment Remains Above Pre-Pandemic Levels in 2026

This PIC shows that child enrollment in Medicaid and CHIP remains above its pre-pandemic level as a share of the total population aged 0-18. In January 2020, 45.3 percent of children were enrolled in Medicaid or CHIP, nearly identical to the average level of 45.4 percent from 2018 to 2019. In January 2026, the last month for which complete data is available, that share was 47.3 percent, a two percentage-point increase. Enrollment rose sharply during the pandemic because federal law largely prohibited states from removing Medicaid enrollees, even when they were no longer eligible. This led to dramatic enrollment growth, as shown in the figure. At its peak in 2023, Medicaid child enrollment and CHIP enrollment together covered more than half of all children. Since 2023, the share has declined, but it is still greater than pre-pandemic levels.

This historical perspective is important context for assessing recent claims that declining child enrollment in Medicaid/CHIP reflects children losing health coverage due to “spillover effects” or “chilling effects” from the program integrity reforms in the One Big Beautiful Bill (OBBB) and other actions of the Trump administration. As Paragon has argued, enrollment declines in Medicaid/CHIP after 2023 should be interpreted alongside the unwinding of pandemic-era continuous coverage rules, duplicate enrollment cleanup, demographic change (particularly the decline in the fertility rate and number of children in the U.S. during this period), and normal eligibility redeterminations. Until these common-sense explanations are explored empirically, claims that the OBBB is driving up the number of uninsured children are speculative and unsupported by the available evidence. Moreover, it is crucial not to conflate Medicaid/CHIP enrollment with insurance coverage, access to care, or health outcomes.

(It is also important to note that the population estimates we use from the Census Bureau include all children living in the U.S., regardless of immigration or legal status. Since undocumented children are ineligible for Medicaid/CHIP coverage in most states, the PIC slightly understates the share of eligible children enrolled in Medicaid/CHIP.)

Overall, the figure shows that child Medicaid and CHIP enrollment remains elevated relative to historical averages, even after the decline associated with the unwinding of continuous coverage requirements. Rather than showing a collapse in child coverage in public programs, the data are consistent with enrollment gradually normalizing after the significant pandemic-era expansion.

Testimony of Brian Blase before the Senate Committee on the Budget — Medicaid: The Reality

April 27, 2026

Featured

Oregon’s New Medicaid Financing Scheme: Combining Provider Taxes and IGTs to Maximize Federal Funds

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April 27, 2026

Featured

Medicaid Waste, Fraud, and Abuse: Why CMS’s Improper Payment Rate Can’t Be Trusted

December 15, 2025

The Local Loop: How States Turn Medicaid into a Government Provider Payday Scheme

August 5, 2025

Myth: The OBBB will harm the most vulnerable Medicaid enrollees

July 28, 2025

Myth: Rural hospitals will close because of the OBBB

July 25, 2025

Myth: States will not be able to cope with the limits on Medicaid money-laundering mechanisms

July 15, 2025

Featured

Will Congress’ Reforms to Medicaid Financing Hurt Rural Health Care? No: Debunking the Myth that Provider Taxes Support Rural Hospitals

July 14, 2025

Featured

Paragon submits comment on proposed rule: “Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole Proposed Rule”

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June 29, 2025

Featured

Consequences of Medicaid’s Discrimination Against the Most Vulnerable

June 3, 2025

Improving the One Big Beautiful Bill: Further Reducing State Medicaid Money Laundering

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May 28, 2025

Featured

Health Care Provisions in the One Big Beautiful Bill: Reducing Waste, Fraud, and Abuse While Empowering American Patients

Related Glossary Terms

Supplemental Payments

A Medicaid supplemental payment is a lump sum payment paid by the Medicaid program to a health care provider in addition to Medicaid payments for specific health care services that have been rendered. These payments are largely received by hospitals and include DSH payments, upper payment limit (UPL) payments, uncompensated care pool (UCP) payments, and delivery system reform incentive (DSRIP) payments. By 2019, these payments grew to 17.5 percent of total Medicaid spending and 27 percent of Medicaid spending on hospitals. The growth in supplemental payments increases lobbying with government officials having discretion to award large Medicaid payments, payments consisting mostly or entirely…

Medicaid Expansion

Medicaid expansion is the Affordable Care Act’s change to broaden Medicaid program eligibility and increase the number of people who qualify for the program. A major component of this expanded eligibility for state Medicaid programs was eligibility for a new category of people—able-bodied, working-age, and generally childless adults. The ACA created a much higher FMAP for this category—equal to 100 percent from 2014-2016, gradually declining until it reached 90 percent in 2020, where it is scheduled to remain. This FMAP policy incentivized states to expand Medicaid because most of the budgetary costs for the population of expanded enrollees were paid…

Federal Medical Assistance Percentage

The Federal Medical Assistance Percentage (FMAP) is the statutory percentage of Medicaid expenditures paid by the federal government. For traditional Medicaid enrollees (low-income pregnant women, children, seniors, and individuals with disabilities), the FMAP is largely a function of state per capita income as states with lower per capita income receive a higher FMAP. No state receives an FMAP below 50 percent. For Medicaid expansion enrollees, the FMAP is equal to 90 percent. The actual percentage of Medicaid expenditures paid by the federal government is substantially higher than the FMAP since states employ numerous accounting gimmicks and financial schemes to minimize…

Average Commercial Rate

The average commercial rate (ACR) refers to the mean payment amount for a medical service as determined by leading commercial insurers’ reimbursement rates for the same service. The ACR may be used to define the maximum limit of a state Medicaid program’s supplemental payments to health care providers that are in excess of the state’s Medicaid standard rates. HHS guidance on ACR payments states when provider payment “is made up to the ACR states must submit data from the top (generally five) third party payers and provide a full explanation of the data that was extracted from providers’ accounts receivable…

Issue Experts

Brian Blase

President at Paragon Health Institute

Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and served as its CEO.

Gary Alexander

Director Medicaid and Health Safety Net Reform Initiative at Paragon Health Institute

A nationally recognized health services expert and government reformer, Gary D. Alexander was head of the Medicaid and Health Safety Net Initiative at the Paragon Health Institute from October 2021 to October 2025.

Americans Want Common Sense Medicaid Reforms

Paragon Health Policy Survey 2025

Stopping Medicaid Money Laundering

Addressing Medicaid Money Laundering: The Lack of Integrity with Medicaid Financing and the Need for Reform

Stopping Medicaid Money Laundering

Ending the Discrimination Against the Most Vulnerable

Medicaid Financing Reform: Stopping Discrimination Against the Most Vulnerable and Reducing Bias Favoring Wealthy States

Eliminating Schemes that Put Illegal Immigrants on Medicaid

California’s Insurance-Tax Shuffle: How Federal Money Ends Up Paying for Medicaid for Illegal Immigrants

Paragon Pics

Prescription Drug Prices Drop Even Faster Than in First Trump Administration—Hospital Price Inflation Still Hot

Footnotes

Health Care Spending Continues to Outpace the Economy

Medicaid Managed Care Now Accounts for the Majority of Medicaid Spending

Child Medicaid and CHIP Enrollment Remains Above Pre-Pandemic Levels in 2026

Other Related Content

Testimony of Brian Blase before the Senate Committee on the Budget — Medicaid: The Reality

Oregon’s New Medicaid Financing Scheme: Combining Provider Taxes and IGTs to Maximize Federal Funds

Medicaid Waste, Fraud, and Abuse: Why CMS’s Improper Payment Rate Can’t Be Trusted

The Local Loop: How States Turn Medicaid into a Government Provider Payday Scheme

Will Congress’ Reforms to Medicaid Financing Hurt Rural Health Care? No: Debunking the Myth that Provider Taxes Support Rural Hospitals

Paragon submits comment on proposed rule: “Medicaid Program; Preserving Medicaid Funding for Vulnerable Populations-Closing a Health Care-Related Tax Loophole Proposed Rule”

Consequences of Medicaid’s Discrimination Against the Most Vulnerable

Health Care Provisions in the One Big Beautiful Bill: Reducing Waste, Fraud, and Abuse While Empowering American Patients

Related Glossary Terms

Supplemental Payments

Medicaid Expansion

Federal Medical Assistance Percentage

Average Commercial Rate

Issue Experts

Brian Blase

Gary Alexander

Reforming Government. Empowering Patients.