Getting Serious About Medicaid Reform + Several Biden Health Policies Fall

Washington is embroiled in taxes, tariffs, and spending. With respect to federal spending, Congress has a real opportunity to target waste, fraud, and abuse, and reverse the Biden spending surge in a reconciliation bill. The Biden administration has made it harder for states to remove ineligible Medicaid enrollees, and they permitted a massive increase in Medicaid money laundering by states.

As part of the reconciliation process, the Medicaid program is rightly under scrutiny. The surge in federal Medicaid spending has not improved American health outcomes and most of the benefit has been captured by the health care industry. Washington made an estimated $1.1 trillion in improper payments in Medicaid over the past decade as states shifted enormous costs for the program to the federal government.

Paragon has developed numerous policies to reform Medicaid by strengthening the program for those who rely on it and reducing the rampant, legalized money laundering. I have highlighted these issues in my newsletters throughout the year. Paragon is heading to Capitol Hill on Thursday, April 10 at 2p.m. for a briefing on Medicaid reform, including our recent paper, Addressing Medicaid Money Laundering: The Lack of Integrity with Medicaid Financing and the Need for Reform. You can register for that event here and I’d love to see you there.

A new policy brief from Paragon’s long-term care policy expert, Stephen Moses, highlights how Medicaid has become too big and has lost all focus on the poor. Steve discusses California’s recent policy change to remove the asset test for Medicaid enrollees, a change that effectively permits extremely wealthy heirs to maintain their inheritances while putting older relatives on Medicaid. After discussing the new policy brief, I highlight a prudent decision by the Trump administration to follow the law and not have Medicare cover GLP-1s for weight loss, a Paragon analysis of a new Congressional Budget Office projection on Medicare solvency, and a court’s ruling striking down the Biden administration’s nursing home staffing rule.

California’s Medicaid Long-Term Care Expansion Puts Taxpayers and the Truly Needy at Risk

A new Paragon Health Institute policy brief, “Medi-Cal-amity: California’s Reckless Expansion of Medicaid Long-Term Care to the Affluent,” by long-term care policy expert Stephen A. Moses, examines how California’s sweeping changes to Medi-Cal eligibility threaten the future of long-term care (LTC) in both the state and the nation.

As of January 1, 2024, California eliminated its Medicaid asset test and “lookback” period, allowing even affluent individuals to qualify for taxpayer-funded LTC benefits. This radical policy shift—approved by the Biden administration—transforms Medi-Cal from a safety-net program into a virtually open-ended entitlement, and California has become the first state to do so.

The impact has been swift and severe. California’s Legislative Analyst’s Office estimates that the asset test repeal alone added over 100,000 enrollees and $1.4 billion in new spending. Meanwhile, the state expanded Medicaid to undocumented immigrants of all ages, compounding the financial strain on taxpayers.

Moses warns that this policy creates a moral hazard by discouraging private LTC planning, crowding out the truly needy, and weakening Medicaid’s ability to deliver quality care. Medi-Cal already pays below-cost reimbursement rates, and the influx of higher-income enrollees only further strains access and quality for the most vulnerable. Wealthier enrollees, often coached by Medicaid planning attorneys, can even use ‘key money’—upfront cash payments—to buy access to better care. This manipulation of Medicaid perversely leaves poorer patients behind at taxpayer expense.

The brief calls for both state and federal reforms to restore fiscal discipline, including reinstating asset limits, enforcing estate recovery, and prohibiting legal loopholes that allow the wealthy to shelter assets. Without action, California’s approach could become a dangerous model for other states and contribute to deeper dysfunction in the nation’s long-term care system.

Reversing an Unwise and Unlawful Proposed Biden Medicare Policy on GLP-1s

The Trump administration made the right call in upholding the longstanding legal prohibition on Medicare coverage of weight loss drugs, including GLP-1 medications when prescribed for obesity. Congress has been clear: under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Medicare is not allowed to cover drugs used for weight loss or weight gain. That’s the law, and this administration correctly followed it.

While GLP-1s show promise for weight loss, covering them for that purpose under Medicare would significantly increase spending in the program. According to the Congressional Budget Office, adding coverage for these drugs for weight loss alone would increase federal spending by more than $35 billion over the next decade. Adding new Medicare obligations without any funding offsets is irresponsible, not to mention the effect on Medicaid spending due to how drug coverage is linked between the programs.

Importantly, Medicare does cover GLP-1 medications when prescribed for other approved medical conditions, such as managing Type 2 diabetes or reducing cardiovascular risks. That policy strikes the right balance: it ensures access for those with clear medical needs but only to the extent consistent with respecting the legal and fiscal boundaries Congress established.

By contrast, the Biden administration’s proposed rule to allow coverage of GLP-1s for weight loss was both misguided policy and inconsistent with the law. Expanding Medicare in this way would have ignored Congress’s explicit prohibition and worsened the program’s long-term sustainability.

Medicare Finances—What Matters Most

In this week’s Paragon Prognosis, Jackson Hammond rightly points out that the real threat to Medicare isn’t just the projected insolvency of the Part A Hospital Insurance Trust Fund—it’s the unchecked overall growth of the program and its heavy reliance on general revenue transfers. As Jackson explains, while Part A is financed by payroll taxes, roughly 75% of the funding for Parts B and D comes from general revenues. That dynamic—often overlooked in the public debate—poses a far greater fiscal challenge than trust fund insolvency alone.

This is a point we’ve consistently emphasized at Paragon. In our paper Turning the Tide on Red Ink, we show that federal health spending—primarily through Medicare and Medicaid—is the single biggest driver of long-term deficits, and we offered numerous recommendations to put federal programs on a more sustainable trajectory. In Improving Medicare Through Medicare Advantage, we offer a package of concrete policy reforms to slow Medicare’s cost growth, reduce waste, and improve outcomes by embracing the value and efficiency of a Medicare Advantage program that our reforms would enhance.

The public conversation often fixates on solvency dates and trust fund balances. But as Jackson notes, the real crisis is broader and deeper. We must reframe the debate to focus on sustainability, smart reforms, and the looming burden of Medicare’s reliance on general revenue transfers.

Courts Invalidate Biden’s Nursing Home Staffing Rule

On April 7, the U.S. District Court for Northern Texas threw out a nursing home rule finalized by the Biden administration. The rule, which Paragon has written about previously, would have required minimum staffing levels at nursing homes—including having registered nurses (RNs) onsite 24/7 and mandated hours of direct patient care. The Centers for Medicare and Medicaid Services (CMS) estimated the rule would raise financial costs by $43 billion over 10 years. Prior to the rule, Congress required nursing homes to have RNs onsite for eight hours a day. Judge Kacsmaryk ruled that because Congress had clearly set a minimum standard in statute, CMS exceeded its authority by setting a new minimum standard, and that the rule did not consider the needs of an individual facility’s residents. It seems unlikely, with the change in administrations and the significant cost of the rule, that the Trump administration will appeal the judge’s decision.