Medicaid’s Cost Growth + Trump Health EOs

In this week’s newsletter, I do some table-setting as Congress considers important Medicaid reforms and I review four recent health policy-related executive orders from President Trump.

Biden-Era Medicaid Cost Surge

Over the past 12 years, two major policy changes have led to massive Medicaid program growth. Keep in mind, the growth of Medicaid has not improved Americans’ health, as a recent Paragon research paper documented, and has worsened access to care for traditional Medicaid enrollees.

The first change is that the Affordable Care Act (ACA) significantly expanded Medicaid by granting eligibility to able-bodied, working-age adults and favoring them over traditional Medicaid enrollees (children, pregnant women, seniors, and the disabled) through significantly higher federal reimbursement rates for state spending on them. Paragon has produced a comprehensive reform that would end the ACA’s federal discrimination against traditional Medicaid enrollees and move nearly half of Medicaid expansion enrollees into the exchanges with a large premium tax credit. This is a long overdue policy reform that Congress should consider.

The second change stems from a set of Biden administration policies, along with increased state Medicaid money laundering schemes, that have significantly increased the federal Medicaid baseline as shown in the first figure below. Between the Congressional Budget Office’s 2021 and 2024 baselines, projected federal Medicaid spending increased by 8.6 percent, a sizeable $685 billion, from 2023 to 2034.

Several Biden policies explain a portion of this increase. The Families First Coronavirus Response Act provided states with additional federal Medicaid money so long as they maintained Medicaid enrollment during the COVID public health emergency (PHE). The Biden administration also extended the PHE into the spring of 2023, which kept ineligible people on the Medicaid program much longer. Finally, the Biden administration took regulatory actions to keep ineligible people on the program longer and to validate state financing gimmicks that fleece federal taxpayers and raise Medicaid rates well above Medicare rates for many providers in many states. As a preview, in March, Paragon will be releasing a research paper on the growth of Medicaid money laundering and what policymakers should do about it.

The House budget resolution contains instructions for the Energy and Commerce Committee to find $880 billion in savings relative to baseline. Congress could achieve these savings through common sense, necessary Medicaid reforms. The figure below illustrates how an expected level of savings in Medicaid (assuming Medicaid reforms make up about 80 percent of the savings) compares to the 2021 and 2024 CBO baselines.

Crucially, the magnitude of savings relative to the 2021 baseline—before the surge of Biden-era spending—is two-thirds smaller than the 2024 baseline. In fact, spending would only be 3.1 percent lower under this level of savings relative to the 2021 baseline. In essence, Biden’s policies led to a surge of wasteful federal Medicaid expenditures and the House budget resolution would largely reverse the fiscal impact of his policies.

One more important note—this just shows the federal side of Medicaid spending. States will be able to replace all savings that result from federal reforms. As discussed in my most recent newsletters, one of the main problems that federal policymakers should address is the substantial shift in Medicaid costs from the states to Washington over the past 15 years.

Flood of Health-Related Trump EOs

Establishing the President’s Make America Health Again Commission
On February 13, President Trump issued an executive order to make it the policy of the federal government to combat chronic disease and mental health issues, ensure transparency of research, prioritize research into the root causes of chronic conditions, work with farmers to ensure a healthy food supply, and ensure access to treatment and flexible health coverage options that promote healthy lifestyles and disease prevention. New Health and Human Services Secretary Robert Kennedy will head a Make America Healthy Again Commission, which will first focus on causes of childhood chronic disease.

President Trump’s focus on this issue is commendable given that American health outcomes have stagnated over the past several decades. Paragon has written an important paper showing expanding public coverage, particularly through Medicaid, has not improved health. We also have a long list of reforms for public health agencies, who have a lot to answer for given their failures during the COVID-19 pandemic.

Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Deregulatory Initiative
On February 19, President Trump issued an executive order that requires federal agency heads to identify and start the process to eliminate unconstitutional, unlawful, unauthorized, or burdensome regulations. Paragon has pointed out numerous policies under the Biden administration that have a shaky legal basis or are not authorized in statute, including the extralegal Part D demonstration, the proposed rule for Medicare to cover GLP-1s for weight loss in defiance of statute, and a host of Medicaid rules that have dramatically expanded the program’s costs.

Ending Taxpayer Subsidization of Open-Borders
On February 19, President Trump issued an executive order that requires department and agency heads to prevent illegal immigrants from obtaining government benefits and ensure federal payments to states and localities do not intentionally or otherwise subsidize or promote illegal immigration. For the purposes of health care, this mostly applies to the Affordable Care Act (ACA) exchanges and Medicaid. As Paragon has documented, the ACA exchanges are rife with fraud with roughly $15 to $26 billion of fraudulent spending.

As noted in a previous Paragon policy brief, in Medicaid, the Biden administration finalized several rules hampering states’ ability to ensure only eligible people are enrolled. Federal Medicaid funding is prohibited from financing services on undocumented immigrants, but states can use their own funds to provide Medicaid benefits.

Beginning on January 1, 2024, California became the first state to provide Medicaid to illegal immigrants, expanding coverage to around 1.6 million undocumented individuals at an estimated annual cost of $8.4 billion. While these benefits are purportedly paid with state funds, federal dollars fund the overall architecture of the Medicaid system. The Congressional Budget Office reported that federal and state governments spent $27 billion on emergency services for “non-U.S. nationals who were ineligible for comprehensive Medicaid by reason of immigration status or because they were still within the five-year waiting period” between 2017-2023.

Expanding Access to In Vitro Fertilization
On February 18, President Trump issued an executive order “to ensure reliable access to IVF treatment, including by easing unnecessary statutory or regulatory burdens to make IVF treatment drastically more affordable.” It requires his team to develop policy recommendations to protect IVF access and reduce out-of-pocket IVF costs.

Avoiding coverage mandates will prevent higher prices (insurance coverage increases demand and gives providers more pricing power) and higher premiums. One study found that an IVF coverage mandate would increase premiums between 0.5 percent and 1.1 percent, depending on the number of treatments covered.

All the best,

Brian Blase
President
Paragon Health Institute