The Medicaid Reform Debate & An Important New ACA Rule

In today’s newsletter, I first provide perspective on the current Medicaid reform debate. Then, I highlight a new policy brief and Prognosis on one of the most significant health care regulations ever, which would substantially reduce improper enrollment and fraudulent spending in the ACA exchanges and lower ACA premiums by up to 5.5 percent. The newsletter also highlights testimony Kev Coleman is delivering to the House Education and Workforce Committee today and a positive judicial decision to strike down the Biden administration rule on laboratory developed tests. I conclude by introducing two new Paragon employees.

Our Medicaid Money Laundering Report Strikes a Nerve

Last week, Paragon released our new report, Addressing Medicaid Money Laundering: The Lack of Integrity with Medicaid Financing and the Need for Reform. It struck a nerve among special interest groups and Medicaid consultants who defended the status quo financing schemes.

The interest groups and consultants are interested in maximizing federal taxpayer dollars without an accounting of whether the program is working for patients and taxpayers. Our money laundering paper addresses a corrupt status quo that President Biden called “a scam” and recommended overhauling.

States, working with high-priced consultants hired by industry, create money laundering schemes to maximize federal dollars — a racket enabled by current federal law. As we documented in our new report, these scams and the resulting money laundering apparatus have significantly increased over the past few years. Many providers are now getting rich off the Medicaid program. One outrageous example is the CEO of Molina, an insurer with an almost exclusive Medicaid book of business, pulling in nearly $120 million in combined salary and stock options in 2023.

Unfortunately, the extensive amount of money laundering that the federal government permits means that states have very little incentive to ensure that increased spending of taxpayer dollars actually corresponds with improving outcomes for enrollees. So, despite the surge of higher spending, health outcomes for lower-income Americans have stagnated or declined.

Paragon’s research and policy recommendations have taken aim at the two worst features of Medicaid policy—the permission of extensive money laundering in the program and a federal payment structure that discriminates against children, pregnant women, people with disabilities, and seniors in favor of able-bodied, working-age adults. To restore fairness in the program and reorient Medicaid to a focus on the most vulnerable, Congress should address this problem and equalize the federal payment rates across all enrollees within states. A Paragon policy paper shows how Congress can do that, in part by transferring some Medicaid enrollees to the ACA exchanges.

As the debate proceeds, here are three additional data points that are crucial for policymakers.

• From 2015 through 2024, there were likely $1.1 trillion of improper payments in Medicaid, as states made money from incorrectly enrolling applicants into the ACA Medicaid expansion.
• The federal share of Medicaid spending has soared from 60 percent a few decades ago to nearly 75 percent in 2023.
• The newest money laundering scheme—taxes on insurers—results in states receiving billions of dollars in federal Medicaid funds with no real state contributions. In California, state policymakers took this windfall and dramatically expanded Medicaid to illegal immigrants and lifted the asset cap for Medicaid benefits, allowing the wealthy to receive taxpayer-funded long term care.

HHS’s New Rule Tackles ACA Exchange Fraud and Lowers Premiums

Chris Medrano and I are out with a new policy brief examining HHS’s “Affordable Care Act Program Integrity and Affordability Rule.”

Here are some key takeaways:

• The proposal is projected to lower ACA premiums by up to 5.5 percent, reduce improper enrollment by a million or more people, and reduce deficits by $150 billion over a decade, making it one of the most fiscally responsible regulatory actions in American history.
• This proposed rule reverses Biden administration policies that led to massive levels of fraudulent enrollment and improper spending in the ACA exchanges, including accepting self-attested information and establishing an easily gameable special enrollment period. Paragon estimates that fraudulent exchange enrollment cost hard working Americans $15 to $26 billion in 2024 alone.
• The proposed provisions largely mirror the regulatory landscape that the Obama administration had either implemented or scheduled to implement, including the income verification requirements and the six-week open enrollment period.
• The proposed rule continues the harmful practice of automatic re-enrollment, which wastes billions of dollars annually and harms both the quality and price of insurance by allowing insurers to collect taxpayer dollars through enrollees’ passivity and not by justifying the value of their services.

Read the full policy brief here and Chris’s Prognosis here.

Kev Coleman Testifying to Congress Today

This morning, Paragon’s research fellow Kev Coleman submitted testimony on Association Health Plans (AHPs) and the need for more affordable coverage options for small employers. Today, small employers are 36 percent less likely to offer health coverage to their employees than they were two decades ago. And enrollment in the small employer health insurance market is 30 percent lower than in 2014, the first year of small group coverage under the ACA.

As he did in a 2023 Paragon policy brief, Kev explains how AHPs offer smaller businesses the opportunity to join together to obtain more affordable, high-quality health benefits. Large group health plans have regulatory advantages over smaller groups and benefit from economies of scale. Congress should consider expanded AHPs a commonsense policy reform that helps level the playing field between small employers and large ones.

Ending Biden’s Unauthorized FDA Laboratory-Developed Test Policy

A federal judge has struck down the FDA’s self-asserted regulation of laboratory-developed tests (LDTs), siding with Paragon’s long-standing position against the agency’s regulatory overreach. The ruling confirms what Paragon’s research, Unwise and Unauthorized: FDA Regulation of Laboratory Developed Tests, made clear: the FDA lacks statutory authority to regulate LDTs, which are medical services—not commercially distributed “devices” under the Federal Food and Drug Cosmetics Act.

Lacking clear congressional authorization or agency precedent, the FDA effectively tried to dictate its own authority, which risked stifling innovation, delaying life-saving diagnostics, and undermining specialized labs’ ability to rapidly respond to emerging health threats. The ruling is a step in the right direction. Now, Congress must craft targeted, effective oversight for LDTs promoting the regulatory predictability necessary for advancing cutting-edge diagnostics—without recycling outdated frameworks designed for medical devices.

Welcome Niklas Kleinworth and Mark Howell

This week Paragon welcomes two new team members: Policy Analyst Niklas Kleinworth, and Research Assistant Mark Howell.

Niklas Kleinworth joins Paragon from the Idaho Freedom Foundation, where he served as Policy Director. While there, he covered an eclectic collection of free-market policy issues, writing extensively on healthcare, state budgeting, monetary policy, and public education. He is credited with advancing reforms on issues including Medicaid, medical education, and deregulation. Niklas has been working part-time for Paragon for two years and was my coauthor on our recent paper addressing Medicaid money laundering.

A recent graduate of the University of Mary Hardin-Baylor, Mark Howell comes to Paragon after fellowships at public policy institutions including the Mercatus Center and the John Jay Institute. Originally from Texas, Mark now lives in Virginia with his wife. In his free time, he enjoys studying economics (because who doesn’t enjoy that in their free time?) and playing jazz on the saxophone and piano.

All the best,

Brian Blase
President
Paragon Health Institute