Over-Medicaid-ed: How Medicaid Distorts and Dilutes America’s Safety Net

The American social safety net’s overwhelming emphasis on health care is the unintentional result of skewed incentives, leading to an ineffective antipoverty strategy poorly aligned with the needs and preferences of low-income Americans. Reforms that allow states to reroute substantial sums from Medicaid to other programs would better meet the needs of the poor at no additional cost to taxpayers, marking the first step toward a more flexible and effective safety net.

Health care dominates America’s safety-net spending: during 1975–2015, government social spending per person in poverty more than doubled, from $11,600 to $23,400; rising health care expenditures accounted for more than 90 percent of that increase.

This allocation is an ineffective poverty-fighting strategy: while the majority of government social spending goes to health care, low-income households not enrolled in Medicaid allocate less than 10 percent of their spending to health care, compared with 40 percent for housing, 22 percent for food, and 12 percent for transportation.

Over-allocation to Medicaid may exceed $100 billion annually: if states with above-median Medicaid enrollment rates or spending per enrollee in each recipient category (adult, child, disabled, etc.) returned to median levels, more than $100 billion could become available for other antipoverty programs.

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